This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: The European Parliament and the Council of the European Union are currently debating EU Inc., draft legislation seeking to establish a single set of rules for starting, operating and growing a business across EU member states. The proposed framework is designed to make business registration and operation within the EU faster, easier and more harmonized.
The proposed "28th regime" promises company registration within 48 hours for under €100 through fully digitized procedures. It also provides for fully digitized procedures for raising capital and accessing the stock market, and simplified liquidation proceedings to make dissolving and relaunching a business more seamless. The proposal is part of the broader EU Startup and Scaleup Strategy, whose ambition is to narrow the innovation gap between the EU and its global competitors, notably the United States.
The European Union arguably has a significantly smaller venture capital market, fewer unicorns and lower valuations for comparable companies relative to the U.S. Yet in its desire to catch up with its North American partner, we suggest the EU tread carefully to avoid reproducing some of the very features that have made the Silicon Valley startup model vulnerable to fraud. At this moment, the Silicon Valley star-turned-villain Elizabeth Holmes is the protagonist of a new documentary, "You Can See Everything." The documentary chronicles the 34 days in 2023 before the founder of the former biotech startup Theranos entered federal prison to serve a 135-month sentence for defrauding investors.
As scholars who have studied criminal deception and investor fraud in Silicon Valley, we see clearly that Holmes and Theranos represent just one of many startup fraud cases. The problem is deeper than we usually acknowledge. Startups are important drivers of technological innovation, progress and hope for the future.
But systemic features of the startup ecosystem also make them particularly vulnerable to misconduct and fraud. Together, a culture of "creative destruction," highly liquid private capital markets, little formal oversight and technological hype cycles create conditions for fraud to prosper. These features are on display in high-growth startup contexts like Silicon Valley, where the immense pressure to churn out unicorns (i.e., achieve $1 billion in valuation in less than seven years) can push founders to blur the line between reality and fiction.
In our recent study of startup fraud in Silicon Valley, we argue that investor pressure to demonstrate product-market fit, technological readiness and an exponential growth trajectory can incentivize entrepreneurs to engage in fraud, especially when a gap between investors' expectations and startup reality forms and widens. What we're seeing is not the typical Ponzi scheme or a shell company. For the most part, the entrepreneurs we studied started real businesses with genuine ambitions.
Extract — continue reading at the source.
