When Philosophy and Business Professors Talk: Assessment of Ethical Reasoning in a Cross Disciplinary Business Ethics Course

Can instructors with apparently divergent approaches to the goals and methods of teaching business ethics agree upon a core set of course objectives? Can they agree upon a common method of assessment for measuring student performance against shared standards? This paper reports the results of a project intended to address these questions. The goals of the project were threefold: (1) to identify a shared set of core competencies for all students in business ethics; (2) to adopt a common assessment of ethical reasoning (neutral to disciplinary bias) for measuring student performance in core competencies; (3) to determine whether students show improvement in core competencies over the course of a semester. Our findings suggest that it is possible to find common ground in measurable objectives and to expect instructors to interpret, apply, and teach to these objectives effectively without infringing upon their disciplinary differences.     

The Growing Blessing of Unicorns: The Changing Nature of the Market for Privately Funded Companies

The past 15 years have seen the emergence of large infusions of private capital at levels previously accessible only in public markets. One direct effect of these non‐public fundraisings is the spawning of private entities with market valuations reaching $1 billion, thereby achieving the status of unicorns. As the authors reported in an earlier study, by the end of 2015, there were 142 unicorns with an aggregate value exceeding $500 billion. The conviction of many investors and managers at that time was that these companies could best create value by staying private, often by adopting governance structures focused on creating superior operating performance. It was also widely believed that unicorns would remain outside the public markets longer and succeed in attracting even more private capital, thereby enabling their investors to capture a greater share of the increase in company value. In this study, the authors examine how the characteristics and dynamics of “the blessing” have changed in the past five years. Despite the widespread view that the valuations and private financing trend fueling this market were not sustainable, the authors report that by March 2020, the “net” number of unicorns had grown from 142 to 464, a number that doesn't reflect the transformation of over half of the 2015 sample through acquisition or public offering and their replacement by new unicorns. Further, the cumulative market valuation of unicorns more than doubled from $500 billion to $1.37 trillion, representing growth far greater than that in the public equity markets (some 26% per annum, as compared to 9% for the S&P 500) over the same period—and the blessing has become more diversified, both in terms of industry and geographical location. The authors also consider what happens when unicorns “graduate” to a different organizational form by means of an IPO, private buyout, or business failure. Analyzing the 107 firms that departed the sample between 2015 and 2020, the authors report that the average lifespan of a unicorn from its founding date to its exit date has been 9.5 years, indicating that such firms indeed remain privately owned for a longer time than in the past. Additionally, the study finds that the founders and initial investors in unicorns have fared quite well, cashing out their initial investment at almost six times invested capital, on average. These private investment performance metrics have been significantly higher than the returns to public shareholders in the same firms during the post‐IPO period, signifying that unicorn investors have captured much more of the value created in the company's growth phase than public stockholders.     

Opaque Financial Contracting and Toxic Term Sheets in Venture Capital

In a recent article in this journal, the authors documented the growing tendency of emerging growth companies to raise substantial equity while remaining privately held through private IPOs, or PIPOs. PIPO financing has created scores of “unicorn” firms—private enterprises with imputed market values of $1.0 billion or more—while allowing them to avoid the challenges of being publicly traded. But as has also been noted, the PIPO process, with its multiple financing rounds and increasingly complex terms, has almost certainly result in some inflated market valuations. Along with inflated values, the contracting process and many of the provisions that result from it often have economic consequences that are poorly understood by at least some of the participants, including the potential for significant wealth transfer between stakeholders as well as overall destruction of enterprise value. And the term sheets containing such provisions appear to become even more “opaque” and more “toxic” with each round of financing. More specifically, the liquidation preferences and ratchets often provided new investors in the later rounds of PIPOs can greatly affect the allocation of the risks and the ownership shares and, in so doing, transfer significant wealth from the entrepreneurs and other older owners. Using a numerical analysis of a representative term sheet, the authors discuss the process of financial contracting for early‐stage companies, providing examples of how negotiations can go wrong and showing exactly when and where the agreed‐upon conditions start to turn toxic for some of the stakeholders. The article closes with the authors’ assessment of the disincentives for entrepreneurs and early‐stage investors created by this often confusing and dilutive venture capital contracting and funding process.     

The Time-Series Behavior of IPO Betas

We examine individual IPO betas and provide further evidence that the documented decline in IPO betas results primarily from a seasoning or information effect and not from the delisting of high beta securities. We employ stochastic coefficient regression analysis which permits the estimation of individual IPO betas at all points in time, and therefore avoids disadvantages associated with grouped cross-sectional beta estimates and average individual time-series beta estimates. We find that IPO firms with the lowest betas are more likely to delist, and that individual IPO betas, on average, decline over time which provides support for the information hypothesis.     

University of Texas Roundtable on Recent Trends in U.S. Venture Capital

At a recent private equity conference hosted by the McCombs School of Business at the University of Texas in Austin, four venture capitalists representing the East and West Coasts provided testimony to the spread of the VC industry far beyond Silicon Valley to places like New York, London, and Berlin—as well as Austin itself. The result, in the words of one panelist, has been “a shift from Silicon Valley as the epicenter of so much innovation and growth to something more like a globally distributed network of capital, talent, and opportunity.” Along with this geographic expansion of the industry, perhaps the most notable change is the tendency of today's VCs to delay the IPOs of their portfolio companies and, by keeping them private longer, capture more of their growth in value. Whereas 20 years ago 90% or more of the value appreciation came after the IPO of a highly successful company (think about Micro‐Soft or Amazon.com ), a much larger share of the overall value creation now appears to be taking place before the IPO, thanks to the growing use of a funding vehicle known as private initial public offerings, or PIPOs. The use of PIPOs has enabled VC‐backed companies to attract large amounts of capital from large institutional investors like Fidelity—which in the past would not have invested in the company until the IPO—while retaining what the panelists view as significant advantages of private ownership and governance.     

Challenges to teaching evolution: What's a head?

This article draws upon the history of challenges to the teaching of evolutionary science in the United States to determine what the future may hold for American evolution education. Scenarios considered include: anti-evolution activists will continue to attempt legal maneuvers to leverage creationism into public science classrooms, creationists will concede to secular instruction in public schools and focus their attentions on informal mis-education, and that the teaching of evolution will improve despite challenges. Also, noting that tactics employed by American creationists are being exported to other countries, international challenges to the teaching of evolution are discussed with special attention paid to potential futures regarding evolutionary science within Islamic cultures.     

University of Texas Roundtable on LP Perspectives on the State of Private Equity

In this wide‐ranging discussion among four limited partner investors in private equity, the LPs commented on the rates of return they expect from PE, the fees they pay their general partners, and the length of their time commitments to PE investments. After noting the enormous growth in the value of assets under private management, and the reduction in public equity investment by many large institutional investors, each of the four LPs said that their institutions expected to maintain or continue to increase their proportion of portfolio investment in PE. The LP panelists were virtually unanimous in expecting PE rates of return in the 9%‐11% range, as compared to 7%‐8% for public equities. The panelists also seemed to agree that although committing to PE investments for terms longer than the traditional seven to ten years could result in higher returns and lower costs, they were reluctant to make such commitments because they valued the financial flexibility afforded by shorter holding periods. Several LPs claimed that their institutions were scrutinizing the explicit and implicit fees charged by the GPs, and the level of fees was encouraging LPs to co‐invest in deals alongside the GPs. And in response to a closing suggestion that the recent flurry of IPOs could signify the beginning of a major reversal away from private capital, another LP expressed strong doubt, noting that “the private ownership model has clearly shown superior governance, and greater ability to manage leveraged capital structures and create value than public companies over the long term.”