Effective Small Business Capital Formation Requires Investor Protection to Foster Investor Confidence
Commissioner Luis Aguilar
U.S. Securities and Exchange Commission
SEC Government-Business Forum on Small Business Capital Formation
November 15, 2012
I would like to add my welcome to the panel members and other participants in today’s Forum on Small Business Capital Formation. I also want to welcome the members of the public in attendance, as well as those viewing by webcast. Before I begin, let me note that these remarks are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or the Commission’s staff.
Small business is a powerful engine for economic growth. Independent businesses with fewer than 500 employees account for half of all private sector jobs and more than half of nonfarm private GDP.1 Growth in small business helps fuel the U.S. economy, generating opportunity, competition, and demand. Small businesses are essential to sustaining a strong economy, strong communities, and a strong middle class.
Today’s Forum reflects the Commission’s continuing interest in capital formation issues for small businesses. Indeed, the Commission has had a long-term focus on small business, and has utilized multiple avenues to regularly and consistently seek input from small business stakeholders. For example:
● Today’s program marks the 31st annual meeting of the Forum on Small Business Capital
● The Office of Small Business Policy, which helps to organize this annual Forum, was established in 1979. It regularly participates in rulemakings and other activities affecting small business and interacts with government agencies and other groups concerned with small business issues.3
● Since 1996, the Commission has appointed a Special Ombudsman for Small Business to represent the concerns of smaller companies within the SEC.4
● Last year, the Commission established an Advisory Committee on Small and Emerging Companies, to provide advice and recommendations specifically related to privately held small businesses and publicly traded companies with less than $250 million in public market capitalization.5
● In addition, among other statutory protections for small businesses, the Regulatory Flexibility Act requires us to consider the impact of all our rules on small entities.6
This Forum provides an opportunity to discuss how the environment for small business capital formation can be improved, consistent with investor protection and other public policy goals.7 Of course, any discussion of capital formation must recognize the needs of investors. Investors are the capital providers. They provide the funding by writing the checks to facilitate capital formation. As such, their perspective is particularly important to this discussion. To that end, it is essential to recognize that, while bloated or unnecessary regulations must be avoided, fair disclosure rules and investor protections help to promote capital formation.
This happens in various ways. I’ll mention just three:
First, disclosure rules promote capital formation by providing investors with the information they need to make good investment decisions. The transparency resulting from clear disclosure enables investors to better price risk and determine value, which increases the likelihood that capital will be invested productively. Capital formation is much more than just capital-raising. True capital formation requires that funds raised be invested in productive assets. The more productive the assets, the greater the capital formation facilitated by those investments.
Second, disclosure and other market safeguards help provide investors with the confidence they need to invest their savings. Investors in small businesses, like all capital providers, want to know that company management is treating them fairly and has properly disclosed the risks, as well as the potential rewards, of their investment. Moreover, they want financial statements they can trust.
Third, smart and workable securities regulation can help promote long-term investing. Investors who truly understand both the risks and potential rewards of their investment may be more likely to provide the “patient” capital that private companies need to succeed and grow for the long-term.
Today’s Forum will discuss exempt securities offerings, crowdfunding, and other topics relating to small business capital formation. I urge Forum participants to consider the needs of investors in their deliberation. Providing a transparent and level playing field can help create a context in which investors feel confident entrusting their capital to an entrepreneur or growing business. These are important issues, and I look forward to hearing your views.
In closing, I want to thank the hard working SEC staff who are responsible for today’s program.
I wish everyone a productive day. Thank you.
6Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164 (codified at 5 U.S.C. § 601).