Untamed Unicorns assesses the causes and consequences of a recent phenomenon in the U.S. securities markets: public markets are shrinking while the private markets are expanding. In public markets, stocks trade on exchanges like the New York Stock Exchange, and companies make regular filings with the Securities and Exchange Commission. In private markets, companies issue securities without registering with the SEC.

The number of public companies has dropped from about 8,000 in 1996 to roughly 4,000 today. And every year, three times more money is raised in private offerings than in SEC-registered transactions. Meanwhile, the number of billion-dollar startups — known as unicorns — has grown from just 40 in 2013 to more than 1,500 today. There are also about 75 decacorns, valued at $10 billion or more, and five centicorns, valued at $100 billion or more. One of them is Elon Musk's SpaceX, which is expected to go public in June at a valuation as high as $2 trillion.

As the number of unicorns has grown, we've seen troubling misconduct and fraud at high-profile startups, including the crypto trading platform FTX; the office-sharing company WeWork; the blood-testing startup Theranos’ and the ride-hailing company Uber. Untamed Unicorns analyzes these and other scandals, and connects them to flaws in the startup financing system that have emerged in recent decades. It shows how changes in the law have transformed the way startups are financed, and how they are managed, and this has created new risks for investors and the public.

One of the book's central arguments challenges a claim that many policymakers make today: that the shrinking of public markets, the expansion private markets, and the trend of so many startups delaying their initial public offerings (IPOs) are all the result of too much regulation. I argue instead that the better explanation is a cascade of deregulatory reforms, enacted by Congress and the SEC over the past 40 years. The book traces how exemptions from the securities laws' disclosure requirements have expanded, bit by bit, over time, and it questions the rationales used to justify these expansive exemptions. It also shows that these deregulatory policies have failed to achieve their stated goals, and that the harms they've caused are far graver than predicted.

My book focuses on one sector of the private markets: venture capital (VC) financing, which accounts for about $1 trillion in capital. But the analysis applies to other sectors too, including private equity and private credit, both of which are now seeking access to our 401(k) retirement funds.

I concentrate on the largest startups: the unicorns, valued at a billion dollars or more, along with the decacorns and centicorns. These are the companies that have become household names. They employ thousands of people and have a significant impact on the economy.

The VC sector includes everything from the smallest startups in their earliest seed rounds to the largest unicorns. The system works well for entrepreneurs who are able connect with VC's and raise the money they need to put their business ideas into practice. But for an average person, someone without a network, the system does not work as well. For a regular person with a new idea, raising money is hard. Venture capital is a narrow, network-based system, and if you're not already in the network, it's difficult to break in. That network is dominated by men, mostly white men, mostly graduates from the top business and engineering schools. These VCs funnel most of the funds they manage to startups run by white, male founders who hail from the same elite schools.

Traditionally, a company would be founded, build a product, raise money from venture capitalists, and go public within five to seven years. Investors, founders, and employees all wanted to reach a public offering as soon as possible. That was when they could finally reap the fruits of their labor, turning their shares into cash.

Now companies are staying private much longer. SpaceX, for example, has been private for more than 20 years. So all of that capital is locked up within the firm. Employees, founders, and early investors are selling their shares in private transactions, again without providing disclosure. That kind of liquidity, that access to cash, used to be available only in the public market. So there's been a shift. Companies once operated under tight investor oversight. Now, largely because of changes in the law, they can delay their IPOs as long as they want. VC investors have less power and less control, and far less ability to discipline or dismiss misbehaving founders.

Power and control over startups used to sit with their investors. The venture capitalists who provided funding had veto power over significant decisions, and the ability to force a startup to pursue a public offering. Now, in many cases, control sits with a startup's founders, who can rebuff attempts by investors to discipline them. There's less public scrutiny than there is for public companies, and less the oversight than venture capitalists used to provide in the past. So when there's misconduct, bad decisions, poor management, or wasteful spending, even the investors who object to a founder's actions often find themselves poorly positioned to do anything about it. If a founder becomes annoyed or irritated with his investors, he can simply move on to other investors who are eager to back the firm.

Ongoing thread. More from Renée M. Jones to follow.