The Securities and Exchange Commission’s Office of the Advocate for Small Business Capital Formation recently delivered its annual report for FY2020 to the Committee on Banking, Housing and Urban Affairs of the US Senate and the Committee on Financial Services of the US House of Representatives, as required under the Securities Exchange Act. The report addresses the activities of the Office, which commenced its operations in January 2019. The report also provides an update, based on data from the Division of Economic and Risk Analysis, regarding the offering methodologies that different types of companies are relying upon in order to raise capital. Not surprisingly, among exempt offering alternatives, Rule 506(b) offerings continue to represent the most significant fund alternative, accounting for $1.4 trillion in proceeds raised from July 1, 2019 to June 30, 2020. The report also provides data on the impact of the pandemic on small businesses, and the impact on capital raising, providing data on the reliance throughout the pandemic on various offering exemptions, including Regulation D offerings, Regulation A and Regulation Crowdfunding, including by industry sector.
The report also includes data on smaller public companies. As indicated in the graph below, the number of smaller US publicly traded companies has declined significantly. Since 1996, more than 90% of the stocks that have disappeared are those of small and micro-cap companies. From July 1, 2019 through June 30, 2020, there were 232 IPOs with $259 million in average proceeds. During the same period, there were 457 small public company offerings with $53 million in average proceeds. The average market capitalization for a public company has dramatically increased, but, by contrast, many small companies struggle to work their way out of the micro-cap and small size “trap.”
This report is one of the few reports that highlights the issues facing smaller public companies, which often are life sciences companies.
The report also includes a wealth of data regarding minority access to capital and founder demographics.