Over the past year, there has been mounting concern about private companies being overvalued, and the consequences of inflating a technology 'bubble' that could be set to burst. But one law, at least, is forcing tight-lipped employers to share financial information with employees.

One chapter of Delaware's corporate law can force startups to be financially transparent with shareholders--provided the startups were locally incorporated. Jay Biederman, a former manager at Domo, the Salt Lake City software service currently valued at $2 billion, says he's now using the law to compel Domo to show him the books. In doing so, he can better value his shares in the company, according to the Wall Street Journal. Biederman claims he was denied access to financial data before invoking the rule.

Inc. reached out to Domo for comment, but has not heard back.

Only major investors are typically granted access to a private company's revenues, projections, and profits. More startups have been receiving bigger injections of capital for multi-million--and often billion-dollar valuations (there are currently 145 such "unicorns" in the U.S.).  Because of this, analysts warn that companies are overvalued, putting the value of individual shares into greater question.

Some investors are now demanding to see profit over growth, forcing high-profile tech startups (i.e. Birchbox, Dropbox, Evernote and Jawbone) to cut costs in the form of layoffs, retracting benefits, or closing offices. (Birchbox axed 15 percent of its staff in February, citing a 'hostile' funding climate, and steep shipping prices to Canada.)

Steve Blank, the Silicon Valley entrepreneur and professor, who started eight successful companies over the course of his career, argues that valuations aren't based on revenues and profits anymore, and that doesn't bode well for founders.

"When I was an entrepreneur, the role of venture capitalists was the same -- theoretically," says Blank. "But there was an unspoken but pretty solid rule: We needed five consecutive quarters of profitability and increasing revenues to go public."

"[Today], the model looks nothing like it did forty years ago. It's a horrible thing. We're going to have another crash," he said.

Mary Jo White, head of the U.S. Securities and Exchange Commission, recently spoken out against such high valuations, calling for greater fiscal transparency from private companies.

"Our collective challenge is to look past the eye-popping valuations and carefully examine the implications of this trend for investors, including employees of these companies," White said in a  speech in March.

Hundreds of lawsuits have been made in Delaware to inspect company statements, though most are settled before being filed, lawyers told the Journal, noting that it's still unclear whether or not companies are complying. Chris Biow, a former executive and shareholder in MarkLogic and MongoDB -- two startups valued at over $1 billion -- has asked to see the revenues, profits, and a list of other stockholders in the companies. MarkLogic eventually showed him the statements, though refused to share a list of stockholders, Biow told the Journal.

Published on: May 25, 2016