I have been working with John Armour on a multi-year project on Financing Innovation and the special challenges that are raised in the relationship between financiers and entrepreneurs when projects involve untested products that have the potential of disrupting existing markets (think of driverless cars) or creating entirely new ones (such as virtual reality devices).
So far, the research output includes three papers. Two of them focus on crowdfunding, one of which is under review at a journal, while the other will appear in a book, coedited by Douglas Cumming and Lars Hornuf: The Economics of Crowdfunding: Startups, Portals and Investor Behavior (Palgrave MacMillan, forthcoming).
These works provide an assessment of crowdfunding as a tool to finance innovative projects, with specific regard to so-called ‘reward’ crowdfunding (where the funders receive a unit of product in exchange for the funds they pledge to a project) and ‘crowdinvesting’ or ‘equity’ crowdfunding (where funders receive shares or other equity-like instruments). Also in light of successful crowdfunding portals’ current practices and the burgeoning empirical literature on these phenomena, these works reflect upon the different regulatory approaches displayed by US and UK (and EU) policymakers.
The third paper, an early version of which is available here, reflects more broadly on some of the main financing tools to which high-growth, disruptively innovative firms can resort—some old and some new—namely, venture capital, crowdfunding, public equity markets, and dual-class share structures combined with the use of restricted stock as compensation for R&D employees. The paper aims to show how these tools can be seen as an imperfect response to three problems which may distort asset allocation on the part of highly innovative firms: information asymmetry, uncertainty, and knowledge heterogeneity. The analysis of the special role of dual-class share structures in the context of technology firms helps shed light, for example, on the current IPO filing by Snap Inc, the parent of Snapchat, in which only non-voting shares will be issued to ensure the founders’ continued control.
Other contemporaneous work by me and John Armour has benefited from the research conducted for the Financing Innovation project, including their books Principles of Financial Regulation (Oxford University Press, 2016), The Anatomy of Corporate Law (3rd ed., Oxford University Press, 2017) and a talk I gave at the Second Italy Annual Corporate Governance Conference (published in the Oxford Business Law Blog and available here).
The project benefited from early-stage presentations at the Auckland Law Faculty, Oxford’s Business Law Workshop and the Universidad Carlos III de Madrid Department of Business. The works on crowdfunding have so far been presented at ETH Zurich, the Center for Advanced Studies of the Ludwig-Maximilian Universität München, the National University of Singapore, Bucerius Law School, the Brevan Howard Centre for Financial Analysis at Imperial College Business School, the University of Hong Kong, the Catolica Global Law School (Lisbon), and the European Commission (DG-FSMA).
The working paper on financing disruption has been presented at the Center for Advanced Studies of the Ludwig-Maximilian Universität München, the first Global Corporate Goverance Conference (held at Stanford Law School), the Chinese University of Hong Kong, the Institute of Advanced Studies at Toulouse, SOAS London, and the House of Finance of Goethe University (Frankfurt).