Brian Broughman studies impact of financing arrangements on startups

Oct 15, 2020

Brian J. Broughman became intrigued with the intersection of law and economics as a third-year law student at the University of Michigan, aiming for a career as a corporate attorney focusing on mergers and acquisitions. Broughman joined a Chicago law firm as a corporate associate immediately after law school but left practice two years later to study the legal and financial dynamics of start-up firms as a Ph.D. student at the University of California, Berkeley.

“I enjoyed my time in practice,” he said. “But at large law firms you soon end up specializing—you become the associate who focuses on a certain type of deal because you can do it fast and well. I wanted to keep exploring new topics.”

Broughman was intrigued by the nimble and innovative ways Silicon Valley lawyers adapted financing contracts customarily used to support the formation of large corporations to meet the needs of small, entrepreneurial start-ups funded by private investors and venture capital firms. “Rather than relying on formal contracts and carefully worded debt covenants, venture capital investors take an active role in ongoing governance,” he said.  “This allows more flexibility to changing circumstances.”

Studying start-ups from their inception through the point where they were acquired by a larger company or made an initial public offering, he discovered, offered “a wonderful window to see what sort of contracts they used to bring money in, and how decision-making control was allocated between the firm’s founders and investors.”

Broughman was particularly interested in how various financing arrangements affected the balance of power among the founders seeking to translate their creative vision into a viable, profitable company, and the various parties funding the new enterprise. “I found it fascinating to see how you could get a large number of different parties, all with different interests, to come together and cooperate on a single joint venture,” he said. “I wanted to study how parties with different interests could align around a start-up firm.”

While researching his dissertation, Opportunistic Conduct and Governance Structure  in Start-up Firms, Broughman interviewed more than 60 entrepreneurs as their firms evolved through successive rounds of financing and observed how various financing arrangement affected control of the firm and decisions about whether the firm would remain private, make an initial public offering or accept an acquisition offer from a larger firm.

After earning his doctorate, Broughman joined the faculty of Indiana University Maurer School of Law in Bloomington, where he explored such topics as the role of independent directors in start-up firms and whether venture capital investors used inside rounds of financing to dilute the founders’ control of the firm. His most recent article, co-authored with Jesse Fried, a corporate law scholar who sat on his dissertation committee at UC, Berkeley, “Do Founders Control Start-up Firms that Go Public,” was published this year in the Harvard Business Law Review.

Other research, which includes empirical studies related to mergers and acquisitions, shareholder voting, founder control rights, and the dominance of Delaware corporate law nationwide, has been published the Journal of Financial EconomicsJournal of Law and EconomicsJournal of Legal Studies and Journal of Corporate Finance.

During his 11 years at Indiana, he also served for two years as associate dean for research.

At Vanderbilt, Broughman is affiliated with the law school’s Law and Business Program, where he teaches Mergers and Acquisitions, Corporations and Business Entities and a class introducing law students to fundamentals of corporate finance


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