Key Takeaways

• Iran: maximum pressure, operationalized. The Office of Foreign Assets Control (OFAC) designated dozens of Iranian airlines, suspended long-standing aviation and humanitarian-adjacent general licenses, sanctioned Russia’s VTB Bank, and adopted a presumption of denial for Iran-related specific license applications.
• Cuba: a new regulatory regime. OFAC published new Cuba sanctions regulations, implementing Executive Order (EO) 14404 and amended the Cuban Assets Control Regulations (CACR) to restrict indirect dealings with Cuba Restricted List entities, eliminate the U-turn authorization, and remove group people-to-people and professional-meeting travel authorizations, all effective September 30, 2026.
• Program wind-downs and delistings. The Ethiopia program ended with the expiration of the EO 14046 emergency; OFAC amended the Terrorism List Governments Sanctions Regulations following the rescission of Syria’s State Sponsor of Terrorism designation; and selective delistings occurred under Belarus, Russia, and Democratic Republic of the Congo (DRC) programs.
• Enforcement architecture. OFAC consolidated its penalty and enforcement-procedure provisions into new Sanctions Penalties Regulations (31 C.F.R. Part 505) and removed more than 100 duplicative subparts across its chapter of the CFR.
• Russia and Venezuela licensing. OFAC continued to calibrate licensing for the Lukoil International GmbH divestiture (GL 131J) and Venezuela (GL 49B and other amended licenses).

At a Glance: Principal September Actions

Date	Program	Action
September 8, 2026	Iran	Mass designation of Iranian airlines and foreign aviation support companies; suspension of Iranian Transactions and Sanctions Regulations (ITSR) aviation-related general licenses; GL DD wind-down (to September 23); CT GL 37
September 10, 2026	Iran/Counter Terrorism	Presumption of denial for Iran-related specific licenses; $1,427,230 settlement with an individual; Kata’ib Hizballah and Hizballah finance designations
September 14, 2026	Iran/Russia	Designation of VTB Bank under EO 13902; amended Venezuela-related general license
September 17, 2026	Iran/Cuba/Belarus	Iranian digital-asset exchange designations; EO 14404 designations targeting Cuba’s nickel sector and military R&D centers; Belarus delistings
September 18, 2026	Ethiopia/Russia	Expiration of EO 14046 emergency and related delistings; Russia GL 131J (Lukoil International GmbH sale)
September 24鈥�25, 2026	Cross-program/Syria	New Sanctions Penalties Regulations (31 C.F.R. Part 505); Terrorism List Governments Sanctions Regulations (TLGSR) amended following rescission of Syria’s State Sponsor of Terrorism (SST) designation
September 28, 2026	Venezuela	GL 49B supersedes GL 49A
September 29鈥�30, 2026	Cuba/ran/Cross-program	Cuba Sanctions Regulations (EO 14404); CACR amendments; ITSR amended to incorporate EO 13902; CFR reorganization; Sinaloa Cartel and Iranian procurement designations

Iran: Operation Economic Outcast Expands Across 麻豆直播

Iran was again the dominant focus of U.S. sanctions activity in September. The Treasury framed its actions under the banner of 鈥淥peration Economic Outcast,鈥� a Treasury-led campaign that the State Department describes as seeking to isolate the Iranian regime completely from the financial lifelines sustaining its conduct. Many designations were made under Executive Order 13902, which targets additional sectors of Iran’s economy, including its financial sector, and carries secondary sanctions exposure for non-U.S. persons.

Aviation sector designations and suspension of general licenses (September 8, 2026)

On September 8, OFAC designated a large slate of Iranian passenger and cargo carriers, including Iran Air Tour, Iran Aseman Airlines, Kish Airlines, Qeshm Air, Zagros Airlines, Taban Airlines, and many newer carriers, together with aviation-support companies in the United Arab Emirates, the United Kingdom, Turkey, Malaysia, and Kazakhstan linked to Mahan Air. Concurrently, OFAC indefinitely suspended the ITSR general licenses at 31 C.F.R. 搂 560.522 (overflight payments), 搂 560.528 (aircraft safety), and 搂 560.529 (bunkering and emergency repairs), as well as Iran General License J-1 (temporary sojourn of civil aircraft). OFAC issued General License DD to authorize wind-down of transactions previously authorized under 搂搂 560.522 and 560.529 and GL J-1 through September 23, 2026, and Counter Terrorism General License 37 to authorize wind-down of transactions involving certain persons blocked that day.

These measures build on OFAC’s August 24 suspension of the ITSR authorizations for certain educational activities, noncommercial personal remittances, conference-related services, and General Licenses F (sports) and G (academic exchanges), whose GL BB wind-down period ended September 8. Companies that relied on these authorizations, including airlines, lessors, MRO providers, ground handlers, universities, and remittance providers, should confirm that all relevant activity has ceased.

Presumption of denial for Iran-related specific licenses (September 10, 2026)

OFAC announced that, effective immediately, it will consider Iran-related specific license applications under a presumption of denial, except as required by law or in certain circumstances such as risk to life, limb, or environmental safety. This is a significant departure from prior case-by-case review. Pending applications should be reassessed, and businesses should not assume that a specific license will be available to address legacy exposure. The same day, OFAC designated Iraqi and Lebanese individuals and entities linked to Kata’ib Hizballah and Hizballah’s financial networks, including Lebanese exchange houses and a Dubai-based trading company designated under EO 13902.

Financial sector: VTB Bank and digital assets (September 14 and 17, 2026)

On September 14, the United States sanctioned VTB Bank, one of Russia’s largest financial institutions, under EO 13902. The State Department stated that VTB opened offices in Iran, built banking ties with sanctioned Iranian financial institutions, and worked to move billions of dollars in Iranian assets, and warned that governments and financial institutions considering similar arrangements face exposure to U.S. financial restrictions. On September 17, OFAC designated the Iranian digital-asset platform Bitbank and its operator, Pishtaz Simorgh Electronic Trade Company, as well as associated individuals.

Regulatory codification and continued designations (September 29鈥�30, 2026)

OFAC amended the ITSR to implement certain provisions of EO 13902, revise an existing definition and exemption, and incorporate two exemptions from that order, effective September 30, 2026. On September 29, OFAC also designated Iranian military procurement networks alongside counter-narcotics designations of the Sinaloa Cartel’s Los Mayos faction and associated corruption networks. Separately, the State Department issued a September 22 advisory on luxury goods and wholesale club transaction risks with Iranian officials under the Foreign Missions Act.

Enforcement

On September 10, OFAC announced that an individual agreed to pay $1,427,230 to settle potential civil liability for providing management consulting and advisory services to a leading Iranian software company, receiving Iranian-origin dividends into U.S. bank accounts, and acquiring real property in Iran. OFAC determined that the apparent violations were egregious and not voluntarily self-disclosed and stated that its enforcement campaign against the U.S. and foreign persons who violate Iran sanctions will continue under Operation Economic Outcast. The case is a reminder that individuals, including dual nationals and those with family or investment ties to Iran, are squarely within OFAC’s enforcement focus.

Cuba: New Cuba Sanctions Regulations and CACR Amendments

On September 17, 2026, OFAC designated Cuban state-owned enterprises under EO 14404, including entities in the Moa and Nicaro nickel complex (such as Pinares S.A. and Ceproniquel) and defense research and development centers, along with several individuals. The State Department described the action as targeting Cuba’s mineral wealth and military modernization apparatus.

On September 29, 2026, OFAC announced a broader regulatory package that took effect upon Federal Register publication on September 30, 2026:

• Cuba Sanctions Regulations. New regulations implementing EO 14404 of May 1, 2026, 鈥淚mposing Sanctions on Those Responsible for Repression in Cuba and Threats to the United States National Security and Foreign Policy.鈥�
• CACR amendments. Amendments that, among other things, add a prohibition on indirect financial transactions with entities or subentities on the State Department’s Cuba Restricted List, remove the authorization for 鈥淯-turn鈥� transactions, and remove the authorizations for group people-to-people travel and professional meetings in Cuba.
• Guidance. Five new Cuba-related FAQs (1271鈥�1275), 29 amended FAQs, and an OFAC Alert, 鈥淓xpanded Sanctions Against Cuba,鈥� highlighting increased sanctions risk for Cuba-related transactions.

Banks and payment processors should revisit Cuba-related screening logic, particularly given the extension to indirect transactions with Cuba Restricted List entities and the loss of the U-turn authorization. Travel providers, event organizers, and companies sending personnel to Cuba should reassess reliance on the eliminated travel categories.

Russia and Venezuela: Targeted Licensing Adjustments

On September 18, 2026, OFAC issued Russia-related General License 131J, authorizing certain transactions for the negotiation of and entry into contingent contracts for the sale of Lukoil International GmbH and related maintenance activities, and amended FAQs 1224 and 1225. Parties involved in the Lukoil divestiture process should review the revised terms closely, as each iteration of this license has adjusted scope and conditions. OFAC also removed certain persons from the Specially Designated Nationals (SDN) List under Russia-related authorities on September 16.

For Venezuela, OFAC issued amended general licenses on September 2, 14, and 16, and on September 28 issued General License 49B, which replaced and superseded GL 49A in its entirety effective that date. GL 49B, like its predecessor, excludes transactions involving persons in Russia, Iran, North Korea, Cuba, or China (or entities owned or controlled by or in a joint venture with such persons), the unblocking of property blocked under the Venezuela Sanctions Regulations, and transactions involving blocked vessels. Companies operating under Venezuela authorizations should confirm they are relying on the current version of each license.

Program Terminations, Delistings, and Syria

• Ethiopia. The national emergency declared in EO 14046 (September 17, 2021) expired. OFAC removed persons designated under that order from the SDN List, including the Eritrean Defense Forces, the People’s Front for Democracy and Justice, Red Sea Trading Corporation, and Hidri Trust, and withdrew program FAQs.
• Syria. On September 24, OFAC amended the Terrorism List Governments Sanctions Regulations to implement changes resulting from the rescission of Syria’s designation as a State Sponsor of Terrorism, removing and reserving a Syria-specific general license that is no longer necessary.
• Belarus and DRC. OFAC removed several Belarusian entities, including Lakokraska OAO and the Bellesbumprom timber and pulp-and-paper concern, on September 17, and removed certain DRC-related designations on September 23.

Delistings create commercial opportunity 鈥� but also compliance traps. Companies should confirm that a counterparty is no longer subject to other U.S. measures (such as export controls or other sanctions programs) and to non-U.S. sanctions regimes before resuming business.

Regulatory Overhaul: The New Sanctions Penalties Regulations

On September 24, OFAC announced new Sanctions Penalties Regulations at 31 C.F.R. Part 505 (91 Fed. Reg. 60821), consolidating previously dispersed information on enforcement procedures and penalties, including the rights of U.S. persons under investigation, into a single part. In a companion final rule effective September 30, 2026, OFAC removed duplicative penalty provisions from dozens of program-specific parts, replacing them with cross-references to Part 505, and relocated provisions on delegations of authority, recordkeeping and reporting, and the Paperwork Reduction Act to an expanded initial subpart in each part. OFAC states that these changes eliminate more than 100 subparts.

While largely structural, the reorganization means that compliance manuals, policies, training materials, and contracts that cite specific program-level penalty or reporting provisions may now contain outdated citations and should be updated.

Other Notable Developments

• On September 9, OFAC designated targets under its transnational criminal organizations and counter terrorism authorities and issued new and amended FAQs; the State Department announced actions against the Xinbi Guarantee transnational criminal organization and the terrorist designation of Los Tiguerones.
• On September 16, the State Department announced sanctions on officials of the Palestinian Authority and members of the Palestine Liberation Organization, and on September 21 announced visa restrictions on 32 individuals connected to the Prince Group TCO.
• OFAC reminded holders of blocked property of the obligation to file the 2026 Annual Report of Blocked Property and published its quarterly TSRA licensing report covering April through June 2026.

Practical Recommendations

• Rescreen and reassess Iran exposure. Update screening for the September designations, particularly in aviation, digital assets, and correspondent banking, and evaluate secondary sanctions risk for non-U.S. affiliates dealing with EO 13902 targets such as VTB Bank.
• Inventory reliance on suspended or amended licenses. Identify any activity that relied on suspended ITSR general licenses, the eliminated CACR authorizations, or superseded Russia and Venezuela licenses, and confirm wind-down periods have been observed.
• Plan around a presumption of denial. Do not build business plans that assume Iran-related specific licenses will be granted; consider whether pending applications should be withdrawn, supplemented, or reframed around the stated exceptions.
• Update Cuba controls. Revise payment-screening rules to capture indirect transactions with Cuba Restricted List entities and to remove reliance on U-turn processing.
• Refresh compliance documentation. Update citations to penalty, recordkeeping, and reporting provisions to reflect Part 505 and the September 30 reorganization.
• Validate delistings before re-engaging. Confirm that delisted parties are not subject to other U.S. or non-U.S. restrictions before resuming dealings.

How 麻豆直播 & Lardner LLP Can Help

Our international trade and national security team regularly advises companies, financial institutions, and investors on OFAC compliance, licensing, voluntary self-disclosures, enforcement defense, and sanctions risk in cross-border transactions. Please contact the author or your 麻豆直播 & Lardner LLP relationship partner with any questions about how these developments affect your business.

Jump to: Executive Summary | Why State AG Elections Matter to Business | Strategic Considerations for Companies Heading into the Fall | Policy and Enforcement Trends to Watch | The 2026 Election Landscape | State-by-State Races and Transitions to Watch | Conclusion

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A Special Report on the State Enforcement, Regulatory, and Litigation Landscape

State attorneys general continue to shape the business environment through enforcement actions, multistate investigations, regulatory challenges, and high-profile policy litigation. As the 2026 election cycle unfolds, companies across the health care, manufacturing, technology, energy and infrastructure, financial services, and other sectors should closely monitor attorney general races for early signals about future enforcement priorities and regulatory risk.

This special report examines the 2026 state AG election landscape, highlights state races to watch, explores key enforcement and policy trends, and offers practical considerations for companies preparing for the election season and the transition period that follows.

Subscribe to our mailing list for more state AG election updates.

Key Takeaways:

• Learn why the 2026 state attorney general election cycle matters for businesses facing growing enforcement, regulatory, and litigation risk across multiple states.
• In light of the 33 Attorneys General elections in November 2026 (30 states, D.C., Guam, and the Northern Mariana Islands) there will be, at a minimum, 11 new Attorneys General in January 2027.
• Identify which state AG races to watch and how leadership changes in state AG offices could affect priorities in consumer protection, antitrust, privacy, health care, energy, and ESG.
• Understand the major policy and enforcement trends likely to shape state AG activity, including multistate investigations, AI and data privacy scrutiny, environmental disputes, and federal-state litigation.
• Discover practical steps businesses can take now to assess state-level exposure, strengthen compliance readiness, and prepare for post-election enforcement shifts.
• Gain a business-focused view of how state AG offices may influence the legal and regulatory landscape in 2027 and beyond.

Executive Summary

State attorneys general have become central players in the modern regulatory and enforcement environment. They investigate business practices, bring consumer protection and antitrust actions, review health care transactions, challenge federal rules and statutes, defend state laws, and frequently coordinate with one another through multistate litigation and investigations. In many instances, the practical impact of state AG activity extends far beyond state borders, particularly for companies operating across multiple jurisdictions or in highly regulated sectors.

The 2026 state attorney general election cycle therefore deserves close attention from businesses seeking to anticipate changes in legal risk and enforcement priorities. For companies across a wide range of industries, including health care, manufacturing, technology, energy and infrastructure, financial services, and consumer-facing businesses, state AG races can provide important signals about how states may approach artificial intelligence, privacy and cybersecurity, environmental issues, health care oversight, consumer protection, market competition, infrastructure disputes, and litigation involving the federal government.

This report does not forecast election outcomes. Instead, it offers a business-focused assessment of the states and races that merit monitoring, the policy and enforcement issues likely to shape state AG activity in the months ahead, and the practical steps companies can take now to prepare for the fall and the post-election transition period. For many businesses, a key question will not simply be which candidates prevail, but how the executive leadership in these offices chooses to exercise their enforcement authority in an increasingly active and coordinated state landscape.

Why State AG Elections Matter to Business

In short, any business that interacts with consumers, accepts Medicaid dollars, has facilities, or has significant market share is subject to state AG oversight. State AG elections are no longer niche political contests relevant only to state government watchers. State AGs increasingly come from state and federal legislative backgrounds and thus more often consider issues through a political lens. Therefore, over the past decade, attorneys general have emerged as some of the most visible and influential public legal actors affecting business operations nationwide. They possess broad authority under consumer protection statutes, antitrust laws, and Medicaid fraud enforcement, and are charged with charitable and nonprofit oversight, and enforcement of environmental laws. In some state they have significant criminal authority. State attorneys general are typically charged with defending state agencies and state statutes, and, thus, are frequently on the forefront of high-profile constitutional litigation where those agencies and statutes are challenged. It is important to recognize that not all state AG activity is defensive. On the contrary, attorneys general often seek opportunities to shape business behavior through investigations, negotiated resolutions, and litigation.

For companies, this matters because state AG offices often operate at the intersection of enforcement and policy. A single office may simultaneously investigate a consumer practice, challenge a federal regulatory action, join a multistate privacy settlement, scrutinize a health care transaction, and issue public guidance on emerging issues such as artificial intelligence, data privacy, climate disclosure, or other ESG laws and requirements. The role of attorneys general has become especially significant where states are filling perceived regulatory gaps, responding to federal policy shifts, or seeking to influence national legal debates through coordinated litigation.

Leadership changes can materially affect how these powers are used. Even where an office remains active regardless of party or ideology, a new attorney general may alter the office鈥檚 tone, public positioning, staffing, coalition strategy, and subject-matter priorities. Open-seat races are especially important because they often present the clearest opportunity for changes in enforcement philosophy and institutional direction, driven this cycle by a high volume of long-serving incumbents retiring to run for higher office or reaching term limits. For businesses, monitoring state AG elections is therefore not simply a matter of following politics; it is a means of tracking potential changes in the legal and regulatory environment they confront.

Strategic Considerations for Companies Heading into the Fall

As the election season progresses, companies should take the opportunity to assess their exposure to state AG risk with greater precision. A useful first step is mapping the states that matter most to the business from an enforcement and regulatory standpoint. This includes not only where the company is headquartered or has major operations, but also where it serves customers, holds sensitive data, pursues transactions, maintains physical infrastructure, or faces significant environmental, health care, or consumer-facing obligations.

It is also important to distinguish between race visibility and office significance. Some contests may draw substantial political attention, but the more important question for business is whether the office has a history of impactful enforcement, broad statutory tools, or influence in multistate coalitions and whether the election is likely to alter the equation. Open-seat races and leadership transitions in high-impact offices should generally be treated as especially important from a compliance and government affairs perspective.

Companies should also evaluate whether core compliance functions are calibrated to current state enforcement trends. This includes reviewing consumer-facing practices, privacy and cybersecurity controls, marketing and disclosure language, transaction procedures, environmental representations, ESG policies more broadly, health care-specific requirements, and response protocols for state inquiries. In many industries, state AG scrutiny can arise not only from formal regulatory obligations, but also from public-facing practices that attract consumer or media attention.

Another priority should be preparing for multistate escalation. A civil investigative demand, transaction concern, privacy incident, or consumer complaint in one jurisdiction can rapidly expand if additional state AG offices become involved. Businesses should have a coordinated strategy for preserving documents, managing communications, centralizing legal review, and ensuring consistency across state responses. This is particularly important for companies in sectors that are already frequent subjects of multistate activity, including health care, technology, pharmaceuticals, energy, and consumer products.

Finally, businesses should prepare now for what happens after Election Day. The period between an election and the installation of new leadership often provides early insight into an office鈥檚 future direction. Transition teams, deputy and bureau chief appointments, early speeches, and initial litigation decisions can all signal whether an attorney general intends to continue existing priorities or move in a new direction. Companies that monitor these developments closely will be better positioned to identify enforcement shifts early and adjust their legal and policy strategies accordingly.

Policy and Enforcement Trends to Watch

Although each race has its own local context, several broader trends are likely to remain central to the work of state attorneys general during and after the 2026 election cycle.

One of the most important is the continued strength of multistate coalition activity. Attorneys general increasingly act together to investigate alleged business misconduct, negotiate settlements, challenge federal rules, and defend state policy choices. For companies, coalition activity can quickly transform what begins as a single-state issue into a matter with national scope. This dynamic is particularly significant in areas such as antitrust, privacy and cybersecurity, health care pricing, pharmaceutical practices, Medicaid fraud enforcement, public health matters, environmental enforcement and other ESG-related issues, and administrative law challenges.

Consumer protection remains the bedrock of state AG enforcement. Most attorney general offices have broad authority under state unfair and deceptive acts and practices laws, allowing them to investigate advertising, pricing, billing, subscription models, online conduct, and other consumer-facing practices. Because these UDAP statutes are subjective and thus flexible and adaptable, while at the same time often providing for injunctive relief, damages, and huge civil penalties, they remain a preferred mechanism for state AG offices to protect their citizens regardless of leadership changes or issue-specific priorities. This subjectivity also allows the state AGs to wield these UDAP statutes to drive policy goals.

Privacy, cybersecurity, and digital governance continue to serve as major areas of focus. State attorneys general increasingly scrutinize data breaches, privacy compliance, children鈥檚 data practices, biometric data use, and online design or disclosure issues. As states continue to adopt and implement comprehensive privacy laws and as artificial intelligence becomes deeply integrated into business operations, companies should expect state AG offices to remain aggressive in evaluating how data-driven products and services affect consumers and regulated markets.

Health care oversight is also expected to remain robust. State AG offices continue to play vital roles in provider transactions, nonprofit hospital oversight, pharmacy benefit manager scrutiny, health care pricing issues, Medicaid payments, and broader market competition concerns. These issues remain especially significant in states with established transaction review authority or active health care enforcement divisions. Many State AGs may seek significant injunctive relief, damages, and huge civil penalties.

State AG offices increasingly use their antitrust enforcement powers with injunctive relief, damages, and huge civil penalties to seek changes in corporate behavior; perhaps best recently illustrated by active pro- and anti-ESG & DEI antitrust investigations and litigation.

Environmental and energy issues continue to drive divergence among state AG offices. In some states, attorney general activity emphasizes climate-related enforcement and concerns, or utility and emissions issues. In others, the focus centers on challenging regulatory expansion, defending infrastructure, or opposing state and federal mandates viewed as burdensome to industry. Still, other states scrutinize business use of ESG factors in lending, financing, and hiring. For businesses, especially in the energy and manufacturing sectors, the practical lesson is that state-specific legal positioning remains critical.

Finally, state attorneys generals remain central players in federal-state legal conflicts. Whether challenging federal rules, defending state programs, or shaping constitutional and administrative law debates, state AG offices continue to help define the boundaries of regulation across multiple industries. Changes in office leadership can alter whether a state joins, leads, or declines to participate in these actions, which carries broad downstream effects for national business planning.

The 2026 Election Landscape

The 2026 cycle is expected to feature a number of state attorney general races across the country, including contests involving incumbents and open seats. The significance of these races varies from state to state, but from a business perspective, the most consequential contests involve state AG offices with broad statutory authority, strong investigative capacity, large economies, or a history of leading multistate coalitions.

To support ongoing tracking throughout the cycle, 麻豆直播 has developed an interactive 2026 State AG Election Map that provides a state-by-state view of election timing, incumbency status, and race developments. Readers are encouraged to use the map in conjunction with this report for a current and practical view of the election landscape as campaigns develop and offices signal post-election priorities.

State-by-State Races and Transitions to Watch

Alabama

Alabama features an open-seat attorney general race as incumbent Republican Steve Marshall is term-limited. Following a closely contested GOP primary and a June runoff, chief counsel to the attorney general Katherine Robertson secured the Republican nomination, defeating Jay Mitchell. Robertson advances to face Democratic nominee Jeff McLaughlin in the general election. Businesses should track this office for continuity in its active posture regarding federal-state litigation, energy, and conservative multistate coalition participation.

Alaska

Alaska features an appointed attorney general rather than an elected office, currently held by acting Attorney General Cori Mills via gubernatorial appointment. January 2027 will bring in a new governor. Because selection relies on executive appointment and legislative confirmation rather than public primaries, there are no traditional opposing candidate campaigns. Businesses should track this office for continuity in regulatory enforcement priorities, which closely mirror the governor’s administrative agenda regarding natural resource management and state-federal land use.

Arizona

Arizona features a partisan election where Democratic incumbent Kris Mayes is running for re-election to secure a second term. Mayes faces Republican Senate President Warren Petersen, who secured the GOP nomination by defeating Rodney Glassman in the July 21 primary election. Businesses should closely monitor this race for potential shifts in water rights management, technology and AI regulation, consumer protection standards, and immigration-related litigation.

Arkansas

Arkansas holds a scheduled election for its attorney general post where Republican incumbent Tim Griffin is the sole candidate running in November for the position. Regional enterprises should track the office for continued alignment with conservative multi-state litigation affecting agriculture, energy, and tech compliance baselines.

California

California features a partisan election where Democratic incumbent Rob Bonta is running for re-election against Republican challenger Michael Gates, following the state’s top-two primary on June 2, 2026. Because California serves as a primary economic engine, developments from this office directly dictate nationwide compliance baselines for data privacy, artificial intelligence oversight, environmental rules, and labor standards.

Colorado

Colorado鈥檚 attorney general race is an open-seat contest because Attorney General and Democratic nominee for Governor Phil Weiser is term-limited. Following primary elections held on June 30, 2026, the open general election field features Democrat Jena Griswold alongside Republican Michael Allen. Businesses should monitor incoming leadership for potential policy shifts regarding AI governance, antitrust merger reviews, and consumer data mandates.

Connecticut

Incumbent Democratic Attorney General William Tong is seeking reelection to a third term against Republican challenger John Bolton. The election outcome will determine whether the office maintains its aggressive multi-state strategies targeting pharmaceutical pricing, tech antitrust enforcement, and strict environmental accountability.

Delaware

Delaware holds an upcoming election where Democratic incumbent Kathy Jennings is running for re-election against Republican candidate David Graham, after fending off primary challengers. Given Delaware’s heavy concentration of corporate headquarters, stability or changes in this office carry disproportionate weight for corporate governance, data privacy enforcement, and financial fraud litigation.

Florida

Florida features an attorney general election where Republican incumbent James Uthmeier (former Chief of Staff to Governor Desantis) is running for a full term after being appointed to the office, facing Democratic challenger Jos茅 Javier Rodr铆guez. Florida remains one of the most visible attorney general offices in the country because of its size, economic importance, and active role in litigation involving consumer protection, technology platforms, and federal-state disputes. Shifts or continuity in this office heavily influence corporate risk exposure across financial services oversight, health care regulation, and technology platform accountability in southeastern markets.

Georgia

Georgia features an open-seat election because Republican incumbent Chris Carr chose  to run for governor (but lost in the Republican primary). Following primary elections, the general election field features Democrat Tanya Miller alongside Republican Brian Strickland. The business community should monitor this transition for impacts on corporate tax enforcement, labor dynamics, and regional economic policy alignment.

Hawaii

Hawaii utilizes an executive appointment process rather than an election for its attorney general, with the office currently held by Anne Lopez via gubernatorial appointment by Governor Joshua Green (D) who is running for re-election. Regulatory enforcement priorities remain directly tied to the sitting governor’s administration, preserving steady oversight in consumer protection and local environmental standards.

Idaho

Idaho holds a scheduled partisan election where Republican incumbent Ra煤l Labrador is running for re-election against Democratic challenger Lori Hickman. The AG鈥檚 office heavily emphasizes public lands, state sovereignty disputes, and challenges to federal regulatory rules, directly impacting regional natural resources and energy businesses.

Illinois

Illinois features an upcoming election where Democratic incumbent Kwame Raoul is running for re-election and is opposed by Republican candidate Bob Fioretti. The office maintains an active posture in consumer fraud protection, labor rights enforcement, and civil rights litigation, affecting national corporations operating within the Midwest market.

Iowa

Iowa has a scheduled election for its top legal office where Republican incumbent Brenna Bird is running for re-election against Democratic challenger Nate Willems. The office has frequently anchored conservative multi-state challenges against federal environmental and labor rules, offering agricultural and manufacturing sectors a consistent regulatory ally. Iowa remains an important state to monitor because of the attorney general office鈥檚 role in multistate litigation, consumer protection, and legal developments affecting agriculture, manufacturing, environmental regulation, and public health.

Kansas

Kansas features a scheduled partisan election where Republican incumbent Kris Kobach is running for re-election against Democratic challenger Chris Mann. Focus areas for the office include election administration rules, federal-state jurisdictional pushback, and energy regulations, keeping compliance stakes steady for mid-continent logistics and energy producers. Kansas remains relevant because its attorney general frequently participates in multistate litigation involving energy, federal administrative actions, antitrust matters, and economic policy.

Maine

Maine handles its attorney general selection via the state legislature rather than a public ballot, with Democrat Aaron Frey currently holding the position under legislative appointment rules. Because selection relies on legislative appointment, traditional primary and general election campaigns do not apply. The office heavily prioritizes environmental preservation, consumer protection, and healthcare market monitoring, impacting regional utilities and healthcare entities.

Maryland

Maryland holds a scheduled election where Democratic incumbent Anthony Brown faces Republican challenger James B. Rutledge III. Proximity to the nation’s capital amplifies Maryland’s involvement in federal regulatory compliance matters, federal contractor guidelines, and regional consumer protection frameworks.

Massachusetts

Following the primaries, Democratic incumbent Andrea Campbell advanced uncontested to secure her party’s nomination, setting up a general election matchup against Republican challenger Michael C. Walsh, who also advanced through an uncontested primary. Massachusetts remains a key bellwether for strict financial services oversight, healthcare sector regulations, and stringent environmental compliance standards.

Michigan

Michigan鈥檚 attorney general seat is an open race due to term limits for Democratic incumbent Dana Nessel. Democrat Eli Savit will face off against Republican Doug Lloyd. Given Michigan鈥檚 importance to the automotive, manufacturing, energy, and consumer-facing sectors, the race is particularly significant for businesses as changes in leadership directly impact labor law enforcement, environmental transition mandates, and regional consumer safety standards.

Minnesota

Minnesota holds a scheduled election where Democratic incumbent Keith Ellison is running for re-election, facing Republican Ron Schutz. Minnesota鈥檚 attorney general office has been active in consumer protection, antitrust, health care, and technology-related issues, making it relevant to a broad range of businesses. Retailers and financial institutions especially must monitor whether the state’s historical emphasis on powerful consumer protection and tech-focused regulatory enforcement continues.

Nebraska

Nebraska features an upcoming election where Republican incumbent Mike Hilgers is running for re-election against Democratic challenger Jocelyn Brasher. The office maintains active engagement in agricultural trade rules, consumer finance regulations, and challenges to federal overreach, influencing Midwestern commercial operations.

Nevada

Nevada鈥檚 attorney general race is an open seat because Democratic incumbent Aaron Ford is term-limited and is running for governor. Following primary elections, the general election field includes Democrat Nicole Cannizzaro and Republican Adriana Guzm谩n Fralick. Nevada鈥檚 booming tourism, gaming, and emerging tech sectors make this office vital for monitoring gaming regulations, data privacy mandates, and consumer protection policies.

New Hampshire

New Hampshire utilizes an appointment process for its attorney general rather than an election, with the office held by John Formella via gubernatorial appointment and executive council approval. Governor Kelly Ayotte is up for re-election in 2026. Traditional electoral opposition and primary cycles do not apply to this office. Regulatory priorities remain tied to executive branch directives, preserving consistency in regional corporate compliance and consumer advocacy.

New Mexico

New Mexico holds a scheduled partisan election where Democratic incumbent Raul Torrez is running for re-election against Republican challenger Samuel Kane. The office actively participates in energy and public land litigation, impacting oil, gas, and renewable energy developers operating across the Southwest.

New York

New York features an upcoming election where Democratic incumbent Letitia James is running for re-election against Republican challenger Saritha Komatireddy. New York is a dominant force in financial services regulation, real estate law, and corporate fraud enforcement, meaning outcomes here directly shape national corporate risk profiles for financial institutions.

North Dakota

North Dakota has a scheduled election where Republican incumbent Drew Wrigley is running for re-election against Democratic challenger Tim Lamb. The office heavily focuses on fossil fuel development rights, agricultural litigation, and interstate water compacts, directly impacting energy and farming conglomerates.

Ohio

Ohio鈥檚 attorney general race is an open seat because Republican incumbent Dave Yost is term-limited. Republican Keith Faber and Democrat John Kulewicz are vying to replace Yost. As a major industrial and manufacturing hub, Ohio’s AG transition will influence regional antitrust enforcement, data security standards, and environmental compliance litigation.

Oklahoma

Oklahoma features an open-seat election for attorney general because Republican incumbent Gentner Drummond decided to run for governor. Candidates vying for the office are Republican Jon Echols and Democrat Nick Coffey. Oklahoma’s focus on oil, gas, and tribal jurisdictional issues makes leadership continuity critical for energy sector legal and regulatory strategy.

Rhode Island

Rhode Island鈥檚 attorney general office became an open seat as Democratic incumbent Peter Neronha faced term limits. Former prosecutor Kimberly Ahern secured the Democratic nomination after emerging from a competitive field that included Keith Hoffmann, Joseph Solomon Jr., and Jason Knight. Ahern advances to face Republican candidate Alan Gordon in the general election. The incoming attorney general will inherit oversight over key state priorities, maintaining authority over coastal environmental rules, healthcare mergers, and small-business consumer protection.

South Carolina

South Carolina holds an open-seat election for attorney general as Republican incumbent Alan Wilson is running for governor this year. Following primary elections held in June, the general election field includes Democrat Richard Hricik and Republican David Stumbo. South Carolina’s shifting legal leadership will dictate local corporate tax disputes, tort reform stances, and participation in southern regional multi-state legal challenges.

South Dakota

South Dakota features an open-seat attorney general election because Republican incumbent Marty Jackley is running for Congress. Republican Lance Russell is unopposed in November. Regulatory actions focus heavily on agricultural supply chains, consumer fraud, and tribal-state relations, providing a stable legal baseline for regional commerce.

Texas

Texas features a major open-seat election for attorney general as Republican incumbent Ken Paxton is running for the U.S. Senate instead. Republican Mayes Middleton faces off with Democrat Nathan Johnson. One of the largest and most active AG offices, often proceeding on its own and, as of late, regularly making investigations public. Texas drives antitrust, consumer protection, Medicaid fraud, national anti-ESG litigation, energy market challenges, and federal-state regulatory pushback, making this one of the most critical races for corporate legal departments nationwide.

Vermont

Vermont holds a scheduled partisan election where Democratic incumbent Charity Clark is running for re-election, challenged by Republican Edwin Kemon. Vermont’s office emphasizes consumer protection, strict environmental preservation, and data privacy enforcement, affecting tech and retail operations in New England.

Wisconsin

Wisconsin features a high-profile scheduled election where Democratic incumbent Josh Kaul is running for re-election against Republican challenger Eric Toney. As a major swing state, Wisconsin’s AG race heavily influences consumer protection, data privacy enforcement, and shifting environmental regulations, keeping compliance stakes high for regional employers.

District of Columbia

D.C. is unique in that it is a federal enclave, not part of a state. D.C. residents first elected an attorney general in 2015. This year features an election between Democratic incumbent Brian Schwalb against Republican nominee Manuel Rivera. Although the D.C. attorney general has civil enforcement authority similar to other attorneys general, and have been quite active, the criminal authority is limited to juvenile criminal law and some misdemeanors. Adult felonies and other prosecutions are handled by the U.S. Attorney for D.C.

Guam

Guam features a nonpartisan election every four years. Incumbent Douglas Moylan has three challengers: Thomas Fisher, Jordan Pauluhn, and Peter Santos. The Guam attorney general is responsible for acting as the public prosecutor and conducting all civil actions on behalf of the government of Guam.

Northern Mariana Islands

The Northern Mariana Islands features a nonpartisan election every four years. Incumbent Edward Manibusan chose not to run for re-election. Michael Evangelista, Jonathan Glass, and Joaquin Guerrero Torres are running.

Conclusion

The 2026 state attorney general election cycle has important implications for companies navigating an increasingly complex state regulatory and enforcement environment. Attorneys general continue to shape business risk through consumer protection, privacy, antitrust, health care oversight, environmental litigation, ESG reviews, energy disputes, and coordinated multistate action. Their influence often extends well beyond state borders, particularly for businesses operating nationally or in sectors under close public and regulatory scrutiny.

For companies in health care, manufacturing, technology, energy and infrastructure, financial services, and other highly regulated industries, the most important takeaway is that attorney general elections are not simply political events. They are indicators of how state legal authority may be deployed in the years ahead. Monitoring the races themselves is important, but so is understanding the broader institutional role these offices play, the trends that cut across jurisdictions, and the transition signals that emerge before and after votes are cast.

Businesses that approach the 2026 cycle with a clear view of their state exposure, a disciplined eye on high-impact offices, and a readiness to respond to post-election enforcement shifts will be better positioned to navigate the evolving landscape in 2027 and beyond.

Stay Connected

麻豆直播 is closely tracking the 2026 state attorney general election cycle, including major races, open-seat contests, leadership transitions, and emerging enforcement and policy developments affecting businesses across the health care, manufacturing, technology, energy and infrastructure, financial services, and other sectors.

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About 贵辞濒别测鈥檚 State Attorneys General Practice

贵辞濒别测鈥檚 State Attorneys General Practice helps companies anticipate, navigate, and respond to the growing influence of state AG offices across the country. Our team advises clients facing multistate investigations, consumer protection inquiries, civil investigative demands, regulatory disputes, litigation, and enforcement actions involving a wide range of state attorney general authorities.

The window is open. The question Tuesday night was whether it is open for you.

The room 

On Tuesday night, in the middle of San Francisco Tech Week, a full room of CFOs, founders, investors and bankers rode up to the 19th floor of One Market Plaza for a conversation with no slides, no pitches and no record. The premise was the title. IPO windows open and close within weeks, the SPAC market has been reborn with a rulebook, and growth companies have to be ready for several outcomes at once. 

The one ask of the panel beforehand was to be as candid about what is not working as about what is. They were. The evening ran under the Chatham House Rule, so what follows is the direction of the conversation rather than a transcript, and the few lines in quotation marks are my own recap, not anyone’s words from the stage. 

The panel 

Ellie Yashiro, Managing Director at First Citizens Innovation Banking, moderated. On the panel: Raymond Yue, SVP of Finance at Avalara, who led Sumo Logic through its IPO and was CFO at Talkdesk; Rohit Kulkarni, Partner and Chief AI Officer at Burnham Park Capital Markets; Jeff Meyer, Managing Director at Protiviti; and me, for 麻豆直播. 

Where it started: is the window open? 

The first question was the one the room came with. After years of talking about the window reopening, what has changed since 2021 and what has not? The conversation moved quickly to an uncomfortable answer. The headline numbers say 2026 is on pace for record IPO proceeds. The experience of most companies in the room says otherwise. 

The panel’s answer, reduced to a line: the window is open for the largest companies and closed for the rest. A handful of mega-listings are carrying the totals; each cohort must trade well for the next one to get out, and the middle market is not getting out yet. The lesson of the first half was that readiness beat timing. The companies that listed were the ones with clean financials, clean cap tables, and manageable regulatory exposure. 

Where it went: readiness, and what being public buys you 

From there, the conversation turned to preparation. Raymond spent his time on readiness, the work that must be done long before the banker calls, and the discipline the process forces on a finance team. He also made the case the room did not expect to hear, for the real advantages of being public: a currency that trades, a shelf, capital on your own calendar, and liquidity for the people who built the business. 

The panel’s corollary was that the public menu only helps if you choose from it well. The takeaway I wrote down: “Pick the product based on your news calendar, not how much you need.” And on the private alternative, that secondaries have become the default exit and liquidity strategy is a board-level decision, not a last-minute move. 

The market discussion was the least cheerful part of the evening. PIPEs, the quick fix of the last cycle, are harder to come by in this interest-rate environment. The hedge funds that used to write them now want their PIPE in the form of an interest-bearing instrument, a convertible note or structured preferred with a coupon and protections, and that capital is expensive. A PIPE is still a tool to bridge an event. It is no longer a habit a company can afford. 

On AI, the room agreed the mega-rounds make the next cohort bigger, later and fewer, and that the aftermarket eventually enforces the same fundamentals on everyone. If you ask investors to value you on a new metric, you own that metric in the registration statement and every earnings call afterward. 

SPACs: the sponsor is the deal 

The SPAC question produced the most practical exchange of the night. Rohit focused on sponsor selection: the right sponsor brings additive skill sets, an industry network and real access to capital, not just a trust account and a deadline. In a market where redemptions still run above 90 percent, the sponsor’s ability to raise the PIPE and hold the trust is the deal. 

The panel’s test for the company side was just as simple: if a company could not survive as an IPO, it should not do a de-SPAC. SPACs are back in volume: 118 in the first half raising about $20.9 billion, the most since 2021. But this cycle has a rulebook, with the target for a co-registrant carrying IPO-level liability for its projections, and a scoreboard, with roughly 80 percent of recent de-SPACs trading below trust within a year. The takeaway: There are no shortcuts to preparing a company to go public.

Transformation and process 

Jeff brought the conversation back to the company itself: readiness as transformation and process, not a finance project – with systems that close the books in days, controls that survive quarter-end without a scramble, people who have done it before, and a process that starts years before anyone talks to the market. 

The legal version of the same point is that the expensive mistakes are ordinary and found late: the cap table nobody reconciled since the Series B; the option grants without paperwork, the founder who never signed the IP assignment. None of these mistakes kills a deal. All of them cost time and leverage when you have the least of both. Buyers and underwriters discount you not for what they find but for what they cannot verify. 

Where it landed 

The closing question asked for the one thing a CFO should do to be ready for anything over the next twelve to twenty-four months. The panel arrived at the same answer from four directions: be file-ready every day of the year, able to execute any transaction, public or private, without a year of cleanup. It is the only thing on the list you control. You do not control the window, or rates, or whether the next mega-listing trades well. 

My recap of the evening fits on a card: The companies that do best do not start preparing when the window opens. They never stopped. Optionality beats perfection. Liquidity beats price. Readiness beats hope.

Thank you 

Thank you to Murray and Yvonne Newlands and Open Future Forum for filling the room; to First Citizens Innovation Banking, Protiviti, Robert Half and Lockton for sponsoring; to Ellie Yashiro for running a tight panel; to Raymond Yue, Rohit Kulkarni and Jeff Meyer for their candor; and to Erika Wu and the 麻豆直播 San Francisco team for hosting. Our 2026 IPO e-book, Recent Insight into the IPO Market, is available from 麻豆直播. If you are weighing a raise, a listing or an exit, my inbox is open. 

鈥� Louis 

Louis Lehot is a partner at 麻豆直播 & Lardner LLP in Silicon Valley, advising growth companies, private equity sponsors, venture funds and investment banks on public offerings, M&A, de-SPACs and governance.

Control capital for growth. Where venture ends and buyouts begin.

Friends,

Joe Baratta leaves Blackstone at year-end, and Blackstone will not replace him. Hernan Cristerna, JPMorgan’s longtime M&A chief, retires the same week. The generation that built modern private equity is handing over the keys. Growth equity is doing the same, with less press. Here is the week.

When a Fund Changes Generations 

Many of the firms that built growth equity were founded in the 1980s and 1990s. Their founders are passing the firm to a second generation, or should be. Only about 6 percent of fund leaders turn over in any five years, against more than half of public company CEOs. Fewer than half of managers have a written succession plan. And 96 percent of the investors who back them say it matters at re-up. 

The handoff turns on four things. Carry and ownership of the management company have to move down over several funds, or the best young partners leave and raise their own. The key person clause has to name the people actually doing the deals. The founders have to hand over the relationships while they can still make the calls. And some founders sell a minority stake in the firm to pay for the transition. 

If you run a portfolio company, read your documents. Board seats, consent rights, observer rights and side letters often name a person, not a role. Find out who covers you before the next board meeting, and get it in writing. If you are choosing a growth investor, ask one more question: who will sit on my board in five years?

Buy, Sell or Wait: The Seller’s Side 

Last week covered what buyers want. The panel recap has a second half for the people selling. 

Pitch the buyer’s return, not the sector multiple. Most funds need about 25 percent a year. Show them how they get it with you. 

Split the price if you have to. Holders who want out can sell at a discount. Holders who roll can share the upside above the buyer’s target. 

Buy cyber coverage before the data room opens. Deal insurance now carves out AI and cyber risk, and the seller ends up holding it through a separate indemnity. 

CFOs, negotiate your own deal before signing. Change-of-control terms and your transition role are worth the most before the merger agreement is signed. 

Rob Bartlett’s October numbers at Jefferies show what is at stake. Software growing 20 to 30 percent trades at 11.5 times next year’s revenue. Growing 10 to 20 percent, 5.5 times. 

The surprise is vertical software, the industry-specific products growth investors have long treated as safe. It fell to 4.6 times revenue in September, down 36 percent in a year and below its own five-year average. The market now prices it as exposed to AI. 

Two Nights of SF Tech Week 

Ready for Anything. Thanks to Ellie Yashiro of SVB and to Open Future Forum for Tuesday’s panel on IPOs, SPACs and capital market shifts. What stuck: the IPO window is a cohort, and each deal has to trade well for the next one to get out. Staying private is not free when employees want liquidity and private money costs this much. Build for an IPO and a sale at the same time, with public-company controls, an audit firm that can sign a registration statement and a clean cap table. A SPAC still works only with a strong sponsor, committed money behind it and a company that could stand on its own. And AI companies will be judged on the old metrics in the end: durable revenue, margins after compute, cash. 

Sidebar Summit. Monday’s opener, which 麻豆直播 sponsored, was a fireside chat with Venky Ganesan of Menlo Ventures on whether this is 1999. His frame is Max Bazerman’s $20 auction: bidders keep going past the prize because quitting locks in the loss. That is the best explanation going for why no one is slowing down on AI spending. Thanks to Vishal Verma.

On Our Desk 

Kapital, $125 million. We represented Kapital, an AI-driven business lender in Latin America, Spain and the US, in an equity and debt raise led by Tru Arrow Partners. Announcement. 

Iron Path Capital Fund II, $450 million. We advised on an oversubscribed specialty industrials and healthcare fund, raised in five months. Announcement. 

EMS and AMD Supply. We represented EMS, a Wynnchurch Capital portfolio company, in an add-on. Announcement. 

The Loan Desk: The Fed Is Not Done 

October is probably off. September added only 29,000 jobs, unemployment rose to 4.2 percent and core PCE inflation eased to 3.0 percent. Futures give an October 28 hike about a one-in-four chance. 

December is a different story. Sixteen of 18 Fed officials projected another increase this year, futures price one in December as likely, and the officials’ median holds the rate near 4.1 percent through 2027, with no cut before 2028. Meanwhile the 10-year hit 5.35 percent on Monday, its highest since 2002. 

For a deal team: assume one more quarter point on floating-rate debt and no relief for a year. Negotiate outside dates, financing conditions and ticking fees like they matter, because they do. And expect investors to ask why they should lock up money for five years when the 10-year pays over 5 percent.

From My Desk 

An Early Look at Q3 2026 PE Activity, with Andre Thiollier. US deal value up 20 percent to $230 billion, exits up 51 percent to $165 billion. Fundraising is the soft spot: funds closed down 31.5 percent, dollars down 10 percent. 

Record Startup Shutdowns Reflect a Market That Is Moving Forward. 

What Is a General Counsel Worth?, from our GC compensation lunch, ahead of the next one on October 30. 

In the Daily Journal’s Capital & Counsel on the IPO market: “The window is open for the largest companies and closed for the rest.” 

On the Calendar 

LP/GP Event with Jersey Finance, Monday, October 12, 麻豆直播 San Francisco. Reply for a seat. 

Investors on the Bay, a Fall Mixer, Friday, October 23, San Francisco.  

One Way Ventures Summit, Wednesday, October 28, San Francisco.  

General Counsel Executive Forum, Private Lunch, Friday, October 30, San Francisco. In-house counsel only.  

IPO Readiness, Wednesday, November 18, San Francisco, with SVB, Protiviti and Heffernan. Reply for a seat. 

2027 Outlook, Friday, December 11. Reply for a seat. 

Closing Argument 

Portfolio CEOs: if your fund is changing generations, know who covers you. 

Sellers: pitch the buyer’s return. Buy the cyber policy first. 

Deal teams: one more hike, no cuts before 2028. Read the rate mechanics. 

Funds change leaders. Markets change prices. The companies that are ready get to choose. 

鈥� Louis 

Standard disclosures: opinions my own, not my firm’s. Not legal advice. Attorney advertising. Prior results do not guarantee future performance. This newsletter is built the way I believe modern legal work should be done. I use AI for productivity and efficiency in research and drafting. The ideas are mine, the voice is mine, the edits are mine, I check the facts, and I own every word. 麻豆直播 & Lardner LLP represents sponsors, lenders and companies, some of which may be active in the matters discussed. Software market data from Jefferies’ monthly software valuation update, compiled from Capital IQ as of Sept. 30, 2026, used with permission. Rate and inflation data from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. 

At 麻豆直播, collaboration is embedded in our culture and in how we serve our clients. We recruit, retain, and promote people from a variety of backgrounds who bring together their unique strengths, perspectives, and approaches to deliver innovative solutions and service excellence.

The firm鈥檚 collaborative culture was on full display when partners Chris Converse and Chris Babcock worked together on a 鈥渞are kind of legal achievement鈥� that required both strategic vision and deep technical analysis. Converse, the big-picture thinker, and Babcock, the in-the-weeds tactician, played a key role in shaping and advocating for Texas Senate Bill 29, drafting the legislation, testifying in support of it, and advising on major reincorporations.

Babcock and Converse recently won at the 2026 Texas Legal Awards, presented by Texas Lawyer and Law.com for their leadership in helping shape Texas鈥� evolving corporate governance landscape.

We caught up with both attorneys to find out more about their successful collaboration, what they have learned from each other鈥檚 differences, and why a variety of perspectives leads to the best results.

Chris Converse: One of the things I appreciate most about working at 麻豆直播 is that we are a firm with the resources to seize this type of advocacy opportunity. We have incredibly talented people across the firm, and the firm鈥檚 culture encourages us to hone our individual strengths while also working together to bring the most value to our clients.

Chris Babcock: That鈥檚 exactly right. Our work on Texas Senate Bill 29 was rare opportunity with a lot of moving parts and some difficult legal challenges. This type of complex matter benefits from having a team of people who think differently about the problem.

With 26 years of practice experience, Converse describes his role as helping clients and teams maintain focus on the broader strategy.

Converse: My instinct is always to step back and ask, 鈥淲hat are we trying to accomplish? What are the key issues that matter most?鈥� When you鈥檙e dealing with a complicated matter, it鈥檚 easy to get distracted by side issues. I make it my job to ensure we鈥檙e staying focused on the objectives that will ultimately drive success.

Babcock, who has practiced since 2011, approaches challenges from a different angle.

Babcock: I enjoy digging into the details. I like getting into the weeds, understanding the nuances, and testing every assumption. That means spending time with the doctrine, the technical issues, and the areas where the answer may not be immediately obvious.

The two attorneys divide the work with mutual deference and some humor, and their collaboration proved powerful.

Converse: Chris has an incredible ability to immerse himself in the details and uncover arguments or implications that others might miss. That鈥檚 a tremendous asset on a matter where precision matters.

Babcock: And Chris brings the strategic perspective that keeps everything connected to the client鈥檚 goals. It鈥檚 not enough to have the right legal answer. You have to understand how it fits into the larger picture and what it means for the client.

The collaboration also reflects something both attorneys see as distinctly 麻豆直播.

Babcock: There鈥檚 a real appreciation here for different working styles. People aren鈥檛 competing to prove they can do every aspect of a matter themselves. The expectation is that you鈥檒l bring your strengths to the table and trust your colleagues to bring theirs.

Converse: That鈥檚 one of the reasons 麻豆直播 has been such a rewarding place to build a career. There鈥檚 a deeply rooted understanding that we serve our clients and each other best when we work as one team. Everyone contributes something unique, and that鈥檚 viewed as a strength, not a limitation.

Looking back, both attorneys agree that their contrasting approaches produced something greater than either could have accomplished alone.

Converse: The best teams are rarely made up of people who think exactly alike. It鈥檚 been one of the most rewarding things in my whole career.

Babcock: We complement each other really well and see each other鈥檚 blind spots. The combination of strategic focus, technical depth, creativity, and collaboration helped us achieve a result we鈥檙e incredibly proud of.

Takeaways from the Jefferies monthly software valuation update

Rob Bartlett of Jefferies joined the panel I moderated last month on whether companies should buy, sell, or wait. This week I read his team鈥檚 monthly software valuation update, with data through September 30. I read a lot of bank decks. This one I read twice.

Here is what is new in it, and what the room added that the charts cannot.

Eighty percent of software is slow now

More than 80 percent of public software companies are expected to grow less than 20 percent next year. Five years ago, nearly half the industry grew faster than that. Today, of the 123 companies Jefferies tracks, exactly eight are projected to grow above 30 percent, and they are chips, clouds, and data platforms rather than the subscription names of the last cycle.

The growth premium collapsed, and a cliff appeared

In November 2021, the market valued a point of revenue growth at nearly five times a point of cash flow margin. Today the ratio is 1.7. That 64 percent collapse is the quiet fact underneath every repriced term sheet of the past four years.

Growth still wins. Companies growing 20 to 30 percent trade at 11.5 times forward revenue and returned 41 percent over the past year, best in the report, while companies growing under 10 percent trade at 3.5 times and lost a quarter of their value. What the averages hide, and what our panel put its finger on, is that the line between those outcomes is a cliff, not a slope. Cross 20 percent growth and the multiple roughly doubles. Nothing else a management team can do moves the number like getting over that line.

About that SaaSpocalypse

Which brings me to the word of the year. The SaaSpocalypse is the theory that AI agents will eat application software whole, and early this year it erased something like $300 billion of application software market value. The fear is priced. Application software lost 32 percent over the past year and trades at 3.8 times forward revenue, about half its pre-pandemic multiple, while security software returned 64 percent and trades at a record 10.4 times. The market pays half price for anything it thinks a model might replicate, and a record premium for whatever defends the result.

Priced is not the same as right, and Rob made the sharpest version of the counterargument on our panel. The AI dollars are not coming out of software budgets. They are competing with services and headcount, the categories where enterprises have always spent several times what they spend on software. That squeezes sales cycles, because AI is consuming the discretionary budget. It also points at a bigger prize, software plus AI absorbing work that was always billed as human labor. A category taking share from services spending is not dying.

The report backs him with two facts the obituaries skip. The share of software companies earning 20 to 30 percent free cash flow margins has doubled since 2021, while the share burning money shrank from nearly half the industry to about one in ten. It is a strange apocalypse in which the victims keep minting cash. And the Rule of 40 now explains valuations nearly twice as well as it did in late 2021. Panic does not run regressions. This market is reading income statements, and to a strategic buyer, an obituary written at 3.8 times revenue reads like a price list.

Slow software is cheap, fast software is expensive, and the market can finally tell the difference. That is not an apocalypse. That is a market.

What the room added

The charts stop where diligence begins, and the panel鈥檚 advice was mostly about what the charts cannot see.

Product is the new first question. A growth investor on our panel called product the first, second, and third diligence consideration, because whatever a buyer acquires today will look different by the end of a five-year hold. The classic SaaS metrics still matter, but they no longer carry the underwriting on their own. Win rates, roadmap, engineering bench, and whether AI strengthens the product or commoditizes it now decide where a company lands within its bucket.

Sellers should start with the buyer鈥檚 story, not their own. The advice from the strategic side of the panel was to understand what the buyer underwrites, what gap you fill, and where you sit on their roadmap, because strategic value comes from fit and synergies rather than sector multiples. The highest-value M&A narrative is not why we are great. It is why we are worth more to you than to anyone else.

And when bid and ask will not meet, the bridge gets built in the documents. Rollover equity, secondary at a discount, earnout kickers, each one a drafting exercise, and each one able to leave management misaligned at exit if overdone. One panelist put the whole negotiation in a single line. You tell me the price, I will tell you the terms. The lawyer in me adds only this. Realistic economics up front beat clever structure, because the preference stack decides who absorbs the difference either way.

The bottom line

Keep one question from all of it, the one the panel kept circling. Does your product become more valuable or less valuable as AI models get dramatically better? Answer that honestly, and everything else in this report is arithmetic you can plan around.

My thanks to Rob Bartlett and the Jefferies technology banking team. The figures above come from their Monthly Software Market Valuation and Performance Update, October 2026.

In September 2026, FDA took another significant step toward integrating new approach methodologies, or NAMs, into drug development by issuing a Direct Final Rule on Nonclinical Testing Terminology (the 鈥淪eptember 2026 direct final rule鈥�).[1] Read together with FDA鈥檚 March 2026 draft guidance on NAM validation, the rule moves the question for NAM developers from whether FDA will consider non-animal data to how a specific NAM earns regulatory trust. As we discussed when FDA released its April 2025 Roadmap to Reducing Animal Testing in Preclinical Safety Studies, the answer has direct implications not only for regulatory strategy, but also for intellectual property and data governance.[2]

The September 2026 direct final rule makes amendments to replace numerous references to “animal” (and, for consistency, 鈥減reclinical鈥� and 鈥渋n vitro鈥�) studies in FDA鈥檚 drug and biologics regulations with the broader category of “nonclinical” studies. The new definition expressly covers in vitro, in silico, and in chemico tests, including cell-based assays, organ chips and microphysiological systems, computer modeling, other human or nonhuman biology-based methods such as bioprinting, and animal studies.

In the September 2026 direct final rule, FDA states that the amendments to the rules impose no new testing requirements and are intended principally to remove regulatory terminology that could imply animal testing is the only acceptable source of nonclinical evidence. In particular, the September 2026 direct final rule states that 鈥�[t]hese changes result in more consistent and updated terminology that is not unduly focused on animal testing and that encompasses the use of scientifically valid NAMs.鈥�[3] Comments are due December 7, 2026, and the rule is scheduled to become effective February 4, 2027, unless FDA receives significant adverse comments and withdraws it.[4]

FDA鈥檚 Guidance on NAM Validation

FDA’s March 2026 draft guidance[5] identifies four related considerations for NAM validation:

• Context of use asks what specific drug-development decision the NAM is intended to support.
• Human biological relevance asks whether the modeled physiology and mechanisms correspond to the human biology relevant to that decision.
• Technical characterization addresses reliability and reproducibility.
• Fit-for-purpose asks whether the NAM performs adequately for its intended regulatory role.

The September 2026 direct final rule echoes this framework, urging developers to consult with FDA and to provide information about a NAM鈥檚 technical characterization and biological relevance for particular contexts of use.[6]

Notably, the guidance also states that a NAM does not necessarily need to be formally validated to be considered, and that a fit-for-purpose NAM, even if not validated, may adequately address specific toxicological concerns within a weight-of-evidence assessment. The important point is that evidentiary value depends on the question the model is being asked to answer.

Validation of Models or Studies Is Context-Dependent

The regulatory problem addressed by the FDA guidance and direct final rule is not to identify a universally superior model, but to determine which model, or combination of models, generates evidence appropriate for the decision at hand. In this regard, the direct final rule notes that animal studies may remain important where toxicities arise through complex physiological interactions, including communication among organ systems. At the same time, FDA recognizes that NAMs using human-derived cells may be able to assess additional or more relevant endpoints for clinical drug development.

FDA’s recently published NAM use-case database makes the same point expressly and cautions that inclusion of a method in a prior regulatory review does not amount to general approval of that methodology. Rather, regulatory conclusions remain context-specific and may depend on the particular method, endpoint, product, data package, and application.[7]

Practical Implications

The NAM regulatory framework raises many strategic questions for NAM developers, such as:

• What decision is a pharmaceutical partner or regulator expected to make from its output?
• Which biological features are essential to that decision?
• What evidence demonstrates reliability?
• Where are the model’s limitations?

These questions can shape product development itself. A clearly defined context of use can determine which endpoints should be measured, which comparators are appropriate, what reproducibility studies are needed, and which aspects of a model should be standardized across laboratories. It can also make a platform easier for pharmaceutical partners and investors to evaluate because the developer is offering a defined decision tool rather than a generalized claim of biological realism.

FDA provides concrete ways to seek feedback on these issues. For a specific development program, sponsors may request FDA input on using a NAM, including through a Type D meeting. The guidance indicates that early discussions will focus on considerations specific to the indication, disease, organ, and endpoint. For tools designed to support multiple programs, FDA鈥檚 Drug Development Tool Qualification Program and Innovative Science and Technology Approaches for New Drugs (ISTAND) program offer separate pathways.

The most valuable NAM may not be the one that claims to replicate the most biology, but the one that can show most clearly what its model represents, where it is reliable, and why its output can be trusted for a consequential decision. Clarity on these questions is what persuades FDA reviewers, pharmaceutical partners, and investors, and it may help define the boundaries of defensible patent claims. Developers that align context of use, validation evidence, data governance, and IP strategy from the outset will be best positioned as FDA鈥檚 framework moves from terminology to practice. We welcome conversations with developers, sponsors, and investors working through these questions.

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[1] Nonclinical Testing Terminology, Direct Final Rule, 91 Fed. Reg. 59,988- (Sept. 22, 2026) (effective Feb. 4, 2027, subject to FDA’s direct-final-rule procedures).

[2] /insights/publications/2025/07/navigating-fdas-proposed-guidance-on-ai-and-non-animal-models-safeguarding-inno/

[3] See supra note 1 at 59,993.

[4]See supra note 1.

[5] U.S. Food & Drug Administration, General Considerations for the Use of New Approach Methodologies in Drug Development: Draft Guidance for Industry (Mar. 2026), https://www.fda.gov/media/191589/download; see also Interagency Coordinating Committee on the Validation of Alternative Methods (ICCVAM), Validation, Qualification, and Regulatory Acceptance of New Approach Methodologies (Mar. 2024), https://doi.org/10.22427/NICEATM-2.

[6] Nonclinical Testing Terminology, Direct Final Rule, 91 Fed. Reg. 59,988, 59,992-93 (Sept. 22, 2026) (discussing continued roles for animal studies in complex physiological interactions and the potential for human-derived NAMs to assess additional or more relevant endpoints).

[7] U.S. Food & Drug Administration, New Approach Methodologies (NAMs) Database of Use Case Examples (2026), https://www.fda.gov/drugs/cder-streamlined-nonclinical-studies-and-acceptable-new-approach-methodologies-nams/new-approach-methodologies-nams-database-use-case-examples (noting that regulatory conclusions are context-specific and may depend on the method, endpoint, product, data package, and application).

On the opening day of SF Tech Week, I asked a room full of founders and investors at to raise a hand if they had ever been called a genius because something worked. Most hands went up. Then I asked them to keep it up if, honestly, it could have gone the other way. Almost every hand stayed up. 

That is the thin line, and it was the throughline of my conversation with Venky Ganesan, Partner at Menlo Ventures. Silicon Valley grades people by outcomes. The company sold: genius. The company folded: idiot. What we do not do enough is talk about the people who walk the line between the two. 

Venky has walked it more than most. He is the 15-year-old from Cochin who talked his way into a job that was not meant for him, the investor who came back from a stroke that nearly killed him in 2019, and one of the people behind the bet that defined Menlo’s 50th year: more than half a billion dollars into Anthropic in 2024, when nobody else was writing half-billion-dollar checks. 

We had 45 minutes at Menlo’s San Francisco office on 2nd Street, in front of founders, investors, operators and, this being Vishal Verma’s summit, a healthy contingent from the sports business. Here is what I took away. 

The kid who answered the wrong ad 

Venky was born in Cochin, in Kerala, the eldest child of a father who sold radiators and a mother with what he describes as an insane belief in him. Both were optimists. It shows. 

At 15, in tenth grade, he answered an ad for a sales job meant for college students and talked his way into it. At 16 he moved, alone, to rural Washington State. A scholarship took him to Reed College for mathematics and economics, then to Caltech for engineering. That first year in Washington, in his telling, is when technology became his path to freedom. 

He is one of the few venture capitalists who always wanted to be one. After working as a program manager at Microsoft, he joined McKinsey in Los Angeles and Johannesburg, choosing its $39,000 salary over a much more lucrative offer. He later co-founded Trigo Technologies and sold it to IBM in 2004. A decade at Globespan Capital Partners, then in 2013, with an early check into Palo Alto Networks and a term as chair of the National Venture Capital Association along the way. 

The detour was the training: build something, operate something, advise people, and learn that the right call often looks wrong at the time. Somewhere along the way he visited Robben Island, where Nelson Mandela spent 18 of his 27 years as a prisoner. What stayed with him was how Mandela received visitors there: as if he were a head of state, putting a carpet down on the floor, serving tea, and treating everyone with kindness. Dignity, it turns out, does not depend on circumstances. Keep that in mind for the last part of the conversation. 

The bet-the-firm check 

Menlo’s 50th year will be remembered for one decision. The firm , before the company had a product or revenue, then led the 2024 Series D with a check of more than $500 million. On June 23 of this year Menlo announced $3 billion in fresh capital, the largest raise in its history, across an early-stage fund and a growth fund, and said it is all in on AI. 

Anthropic has , and as a securities lawyer I was not going to be the one to get Venky in trouble. We kept this part to history and thesis: no valuation, no financials, no timing, no forecasts. 

So I did not ask him to take us into the room on the day Menlo decided to write a half-billion-dollar check when nobody else was writing them, and to tell us who pushed back. 

But the room was thinking, right and sized accordingly, you look like a genius. Wrong, the other thing. The thin line. 

Is this 1999? 

This was the heart of the conversation, so I held up a $20 bill. 

The rules were simple. I would auction the twenty. Bids go up a dollar at a time, and the highest bidder wins it. One catch: the second-highest bidder pays their bid too, and gets nothing. Predictably, the bidding went past $20, and I called it off. 

The exercise is a classic from Harvard’s Max Bazerman, and Venky explained that it is the best way to understand the AI spending wave. The lesson is simple. Anyone who bids under $20 and wins has made money, unless they screw up the execution. Anyone who bids over $20 and wins is guaranteed to lose money, unless they can recover with better execution. Past $20 nobody can win, and they keep bidding anyway, because stopping locks in the loss. That is the AI capex wave: hundreds of billions of dollars of data-center and GPU spending by players who cannot afford to be the one who stopped. 

Then I polled the room. Hands up if it is 1997 in AI. What about 1999? 2000? 2001? At SF Tech Week, the room was optimistic. And then the question I had been building toward all afternoon. Venky, what year is it? His answer: 1995, not 1999. For those keeping score, that is the year of the Netscape IPO, with most of the boom still ahead. 

His reasoning, laid out in a series of posts over the past few weeks, starts with Chuck Prince, who said in July 2007 that as long as the music is playing you have to get up and dance; weeks later, credit froze. Prices shape beliefs and beliefs shape prices, and an investor who is not on the dance floor does not see the action. 

The thin line 

Then we slowed down. In 2019 Venky had an ischemic stroke that nearly killed him.  

What he said next was the most personal thing I have heard on a Tech Week stage. When you are not sick, you have many problems. When you are sick, you have only one problem: get healthy. Almost dying showed him what was really important, and he has spent the years since filtering out the rest. 

He wanted more time with his family. So he no longer schedules work dinners, and he goes home for dinner every night unless it is really required that he does not. He measures relationships over time, and if one is sucking net energy out of him rather than infusing him with positive energy, he limits his time with it. 

This is not a man who has gone soft. His point is that positive energy is a multiplier. You get much more done with it, and when things go badly you react better to a negative event from a positive place than from a negative one. Maintaining positive energy, in his words, is net impactful. 

And the question the afternoon had been building toward: How do you stay humble when it goes right, and kind to yourself when it does not? He also says you should dress how you want to be seen, so I asked what he wants people to see. Judging by yesterday, the best-dressed man in venture. 

Thank you 

Thank you to my friend Vishal Verma for curating another Sidebar Summit, to Menlo Ventures for hosting us, and above all to Venky for saying yes to a conversation with no safe questions. 

The room was the best kind of Tech Week room: investors from Celesta Capital, Dell Technologies Capital, ACME Capital, Cervin Ventures, Systemic Ventures, Capra Ventures, Xeed Ventures, Tunitas Ventures, Overlook Ventures and MaC VC; strategics from Amazon, Siemens, SVB, Wells Fargo and Protiviti; founders building Libero, Highlo, Asterlava, yourcore and A51; the San Francisco Giants’ partnerships team; and a sports-business contingent from Klutch Sports Group, Team 100 and Legacy Driven Sports. 

We started with the line between success and failure. What I will remember is a 15-year-old who answered an ad that was not meant for him, a mother who believed he could, and a man who came back from a stroke to make the biggest bet of his career, and then went home for dinner. Thank you, Venky.

Introduction

The acquisition of AI companies has become one of the most consequential deal categories in technology. Global investment in generative AI surged to $25.2 billion in 2023, and the global AI market is projected to reach $407 billion by 2027. With that growth has come a wave of acquisitions by major technology companies seeking to add AI capabilities to their platforms, and with those transactions has come a rapidly evolving diligence playbook.

This article is part of a twelve-week series on autonomous systems, physical AI, and patent strategy. In our prior articles, we established an expanded taxonomy of patentable inventions across the physical AI landscape, presented a comprehensive IP strategy playbook for autonomous systems companies, and examined the data on whether patent filings help physical AI companies raise capital. Here, we turn to the buyer鈥檚 side of the equation: what do acquirers now diligence in AI and autonomy deals?

In a 2021 article, we examined this trend through the lens of Apple’s AI acquisitions. From 2016 to 2020, Apple acquired more AI companies than any other buyer, including several with technology applicable to autonomous vehicles (AVs) and electric vehicles (EVs): Drive.ai, Emotient, Vilynx, Xnor.ai, Lighthouse AI, Spectral Edge, and Spektral. The data revealed a striking pattern. The three companies Apple acquired for over $100 million, including Drive.ai ($200M, 19 patent assets), Xnor.ai ($200M, 20 patent assets), and Emotient ($100M, 22 patent assets), each had approximately 20 U.S. patent assets and went from founding to acquisition in just four years. Companies with materially smaller portfolios commanded lower valuations and took longer to be acquired. Patent portfolios, in short, appeared correlated with both acquisition value and speed to exit.

That finding remains relevant today, but the buyer’s diligence playbook has expanded dramatically. AI acquisitions in the autonomy and physical AI space now demand investigation across six critical pillars that go well beyond counting patent assets.

1. Proprietary Data: The New Crown Jewel

The original article focused on patents as the key asset driving acquisition value. Today, proprietary data has emerged as an equally critical, and in many cases more important, diligence target. As the cost of programming AI-powered algorithms and large language models comes down, buyers are looking beyond pure engineering talent and seeking to confirm that the target controls unique and proprietary datasets. It’s no longer just about the algorithms and large language models; it’s about having access to proprietary data that no one else can get, and the ability to use that data in the AI system in the manner desired.

For AI companies, the real value often lies in intangible assets, including layered, multifunction algorithms, large language models, and exclusive access to proprietary datasets that together produce valuable answers and drive monetization. Buyers conducting diligence must now trace the “genealogy of the data, from its origin to the assignment to the buyer” and confirm that the seller is transferring contractual rights sufficient to use the data for the buyer’s intended purpose.

In practice, this means diligence teams should ask: What can each party do with the data? Are there confidentiality obligations? Use restrictions? Geographic storage location considerations? If insights from the data lead to innovations, who owns those? If the data leads to incorrect conclusions, who is on the hook? These questions are especially critical in the autonomous systems context, where data pipelines may involve automated labeling, active learning, data compression for high bandwidth sensor streams, privacy-preserving collection, and federated learning across distributed fleets.

2. Patent Assets: From Counting to Characterizing

Our 2021 analysis demonstrated a correlation between patent portfolios and acquisition outcomes. That finding holds, but the diligence inquiry has become more sophisticated. Buyers today are not simply counting patent assets. They are characterizing them.

Patent diligence should now assess claim scope, validity, enforceability, infringement risk, freedom to operate, third-party challenges, ownership, chain of title, inventor assignments, and maintenance fee status. For AI-specific patents, diligence teams should examine whether claimed inventions disclose sufficient technical detail rather than functioning as “black box” claims, including architecture, training methods, inputs, preprocessing, inference, runtime updates, and concrete technical improvements.

In the autonomous systems space, as established in the first article in this series, the patentable technology stack has expanded to cover perception and sensor fusion, AI and ML models and training methods, planning and decision-making systems, edge computing architectures, simulation and testing, safety and redundancy systems, human and machine interfaces, fleet and swarm management, and data pipeline innovations. Filing strategy should also be aligned with product development and funding milestones, and the portfolio should be organized by product line, technology area, and geography.

At the pre-exit stage, acquirers should confirm that patent assignments are recorded, inventor declarations are complete, maintenance fees are current, and ownership chains are clean. Patent ownership risk is acute in this space because development frequently involves cross-functional teams, university labs, government research institutions, open-source communities, specialized consultants, joint development partners, and pre-existing founder IP.

Detectability is another critical factor in valuing AI patents. Features visible in product operation, user interfaces, or product documentation are easier to detect and enforce; features retained solely in cloud infrastructure may be better maintained as trade secrets.

3. Technical Authenticity: Guarding Against “Fake AI”

A risk that did not feature prominently in our 2021 analysis is the problem of “fake AI.” Technical diligence should test whether the AI solution is authentic, robust, scalable, and aligned with business objectives. Without thorough technical diligence, investors face exposure to misrepresented solutions lacking genuine capabilities, potentially leading to substantial financial losses.

The rise of “AI Washing” is the intentional overstating of a product or service’s AI capabilities to make it appear more innovative than it actually is. This practice has drawn significant enforcement attention. In March 2024, the SEC brought its first-ever settled charges against two investment advisers, Delphia and Global Predictions, for misrepresenting their use of AI to attract investors. Both companies claimed to use AI technologies they did not actually possess. Delphia paid a civil penalty of $225,000, and Global Predictions paid $175,000.

For buyers in AI and autonomy deals, the lesson is clear: diligence must go beyond reviewing marketing materials and pitch decks. Technical diligence should independently evaluate algorithms and models, actual AI functionality and deployment, data privacy and security measures, and compliance with relevant regulations. Buyers should also ensure that public statements about AI capabilities have been reviewed by legal counsel and are accurate.

4. Regulatory Exposure: A Rapidly Expanding Landscape

In 2021, the regulatory landscape for AI was sparse. It is no longer. According to the Stanford University AI Index Report, the number of AI-related regulations in the U.S. rose from just one in 2016 to 25 in 2023, growing by 56.3% in 2023 alone. The count of U.S. regulatory bodies crafting AI regulations climbed to 21 in 2023, up from 17 in 2022, with newcomers including the U.S. Department of Transportation, the U.S. Department of Energy, and OSHA.

On the international front, the EU AI Act has established the world’s first comprehensive AI regulatory framework, classifying AI systems into four risk levels (unacceptable, high, limited, and minimal), each with corresponding compliance obligations. At the same time, antitrust officials at the DOJ, FTC, European Commission, and the UK’s Competition and Markets Authority have pledged to remain vigilant regarding AI’s risks to competition.

For AI acquisition diligence, this means buyers need to understand where the target operates and where users can access the product in order to determine the breadth and scope of applicable laws. Key regulatory areas include data privacy (GDPR, CCPA, HIPAA), algorithmic bias, ethical AI standards, antitrust scrutiny, and industry-specific regulations. AI acquisitions are facing special scrutiny from antitrust and competition regulators, who are concerned with not only monopolistic practices and anti-competitive behavior but also the effect of AI on jobs.

Purchase agreements should reflect this regulatory complexity with tailored representations and warranties covering ownership, noninfringement, data privacy compliance, cybersecurity integrity and maintenance, and disclosure of known risks or limitations. Buyers may further seek indemnities, holdbacks, escrow arrangements, and increasingly, third-party insurance to manage post-closing regulatory risk.

5. Cybersecurity: A Growing Attack Surface

As autonomous systems become more connected, cybersecurity diligence has become a standalone pillar of AI acquisition analysis. According to a 2023 report by Upstream, automotive cyberattacks spiked by 380% in just one year, from 2021 to 2022, affecting telematics, infotainment systems, electronic control units, and remote keyless entry systems. As the number of computing devices, sensors, and communication interfaces increases, so does the attack surface available to malicious actors.

AI-specific cybersecurity risks extend beyond conventional threats. Adversarial data, meaning subtle, almost unnoticeable changes to training data, can undermine how an AI algorithm works and cause unexpected outcomes, destroying the positive impact of AI. It is critical that companies ensure the security of their training data and their software. Bad data, adversarial inputs, compromised sensors, or weak connected infrastructure can affect not only privacy and IP, but also safety and real-world system behavior.

Buyers should assess security by design, secure development and networking practices, product testing, vulnerability monitoring, incident response programs, and supplier security controls. Importantly, cybersecurity is not the same as compliance: while compliance with data privacy regulations is necessary, it may not always be sufficient to protect data. Companies should implement security measures beyond minimum regulatory requirements, including eliminating vulnerabilities at the design stage and continuously monitoring for emerging threats.

6. Rights to Use Training Data: The New IP Frontier

Perhaps the most significant shift since our 2021 article is the emergence of training data rights as a freestanding diligence category. Many AI models have been trained on third-party data without appropriate authorization or consent from copyright owners, resulting in potential downstream liability to end users of such models.

Buyers should examine whether the target’s training data was lawfully collected and whether the target has contractual rights sufficient for the buyer’s intended use. Diligence should review existing agreements to determine whether customer or third-party data may be used for training vendor systems or improving the vendor’s own products. Copyrights associated with training materials should be confirmed as properly licensed or excluded.

The regulatory trajectory further underscores this risk. Proposed legislation like California’s AB2013 would require developers of AI systems to publish documentation of the datasets used to train those systems. As transparency requirements expand, gaps in training data provenance that might have gone unnoticed in an earlier era could become material liabilities.

Conclusion: A New Diligence Framework for AI and Autonomy Deals

When we published our original article in 2021, patent assets were the primary lens through which buyers evaluated AI acquisition targets. The data from Apple’s acquisitions, as discussed in our 2021 article, illustrated the value of a deliberate patent strategy: companies with approximately 20 patent assets commanded valuations exceeding $100 million and exited within four years.

That finding endures, but it is no longer sufficient. As AI companies move from research projects to production systems that operate in the physical world, the risk profile for AI-centric business models is so different from acquisitions of other technology businesses that a new approach is required. Buyers today must conduct a retargeted due diligence investigation that spans proprietary data, patent characterization, technical authenticity, regulatory mapping, cybersecurity assessment, and training data rights.

For AI companies developing AV/EV related technology, or any physical AI system, a strong patent portfolio remains a powerful signal of innovation and proprietary technology that can multiply valuation. But the companies best positioned for acquisition will be those that can demonstrate not only patent strength, but also clean data provenance, genuine technical capabilities, regulatory readiness, robust cybersecurity, and defensible rights to the data that trains their systems. In our next article in this series, we ask where the physical AI patent wars may begin, as autonomy expands from vehicles into drones, robotics, defense systems, industrial automation, and AI-enabled hardware.

* * *

DISCLAIMER: The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

On September 30, 2026, the Texas Comptroller signed an executive order directing his office to amend the sales tax data processing services regulation, 34 Tex. Admin. Code 搂 3.330. The proposed amendment would remove marketplace and platform fees from the definition of taxable data processing services. The amendment is only at the proposal phase and has not yet been adopted.

Background

The Comptroller鈥檚 executive order is in response to the previous leadership鈥檚 interpretation that marketplace and platform fees are taxable data processing services. Under this interpretation, fees that businesses pay to platforms to reach customers online became taxable as data processing services. Because such fees are subject to sales tax, one transaction can face double taxation: once on the underlying purchase and once on the marketplace and platform fees. Examples of this double taxation problem include seller fees on online marketplace platforms, fees imposed by food delivery platforms, and short-term rental listing fees.

What the Executive Order Does

The executive order directs the Comptroller鈥檚 office to publish a proposed amendment to Rule 3.330 removing marketplace and platform fees from the definition of taxable data processing services.

Fee Categories Covered by the Proposed Amendment:

• Sellers on third-party marketplace platforms
• Prepared food and grocery delivery
• Short-term lodging
• Ride-hailing and other transportation services
• Vehicle rental or sharing
• Pet care and pet-sitting
• Household, personal, and errand-running services

Procedural Next Steps

The proposed amendment will follow the standard Texas rulemaking process:

• The proposed amendment will be filed with the Texas Secretary of State.
• The proposal will be published in the Texas Register.
• A 30-day public comment period will follow, during which interested parties may submit comments to the Comptroller鈥檚 office.

Practical Takeaways

Marketplace platforms, sellers, restaurants, short-term rental hosts, gig workers, and other service providers affected by the 2025 interpretation should consider the following steps:

• Monitor the Texas Register for publication of the proposed amendment and note the comment period dates.
• Consider submitting comments during the 30-day public comment period to express support for or concerns about the proposed rule change.
• Review current sales tax collection and remittance practices for marketplace and platform fees, as well as any contractual provisions addressing tax obligations.
• Evaluate potential refund claims for taxes paid under the 2025 interpretation. The Comptroller鈥檚 announcement does not address retroactivity or refund procedures, so taxpayers should consult their tax advisors before taking any refund positions.
• Continue complying with current rules until the proposed amendment is formally adopted. The executive order does not change existing legal obligations during the rulemaking process.

For More Information

If you have questions about the proposed amendment or its potential impact on your business, please contact our 麻豆直播 team.