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40th Annual Government-Business Forum on Small Business Capital Formation

May 24, 2021

Thank you, Martha [Miller].  I am pleased to be here on the first day of our fortieth annual Government-Business Forum on Small Business Capital Formation.  These events are a wonderful opportunity to bring people together to discuss the nuts and bolts of capital formation, a topic of heightened importance this year as the economy begins the long transition back from virtual to in-person.  With that transition, we hope that small businesses that have held on through the pandemic will regain momentum.  We also look forward to seeing new businesses, the brainchildren of entrepreneurs stuck at home during the pandemic, get off to a strong start. 

One of the few upsides of the past year was that people got a chance to spend time doing things they might not otherwise have done.  I have been a bread baker for as long as I can remember, so I enjoyed watching others embrace my hobby during the pandemic.  I particularly admire those who have taken on the challenge of making sourdough bread.  My experience with sourdough starter was short-lived.  In law school, I shared an apartment and a very small refrigerator with two roommates.  Rather than studying the law, I focused on learning to make sourdough bread.  I made my own starter, which I stored in a yogurt container in the fridge.  One morning, a distressed call from one of my roommates alerted me to the unfortunate fact that the starter, overly alive, had popped the lid on the yogurt container and spread itself all over everything in the fridge.  Bad for roommate relations, but probably good in the long-run:  I ditched the sourdough experiment and turned back to my legal studies.  A week ago, however, a friend gave me a new batch of sourdough starter, so the experiment is about to begin afresh. 

Not surprisingly, in my mind and likely I am not the first to think of this, sourdough starter has parallels with capital formation.  You have to find the first dollars—your starter money.  Maybe you create it yourself from your own savings or personal borrowing.  Often this early money comes from people you know.  That initial capital breeds more capital, but, to keep the business alive, you have to feed it with fresh capital, much like an aspiring baker has to feed sourdough starter with flour on a regular basis.  Just as my friend gave me some of her starter along with some advice about how to use it, a founder, over time, may be able to take some of the money she pulls out of the business and pass it along to other people, a chain that then continues.  A successful business, appropriately fed with capital, can be the seed from which many other businesses in the founder’s community grow and prosper.

Both new and existing businesses need capital, and the discussions over the next several days will help us to think about what we at the Commission can do to facilitate capital formation.  I anticipate that some of these recommendations, having been discussed at the Forum or elsewhere, will not be new.  I hope to hear the thoughts of Forum participants on the following and other ideas:

  • Accredited Investors: We laid the groundwork last year for allowing people to qualify as accredited investors based on sophistication proved not by wealth or income, but by education, examination, or experience.[1]  We need to build on this foundation, so people should be coming to us with suggestions of educational credentials, examinations, or professional certifications and designations that should serve as the basis for accreditation.
  • Finders: A Forum favorite in many of its forty years, a regulatory framework for finders—people who periodically introduce investors to small businesses in need of capital—would establish some much needed parameters for this activity.  We proposed an exemption last year.[2]  We should finalize it or, as Commissioner Lee suggested, propose a rule for finders.[3]
  • Micro-Offering Exemption: To make it easier for small businesses to locate early money, we should create a streamlined exemption to allow small businesses to raise $250,000 to $500,000 subject to the antifraud provisions of the securities laws and a requirement to notify the SEC of reliance on the exemption.
  • Crowdfunding:  Crowdfunding seems to have been relied upon more during the pandemic in part, perhaps, because of temporary relief we provided from certain crowdfunding requirements.[4]  Recent permanent amendments to the crowdfunding rules also are now in effect, which should further spur the use of this capital raising tool.[5]  We should consider whether any of the temporary relief should be made permanent and whether other changes would make crowdfunding more viable as a source of capital for small businesses. 
  • Modify Qualifying Venture Capital Fund Exemption under Section 3(c)(1): We should evaluate increasing the cap from $10 million to $150 million and increasing the allowable number of investors from 250 to 600, as recommended by the SEC Small Business Capital Formation Advisory Committee last week.[6]
  • Expand the scope of Qualifying Investments for Venture Capital Funds: Again, the Small Business Capital Formation Advisory Committee made a recommendation along these lines last week, but revisiting what constitutes a qualifying investment could make it easier for venture capital funds to support small businesses.[7]

Thank you to everyone who will participate in the Forum.  As important as the upcoming days will be, small business capital formation deserves our continued attention.  My door is always open for anyone who wants to talk about these issues throughout the year.  Maybe I will even have some sourdough bread on hand for visitors to sample.

[1] Accredited Investor Definition, 85 Fed. Reg. 64,234 (Oct. 9, 2020) (codified at 17 C.F.R. §§ 230, 240).  Requests for Commission consideration, which must address how a particular certification, designation, or credential satisfies the nonexclusive list of attributes set forth in the new rule, may be submitted at

[3] Public Statement, Commissioner Allison Herren Lee, “Regulating in the Dark: What We Don’t Know About Finders Can Hurt Us,”(Oct. 7, 2020)

[4] Temporary Amendments to Regulation Crowdfunding, 85 Fed. Reg. 27,116 (May 7, 2020) (codified at 17 C.F.R. §§ 227, 239); Temporary Amendments to Regulation Crowdfunding; Extension, 85 Fed. Reg. 54,483 (Sep. 2, 2020) (codified at 17 C.F.R. §§ 227, 239).

[6] Recommendations from SEC Small Business Capital Formation Advisory Committee (May 21, 2021), These ideas were discussed at the April 30, 2021 SEC Small Business Capital Formation Advisory Committee meeting:

[7] Id.

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