Regulating Unicorns: Disclosure and the New Private Economy

Abstract

“Unicorns” are private companies with valuations of a billion dollars or more. As their name indicates, unicorns were originally so rare as to be almost mythical. But Uber and other technology companies have ushered in a new era: We now have a blessing of unicorns, each one of which has the potential to transform financial and cultural norms. Yet from a legal perspective, these behemoths are regulated just like their much smaller, non-mythical counterparts. Unicorns’ dizzying valuations have not been matched with any expansion or recalibration of regulation. As a result, vital information about these companies remains secret, perhaps for years, until an IPO moves a unicorn into the public realm. This Article argues that this one-size-fits-all regulatory framework is insufficient. Though nominally private, the size and influence of unicorns renders their effect in the marketplace much more like that of a publicly-held corporation. The fate of a unicorn affects stockholders, employees, and regional or even national economies. Regulation of unicorns should recognize that outsized power. As a result, this Article proposes rethinking the current regulatory regime in the context of unicorns.

This Article is the first to critique the unicorn phenomenon within the securities regulation framework. It argues for enhanced disclosure requirements that will alleviate the risks of unicorns without restraining their innovation. It concludes by suggesting what types of disclosures are necessary, how such information should be disclosed, and when it should be disclosed.

Keywords: unicorns, finance, venture capital, private companies, Regulation D, securities regulation, stock purchase agreement, investing, Airbnb, Dropbox, Pinterest, Snapchat, Uber, private IPOs, valuation, certificate of incorporation, investor