Securities Issuance Business Resource Materials

Entrepreneurship Law Editorial Team



Nicola Gennaioli, Andrei Shleifer & Robert Ward Vishny, Financial Innovation and Financial Fragility (2010). 

Abstract (from National Bureau of Economic Research website): This text presents a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize these risks, they fly back to safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive.

Dan Steiner, Kickstarter Handbook: Real- Life Success Stores of Artists, Inventors, and Entrepreneurs (2012).

Abstract (adapted from publisher): So you want to produce a short film. Or design a new line of jewelry. Or manufacture a revolutionary solar-powered garden sprinkler. There’s just one catch: You need $100,000 to bankroll your dream, and your checking account has barely enough to cover the rent. Enter—the phenomenal “crowdfunding” website launched in 2009 that brings venture capital to the masses. At Kickstarter, it’s not uncommon for entrepreneurs to raise $50,000, $100,000, $250,000, or more. All you need is a great idea—and The Kickstarter Handbook. Business journalist Don Steinberg has interviewed dozens of artists and inventors who launched their passion projects online. Through their voices, you’ll explore all the strategies of a successful Kickstarter campaign. You’ll learn the elements of a compelling Kickstarter video, innovative ways to market your projects, tips for getting donors onboard, and the secrets of irresistible Kickstarter “rewards.” You’ll also discover what to do in a best-case scenario—when your project goes viral and the cash starts flowing in. On Kickstarter, it happens to a few lucky visionaries every week. Here’s how to be one of them.


Tom Alberg et al., 2013 State of Entrepreneurship Address: 'Financing Entrepreneurial Growth,' (Ewing Marion Kauffman Foundation, Research Paper, 2013), available at

Abstract (by authors): Despite recent innovations in entrepreneurial finance, particularly at the early stage of business creation, many new and young companies continue to face hurdles to acquire capital. The Kauffman Foundation addressed current challenges and opportunities in financing entrepreneurial growth, a key driver of job creation and economic expansion, at its fourth annual State of Entrepreneurship Address on February 5, 2013. The event featured remarks from Small Business Administrator Karen Mills, U.S. Senator Jerry Moran and Kauffman President and CEO Tom McDonnell. In his address at the National Press Club in Washington, McDonnell offered policy recommendations to increase financing of entrepreneurial ventures that are featured in a paper on the same topic. Key recommendations include: Crowdfunding: the Securities and Exchange Commission should approve rules under the JOBS Act that encourage experimentation without excessive regulation; IPOs: greater use of auctions, such as the Dutch auction used by Google, rather than the more common practice of setting a specific price for new stock offerings; Bank Debt: introduce more flexibility into the regulatory process – such as providing the Federal Reserve, Comptroller of the Currency and Federal Deposit Insurance Corporation the authority to make judgment calls at the local level; Regulation: allow shareholders of companies the right to vote whether Sarbanes-Oxley accounting rules are necessary; Venture Capital: create longer-term venture funds that include significant "skin-in-the-game" investment from General Partners, so their interests are aligned with Limited Partner investors over a reasonable time horizon. 

Amitrajeet A. Batabyal, Project Financing, Entrepreneurial Activity, and Investment in the Presence of Asymmetric Information (RIT Economics Department, Working Paper No. 11-07, 2011), available at

Abstract (adapted from author): The authors analyze a two-period signaling model in which a representative entrepreneur in a regional economy has a project that generates a random cash flow and that requires investment that the entrepreneur raises from a competitive market. The project’s type is known to the entrepreneur but not to the investors. Further, the entrepreneur is restricted to issuing debt only or equity only. The authors first show that there is no separating perfect Bayesian equilibrium (PBE) contract involving the issuance of equity only, that there exists a pooling PBE contract involving the issuance of equity only, and that a debt contract is preferred to an equity contract by the entrepreneur. Next, they suppose that the entrepreneur incurs a non-pecuniary cost of financial distress F>0 whenever he is unable to make a repayment at time t=1. The authors provide conditions on F under which a pooling PBE contract with debt exists and a separating PBE contract with debt and equity exists. Finally, the authos examine whether a high type entrepreneur will prefer a setting with a cost of financial distress (F>0) or a setting in which there is no such cost (F=0).

William S. Blatt, Minority Discounts, Fair Market Value, and the Culture of Estate Taxation, 52 Tax L. Rev. 225 (1997).

Cécile Carpentier & Jean-Marc Suret, Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis, 30 Int’l Small Bus. J. 41 (2012).

Abstract (adapted from journal): To protect investors, securities regulation generally restrains entrepreneurial ventures from entering the stock market. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the market from failing. However, these constraints can also unduly impede the growth of new ventures. The authors use the Canadian case to examine the effects of the relaxation of the regulatory constraints. Unlike in other countries, firms in Canada can list at a very early stage, without revenues, with a minimal size and even without writing a prospectus using the reverse merger technique. This provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, their post-listing operating performance and strategy, and their fate largely support the opinion that strong listing requirements are essential to prevent the emergence of a lemon market. Investors involved in this market obtain very poor returns. This indicates that they are neither able to set correct prices in this market nor deal with the high level of information asymmetry therein. The reluctance of most regulators to relax the requirements for small business finance can, therefore, be justified.

Giancarlo Giudici et al., Crowdfunding: The New Frontier for Financing Entrepreneurship? (2012), available at

Abstract (adapted from authors):This paper aims to take stock of the extant knowledge on an emerging practice in the entrepreneurial finance landscape: crowdfunding, which seems to play an increasingly important role for the seed financing of entrepreneurial projects. We provide a systematization of what it is known on this theme, which can be useful to scholars, practitioners, and policymakers interested in the phenomenon from different angles. Adopting a phenomenon-based approach, which is deemed to be appropriate when investigating new and rather unexplored phenomena, the authors first review the emergent literature on the theme to single out the aspects that so far have attracted the bulk of scholarly interest. Then, the authors compare the crowdfunding with other forms of entrepreneurial finance. Finally, there is a first survey on Italian crowdfunding platforms.

Jin-Hyuk Kim & Liad Wagman, Early-Stage Financing and Information Gathering: An Analysis of Startup Accelerators (Midwest Finance Association Annual Meeting Paper, 2013), available at

Abstract (adapted from authors): This paper studies some of the dynamics that are introduced by a startup accelerator program in a competitive market for venture financing. This includes inefficiencies that may arise when the accelerator sets an equity fee, chooses a class size, and shares information with investors, as well as efficiencies in terms of granting entrepreneurs better access to investors. The authors find that the accelerator chooses a class size that is too small relative to the social optimum, but this inefficiency is diminished when the accelerator hires entrepreneurs-in-residence or provides improved access to investors. When the accelerator can strategically decide what type of venture information to release to investors, the study shows that in order to facilitate the financing of additional program participants, it may choose to transmit only positive information. Finally, the authors show that when entrepreneurs perceive obtaining external funding as their main objective, an inefficient accelerator may operate in equilibrium, reducing social welfare.

Ethan R. Mollik, Swept Away by the Crowd? Crowdfunding, Venture Capital, and the Selection of Entrepreneurs (2013), available at

Abstract (by author): Venture Capitalists (VCs) are experts in assessing the quality of entrepreneurial ventures. A long tradition of research has examined the signals of quality that VCs look for in new ventures, and the biases that result from the VC selection process. Recently, an alternative form of new venture funding has arisen in the form of crowdfunding, which relies on the judgment of millions of amateurs about which entrepreneurial projects are worth funding.  Little is known about the degree to which amateurs respond to the same signals of quality as VCs, and whether they are subject to the same biases. To address this gap, the author examined 2,101 crowdfunded projects that match characteristics of more traditional VC-backed seed ventures. Despite the radical differences in selection environments, the author found that entrepreneurial quality is assessed in similar ways by both VCs and crowdfunders, but that crowdfunding alleviates some of geographic and gender biases associated with the way that VCs look for signals of quality. 

K. Thomas Chandy & Nagaraj Sivasubramaniam, Post-IPO Actions and Firm Survival: More than Signaling? (Santa Clara University Leavey Sch. Of Bus. Research Paper No. 11-01, 2011), available at

Abstract (adapted from author): Entrepreneurial firms, at their birth, have a high probability of failure due to the “liability of newness.” Even firms that surmount the initial challenges and get to the stage of issuing an initial public offering (IPO) still face a significant hazard rate. This paper examines whether, in the post-IPO stage, strategic choice matters. It also examines whether management actions following an IPO enhance the firm’s survival and, second, if they do, which actions really make a difference. The authors analyzed a sample of 104 internet-related firms that issued IPOs between 1995 and 1999, and find that management action in three areas — market expansion, entry into alliances, and expansion or reconfiguration of the top management team and/or board of directors — significantly enhance firm survival.

James C. Spindler, IPO Liability and Entrepreneurial Response, 155 U. Pa. L. Rev. 1187 (2006).

Abstract (from author): This Article explores how legal liability in the IPO context can affect an entrepreneur's decision of whether and how to take a firm public. Liability under the Securities Act of 1933 effectively embeds a put option in an IPO security, forcing the entrepreneur to insure shareholders against poor firm performance, inflating the price of the security, and exposing the entrepreneur to risk. This may cause IPO firms to appear to underperform relative to non-IPO firms as the option value decays, and may lead the entrepreneur to undertake strategic (but destructive) responses to minimize the put value and his exposure to risk. Because of the value-destroying characteristics of these responses - which include initial underpricing, entrenchment, lower net present value projects, asset partitioning, and reduced disclosure - the present state of affairs is inefficient compared to a system where the entrepreneur can simply allocate the risk to shareholders.

Qin Yang et al., An Empirical Study of the Impact of CEO Characteristics on New Firms' Time to IPO, 49 J. Small Bus. Mgmt. 163 (2011).

Abstract (from author): An initial public offering (IPO) is one of the most critical events in the life of a firm. As the IPO market continues to attract attention from both entrepreneurs and investors, research examining the relationship between the firm's characteristics and its IPO performance is growing. In this paper, we use the upper echelon perspective to empirically examine the relationship between the firm's chief executive officer (CEO) and the firm's time to IPO, a relationship that has so far received little attention. Using data obtained from 237 IPOs in the U.S. software industry, we found that the CEO's prior executive experience, network, and age are significantly related to the new firms time to IPO. This study extends the understanding of the important role of the CEO in the IPO and provides investors greater insight into those variables that influence the speed with which firms go public.

Online Resources

Securities and Exchange Commission, Internet Fraud: How to Avoid Internet Investment Scams

Other Resources

Telis Demos & Douglas MacMillan, Startups Boosting the Risk, Wall St. J., Dec. 26, 2013, at C1.

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