New faculty Brian Broughman: Studying the legal dynamics of startups

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By Grace Renshaw

As a law student at the University of Michigan, Brian Broughman aimed to become a corporate attorney working on mergers and acquisitions. He joined a Chicago law firm as a corporate associate after graduation but quickly found that practicing law was limiting in ways he had not anticipated.

“I enjoyed my time in practice, 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,” says Broughman, a new professor of law at Vanderbilt. “I wanted to keep exploring new topics.”

Broughman decided to study the legal and financial dynamics of startup firms as a Ph.D. student at the University of California, Berkeley. There he became intrigued with the nimble and innovative ways that Silicon Valley lawyers were adapting financing contracts—customarily used to support the formation of large corporations—to meet the needs of small, entrepreneurial startups 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 says. “This allows more flexibility to changing circumstances.”

Studying startups from their inception through their acquisition or initial public offering, he says, provided “a wonderful window to see what sort of contracts they used to bring money in, and how decision-making control was allocated between the firms’ founders and investors.”

Broughman was particularly interested in how various financing arrangements affected the balance of power between founders seeking to translate their creative vision into viable, profitable companies and the various parties funding the new enterprises. “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 says. “I wanted to study how parties with different interests could align around a startup 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 startup firms and whether venture capital investors used inside rounds of financing to dilute the founders’ control of the firms. His research has been published in the Harvard Business Law Review, Journal of Financial Economics, Journal of Law and Economics, Journal of Legal Studies and Journal of Corporate Finance.

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