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Remarks at the Meeting of the Small Business Capital Formation Advisory Committee

Jan. 29, 2021

Thank you Carla [Garrett] and thank you to all of the members of the Committee for being here today. I am grateful for your time and for your willingness to think about how the Commission can support small businesses, entrepreneurs, and their investors. This is my first time attending a meeting of the Small Business Capital Formation Advisory Committee as a Commissioner. It is wonderful to be here. While I know some of you already, I look forward to engaging with each of you – virtually for now and hopefully in person one day.

I want to begin by extending my appreciation to the Commission’s Office of the Advocate for Small Business Capital Formation (“OASB”). Despite the challenges of the past year, you have put together a thorough and detailed report that brings attention to several significant issues.[1] You have also raised some critical questions for us to consider.

It is fitting that the first matter on the agenda is a discussion of the OASB’s Annual Report for Fiscal Year 2020 and its key findings. One item addressed in the report that I am certain is top of mind for many of us is the devastating impact that COVID has had on small businesses.[2] I hope you will be able to devote some time today to thinking about what additional steps the Commission might take to help businesses get back up and running as we enter the next phase of the pandemic.

A second troubling, but unfortunately not surprising, finding in the report is the disparate impact the pandemic has had on businesses owned by women and minorities.[3] This is certainly not a new problem. The report details the larger backdrop of structural inequities and imbalances in our financial markets. Specifically, the report highlights the ways in which our financial system has consistently offered investors more opportunities to invest in businesses owned and advised by white males and fewer opportunities to invest in businesses owned and advised by women and minorities.[4] The report further illustrates the greater challenges women and minority-owned businesses face when seeking funding and investors.[5]

One of the silver linings of 2020 is that there has been an increased national focus and recognition of the ways our economy fails to serve communities of color.[6] I do hope that the Committee will use this opportunity to consider concrete steps we could take to work toward addressing these barriers. Some questions that I would be interested in hearing your views on include:

  • How do we improve access to funding for historically underrepresented groups?
  • How do we encourage broker-dealers, fund managers, and investment banks to facilitate offerings for these groups using their networks?
  • Could we increase diversity among portfolio managers? Would that make our markets more inclusive of women and minority-owned businesses?
  • Are there ways for the Commission to encourage institutional investors (public funds and large private institutional investors) to allocate more investments to businesses with women and minority founders?
  • What is needed to break the cycle of “pattern matching” described in the annual report?

Of course, I welcome any other thoughts you have on the subject. There is no easy solution, but this is something that we need to work through together.

I understand the Committee will be considering current trends among smaller public companies this morning. We all know the important role that smaller public companies play in our economy and the value they bring to our communities. In a good year, smaller public companies face a number of challenges – from the threat of corporate “giants,” to the consequences of having less research coverage. OASB has done a good job of highlighting these challenges and the unique circumstances these companies faced in 2020. I am sure you will discuss many of them today, but there are a few I am particularly interested in hearing your views on.

The first is COVID. The lack of economic activity resulting from prolonged quarantine has closed a lot of smaller businesses. And while some have obtained federal aid, others had a difficult time navigating the process.[7] It would be helpful if today you could consider the following questions:

  • What are the most pressing needs of these smaller companies?
  • Are existing COVID relief measures effective?
  • What can the agency do to help these companies get back on their feet?

The second 2020 trend I want to highlight for you is SPACs. Everyone is talking about the rise of SPACs. I am interested in hearing whether the dramatic increase in SPACs over the last year has impacted smaller public companies, and if so how?

Finally, this afternoon when the Committee discusses the compensatory offering rulemakings, I would be interested in hearing your thoughts on whether the Commission should be asking companies to use compensatory offerings as an additional benefit on top of cash compensation, rather than as a replacement for a portion of their cash compensation. I am also interested in hearing how these workers might withstand the liquidity risks of these offerings.

Thank you. I look forward to today’s discussion.

[1]Office of the Advocate for Small Business Capital Formation, Sec. & Exch. Comm., Annual Report for Fiscal Year 2020.

[2] Id. at 17-22.

[3] Id. at 58-59.

[4] Id. at 46-57.

[5] Id. at 48-49, 54.

[6] See, e.g., Sifan Liu & Joseph Parilla, New Data Shows Small Businesses in Communities of Color had Unequal Access to Federal COVID-19 Relief, The Brookings Institution (Sept. 17, 2020) (describing the pre-existing capital access challenges for small businesses in majority-minority neighborhoods).

[7] See id.

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