Recently, the Securities and Exchange Commission (the “SEC”) released its report to Congress summarizing the principal policy recommendations made at the 41st Annual Government-Business Forum on Small Business Capital Formation (the “Small Business Forum”). The Small Business Forum was led by the SEC’s Office of the Advocate for Small Business Capital Formation in cooperation with other offices and divisions across the agency. The Office of the Advocate for Small Business Capital Formation is an independent office of the agency established in order to identify and address the unique challenges and advance the interests of small businesses and their investors within the SEC.
During the Small Business Forum, participants shared their views on a number of topics, which were organized around the following themes: empowering entrepreneurs: tools to navigate capital raising; hometown entrepreneurship: how entrepreneurs can thrive outside of traditional capital raising hubs; new investor voices: how emerging fund managers are diversifying capital; and small cap world: what to know and how to think ahead.
In turn, the SEC’s report on the Small Business Forum covered a variety of topics with respect to capital raising strategies and the SEC’s recommendations to improve upon the capital raising framework. The report highlighted Chair Gensler’s remarks underscoring the SEC’s mission to promote capital formation. Consistent with Chair Gensler’s remarks, a topic emphasized throughout the Small Business Forum and in turn, in the report, related to the importance of providing small business access to public markets. Despite the availability of capital in the private markets, the report emphasizes that for smaller companies, public markets provide important benefits in the form of increased transparency and increased visibility through public disclosure, ensuring that all investors receive information at the same time, thereby increasing investor confidence for investors that may not have close connections to the company. Similarly, the report emphasized the importance of standardized public market disclosure, which enables comparability for a company among its peers. The SEC noted that the market advantages of public markets and increased access to more information enable smaller companies to reduce the cost of capital by allowing investors to price these companies more accurately, thereby balancing the costs and barriers to entry that may be encountered in an IPO.
Participants made a number of policy recommendations, including that the SEC:
- Revise Regulation Crowdfunding to permit investment companies to conduct a Regulation Crowdfunding offering;
- Expand the accredited investor definition to achieve greater diversity among startup investors and entrepreneurs—including by adding other measures of sophistication, and to include any person who invests not more than 10% of the greater of his/her annual income or net assets;
- Finalize the SEC’s proposed exemptive order that allows certain finders to function without registering as broker-dealers;
- Create a new private fund exemption to allow states to foster intrastate and regional funds focused on community-based investing that is open to non-accredited investors; and
- Increase the number of investors allowed in Section 3(c)(1) funds above 99 investors.
Read the complete Report on the 41st Annual Small Business Forum here.