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Ecosystems and IPOs: Remarks at the Meeting of the Small Business Capital Formation Advisory Committee

Oct. 13, 2022

Good morning. Thank you to our committee members for convening and to our panelists for joining today’s meeting.[1] Thank you to Andrea Seidt from the great state of Ohio for lending your talents. Welcome to Bill Beatty, who will take Andrea’s place as the NASAA representative. I am grateful that today’s discussion will cover two vitally important topics for smaller businesses: entrepreneurial ecosystems and trends in going public.

Entrepreneurship Hubs

On a recent trip to Charleston, South Carolina I observed how entrepreneurial ecosystems work outside of the largest cities. An entrepreneurial ecosystem in a region like that can be key to fostering the growth of small business and, importantly, their ability to remain in the region, rather than being lured away by the bright lights and big dollar signs of New York and San Francisco. As discussed at this year’s Annual Small Business Forum, “[d]ifferent regions can have advantages in terms of cost of living and the ability to find unique talent and work more closely with their customers.”[2] While not among the top 20 recipients of investment dollars,[3] cities like Charleston and their surrounding regions can grow in that capacity under the right entrepreneurial ecosystem and regulatory framework.

Historically just a few regions have accounted for the vast majority of the flow of investment dollars. This trend is abating,[4] but too slowly. In 2021, according to Pitchbook data, almost 80% of venture capital went to just three regions: “the Bay Area; the Northeast corridor from Boston to Washington, D.C.; and Southern California.”[5] Trends are similar for angel capital. According to the 2021 Small Business Advocate Report, nearly two-thirds of angel and seed deals occur in the top ten funding regions.[6]

Entrepreneurs who are committed to a region can change that dynamic. After building successful businesses of their own, many entrepreneurs enjoy investing in other businesses in their communities. In addition to funding start-ups, these investors draw upon years of business experience to provide sound advice; speak hard truths; explain how the capital raising process works; connect them with the necessary legal, accounting, and management expertise; and help them navigate the thorny issues that all new companies face. I heard how that is playing out in Charleston. As discussed at this year’s SEC small business forum, “[o]ne of the biggest resources for new entrepreneurs is having relationships with entrepreneurs who have been through the process.”[7] Investors dipping their toes into the private markets for the first time also receive needed mentorship. The result is a region that is hospitable to both start-ups and investors.

I hope this morning’s panel explores how the Commission can improve entrepreneurship ecosystems by expanding the pool of investors in a region and fostering the ability of start-ups to stay in the communities in which they were born. I have several questions:

  1. Would expanding the definition of “accredited investor” help facilitate vibrant entrepreneurship ecosystems, particularly outside of the largest cities? If so, how should the Commission expand this definition?
  2. Should the Commission explore ways to make it easier for companies to find investors, particularly by creating a safe harbor from broker registration for finders?[8]
  3. Should the Commission authorize the creation of a micro-offering safe harbor that exempts small raises of around $250,000 to $500,000 from state and federal securities registration requirements?[9]
  4. Should the Commission expand the reach of angel funds under Section 3(c)(1) of the Investment Company Act by allowing them to be as large as $50 million with 500 investors, instead of $10 million and 250 investors?[10]

IPO Statistics

I am also looking forward to the afternoon discussion on the market for companies going public. This discussion could not be timelier, as a report from late last month found that the U.S. is expected to report the lowest proceeds from IPOs since 2003.[11] In light of this troubling news, I have several questions for this afternoon’s panel.

  1. Are these recent market trends a short-term phenomenon or indicative of broader, long-term developments? Market trends should inform Commission action, but only if they are long-term structural market changes, not flash-in-the-pan trends.
  2. Is any of this drop-off attributable to an uncertain and increasingly costly regulatory environment for public companies, caused by new and pending SEC regulations and guidance?
  3. Do these recent market trends speak to how the SEC can properly calibrate rules for traditional IPOs, direct listings, reverse mergers, and SPACs, without overly discouraging any particular method of going public, or creating unnecessary opportunities for regulatory arbitrage?

Thank you all again for your input and commitment. I look forward to the discussion.

[1] My views are my own and do not necessarily represent those of the Commission or my fellow Commissioners.

[2] Sec’s & Exch. Comm’n, Report on the 41st Annual Small Business Forum: 04.04-07.2022 (Jul. 28, 2022) at 10, (2022 Forum Report”).

[3] For statistics based on flow of venture capital dollars, see Richard Florida, The Post-Pandemic Geography of the U.S. Tech Economy, Bloomberg: City Lab (Mar. 9, 2022),

[4] Beyond Silicon Valley: Coastal Dollars and Local Investors Accelerate Early-Stage Startup Funding Across the US, Rise of the Rest: A Revolution Fund (Dec. 8, 2021),

[5] See Florida, The Post-Pandemic Geography of the U.S. Tech Economy, supra note 3.

[6] See Sec’s & Exch. Comm’n, Office of the Advocate for Small Business Capital Formation (Dec. 9, 2021) at 25, (citing PitchBook-NVCA, “Venture Monitor Q2 2021,” (July 13, 2021) at 7, PitchBook-NVCA_Venture_Monitor-1.pdf).

[7] 2022 Forum Report, supra note 2, at 5.

[8] See Sec’s & Exch. Comm’n, SEC Proposes Conditional Exemption for Finders Assisting Small Businesses with Capital Raising (Oct. 7, 2020),; see also 2022 Forum Report at 12 (The Commission should “[f]inalize the Commission’s finders order”).

[9] See Sec’s & Exch. Comm’n, Final Report of the 2021 SEC Government-Business Forum on Small Business Capital Formation (Sept. 27, 2021), at 11, (The Commission should “[e]stablish a micro-offering exemption with minimal disclosure requirements.”).

[10] See 2022 Forum Report, at 16 (The Commission should “[i]ncrease the thresholds (number of investors and cap on fund size) allowed in 3(c)(1) funds to achieve greater diversity among startup investors and entrepreneurs.”).

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