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Remarks at the 39th Annual Government-Business Forum on Small Business Capital Formation

June 18, 2020

Good morning and thank you for having me at the 39th annual Government-Business Forum on Small Business Capital Formation. I wish we could all be sitting together in the same room, but I’m grateful that we are able to go forward with the Forum in a virtual environment. I want to thank our Small Business Advocate, Martha Legg Miller, and her staff for putting together this excellent program. Thanks also to all the speakers and panelists for coming together today to share your experiences and insights.

It’s challenging to put together an event like this in the present circumstances, and for many it can be challenging even to absorb the daily news and still focus on our day-to-day work. But those very challenges make it all the more important that we go forward with this event for a several different reasons.

First, we know small businesses are particularly vulnerable in our current economic circumstances and it’s critically important that we find ways to support them. The Commission’s recent temporary crowdfunding rules are a good example.[1] The staff listened and crafted rules targeted to meet the immediate needs of small businesses, and I hope time will show that this temporary relief was helpful to both businesses and investors alike. Today provides another opportunity for us to listen to and learn from small businesses to better inform our rulemaking.

Second, this Forum’s mandate is unique in that it calls on us to engage not only with small businesses but also with our fellow regulators. Thus it challenges us to think about where we sit in the broader capital raising and regulatory landscape. For instance, we’ll be hearing today from the Small Business Administration. What are the implications of the SBA’s Paycheck Protection Program that the SEC should be thinking about? Can we help to leverage the effectiveness of that program? We’ll also be hearing from the Wyoming County Economic Development Authority. How can the SEC work with local authorities and supplement their efforts to help small businesses. How can we better assist with educational and other initiatives? It’s more important than ever that we collaborate and work across regulatory channels to think holistically about how to facilitate capital formation for small businesses.

Third, the agenda today highlights women- and minority-owned businesses, as well as rural entrepreneurship, and I’m very pleased to see that. Our capital formation solutions in this space should be premised on an understanding of the barriers that exist, and should be tailored to address those barriers.[2] Too often we take a “rising tide lifts all boats” approach in our efforts to facilitate capital raising, and fail to consider the unique challenges that face particular communities.[3] Simply taking steps to enhance capital formation broadly does nothing to address the underlying reasons why equal opportunities for access to capital still elude so many talented and hardworking minority, female, and rural entrepreneurs. It is crucial that we listen to voices from those communities, that we amplify those voices, and that we take the time to educate ourselves, and inform our regulatory approach, about the systemic and structural issues these communities face. The Forum represents a good opportunity for us to do just that.

With that, I’ll leave you to get on with your important agenda and thank you all for your time and attention on behalf of small businesses.

[1] See Temporary Amendments to Regulation Crowdfunding, Temporary Final Rule, Rel. No. 33-10781 (May 4, 2020).

[2] See e.g., Small Business Credit Survey: Report On Minority-Owned Firms, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Atlanta (Nov. 2017) (finding that “[f]orty percent of non-applicant black-owned firms did not apply for financing because they were discouraged (i.e., they did not think they would be approved), compared with 14% of white-owned firms” and “when comparing minority- and nonminority-owned firms with good personal and/or business credit scores, 40% of minority-owned firms received full amount sought compared to 68% of nonminority-owned firms.”); Understanding the Landscape: Access to Capital for Women Entrepreneurs, A Report Prepared by the Federal Research Division, Library of Congress under an Interagency Agreement with the National Women’s Business Council (Mar. 1, 2018) (finding that “women business owners raise smaller amounts of capital to finance their firms and are more reliant on personal, rather than external, sources of financing” and that “[w]omen in business are often tied to an unconscious association with less credibility and a lack of legitimacy”); Alicia Robb, “Access to Capital among Young Firms, Minority-owned Firms, Women-owned Firms, and High-tech Firms,” Small Business Administration Office of Advocacy (April 2013) (“African-American wealth levels are just 8 percent of non-minority wealth levels, and Hispanic wealth levels are just 12 percent of nonminority wealth levels. Only Asians have wealth levels similar to those of non-Hispanic Whites. Low levels of wealth and liquidity constraints can create substantial barriers to entry for would-be entrepreneurs because the owner's wealth can be invested directly in the business, used as collateral to obtain business loans, or used to acquire other businesses. Investors frequently require a substantial level of an owner’s investment of his/her own capital as an incentive.”).

[3] See, e.g., Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Proposed Rule, Rel. No. 33-10763, 66, n.134 (Mar. 4, 2020) (asserting that a proposed exemption from the prohibition against general solicitation for “demo days” will particularly benefit issuers “that have historically had less access to capital at start up,” such as “women-owned and minority-owned businesses.”). A similar unsupported claim, that a proposal that applies to all issuers will somehow particularly benefit women-owned or minority-owned businesses, was made in the proposal to amend the accredited investor definition. See Amending the Accredited Investor Definition, Proposed Rule, Rel. No. 33-10734, 129-30 (Dec. 18, 2019). These proposals in no way address the systemic issues that have traditionally acted as barriers to capital raising for such issuers. See, e.g., Robert W. Fairlie, Ph. D. and Alicia M. Robb, Ph.D., “Disparities in Capital Access between Minority and Non-Minority-Owned Businesses: The Troubling Reality of Capital Limitations Faced by MBEs,” U.S. Dept. of Commerce, Minority Business Development Agency (Jan. 2010) (“A review of national and regional studies over several decades indicates that limited financial, human, and social capital as well as racial discrimination are primarily responsible for the disparities in minority business performance…. Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied.”).

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