Brian Broughman: Law & Business

Brian Broughman, Professor of Law

Broughman studies the impact of financing arrangements on startups.

SUBMITTED Newly appointed Professor Brian Broughman’s work at the intersection of law and economics explores how lawyers adapt traditional financing contracts to meet the needs of high-growth startup companies. Broughman is affiliated with the Law and Business Program.

It was fascinating to see how so many different parties, all with different and sometimes competing interests, could come together to cooperate on a single joint venture.

Brian J. Broughman became interested in the intersection of law and economics as a 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 after graduation. But he soon realized his real interest lay in academia and left practice to earn a Ph.D. 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.”

At Berkeley, Broughman found himself intrigued by the nimble and innovative ways Silicon Valley lawyers adapted financing arrangements typically used to support the formation of large corporations to instead meet the needs of small, entrepreneurial startups funded by private investors and venture capital firms. “Rather than relying on formal financing contracts and carefully worded debt covenants, venture capital investors take an active role in ongoing governance,” he said. “That allows more flexibility to adapt to changing circumstances.”

Studying startups 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 these firms used to bring money in and how decision-making control was allocated between founders and investors.”

Broughman wanted to explore how different financing arrangements affected the balance of power among entrepreneurial founders seeking to translate their creative vision into a viable, profitable company and the investors and groups funding the new enterprise. “It was fascinating to see how so many different parties, all with different and sometimes competing interests, could come together to cooperate on a single joint venture,” he said.

While researching his dissertation, "Opportunistic Conduct and Governance Structure in Startup Firms", Broughman interviewed more than 60 entrepreneurs as their firms evolved through successive rounds of investor financing and observed how various financing arrangements influenced 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 taught courses on corporations and on mergers and acquisitions and 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 firm. A recent article, “Do Founders Control Start-up Firms that Go Public,” was published in the Harvard Business Law Review in 2020.

Other research, including empirical studies related to mergers and acquisitions, shareholder voting, founder control rights, and the dominance of Delaware corporate law nationwide, has been published in the Journal of Financial Economics, the Journal of Law and Economics, the Journal of Legal Studies and the Journal of Corporate Finance. He currently is exploring why redundant layers of corporate governance protections may be socially desirable.

At Vanderbilt, Broughman is affiliated with the Program in Law and Business and teaches Mergers and Acquisitions and Corporate Finance.