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Remarks Before the Small Business Capital Formation Advisory Committee Meeting

Sept. 27, 2021

Good morning and welcome. As is custom, I’ll start by saying: my remarks this morning are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners. It’s also customary for Commissioners to say that they are looking forward to an advisory committee’s discussions, but I am especially looking forward to your discussions today. The topics you will be covering are crucial to our understanding of how smaller businesses are accessing capital, and I am particularly interested in hearing both your panelists and your discussion today.

Investment in private offerings has been a hot topic for several years now, as the private market has expanded. One of the key concerns that I have had is that there have been few opportunities for retail investors to capture much of the considerable wealth that has been generated by some of our country’s most dynamic companies. It seems, however, that these opportunities have not been entirely missed as data show that pension funds and mutual funds have become active participants in late stage investments in these private companies, along with other types of “crossover investors.”

I am pleased that, at least through some of those vehicles, some everyday Americans have been able to tap into the resilient growth in our private markets. Given that they are investing through highly sophisticated fund managers, and these managers are overwhelmingly investing at a point in a company’s growth where risks have receded, this seems to be a good outcome for those beneficial owners. Our disclosure rules and the lines we have traditionally drawn between public and private offerings rely on the concept that our mandatory disclosures may not be necessary where an investor is sufficiently sophisticated to be able to request, receive, and evaluate the information needed to make an informed investment decision. These investments by mutual and pension funds would seem to meet that standard.

Of course, not all retail investors are able to access such opportunities. An individual non-accredited investor is still not able to invest in private offerings. As I have said frequently in this and other settings, we should continue to evaluate ways to expand the accredited investor definition to allow more individuals to access potentially valuable investments.

Also, not all of the crossover investors represent primarily retail investors. To the extent that the influx of crossover investor funds allow a greater chasm to grow between accredited investors with access to a rich array of investment options and retail investors who overwhelming cannot access these opportunities, this only underscores the fundamental unfairness of excluding people of moderate means from the investments with great growth potential. All this is to say: I hope that this Committee will continue to explore ways that all investors might participate in and benefit from our innovative and dynamic private markets.

I am also looking forward to your second panel today. As going public has become more challenging, companies have discovered or rediscovered alternative or novel ways to reach that goal. We have recently seen a considerable boom and rapid diminution in the number of SPACs. We have also seen a number of companies opt for the direct listing route.

Here at the SEC we see the numbers and the headlines, but often miss the stories on the ground. I am very interested to hear how today’s panelists have navigated the various channels toward public listing, what challenges they have faced, and what regulatory changes might affect the markets.

Thank you again to our committee members and our guests. I look forward to your remarks and discussion.

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