Statement by Commissioner Stein at the 2015 Government-Business Forum on Small Business Capital Formation
Commissioner Kara M. Stein
Nov. 19, 2015
Thank you. It is a pleasure to be with you again, at the annual Government-Business Forum on Small Business Capital Formation. A lot has happened since we gathered here just one year ago. Regulation A+ and Crowdfunding, two pivotal pieces of the JOBS Act, have now been completed. And, we have proposed an expansion of intrastate securities offerings under Rule 147.
As I have been speaking about small business capital formation over the past year, I have talked about creating a continuum of capital raising options for small businesses of different sizes, different business models, and different capital needs. Whatever the stage or type of small business, it should be able to get the capital it needs to grow in a form it is willing to live with as it grows. Hopefully, the new options put in place over the last two years will allow an entrepreneur’s good idea to develop into a thriving, successful enterprise – and hopefully, at some point, a registered public company.
However, despite the best and good faith efforts of all involved, many small businesses do not succeed. That may be why prior to the JOBS Act, the options for small business capital formation consisted largely of an entrepreneur’s own personal investment, loans from a bank, and/or capital provided by accredited investors. With each of these options, the risks were limited to the entrepreneur herself, and sophisticated investors or lenders.
The JOBS Act and our recent rules have certainly expanded the palette of options for investors to tap outside capital. Have we created a rationalized continuum of capital formation for small businesses? I’m not sure. We may be overly broad in some areas and too narrow in others. What is clear, though, is that these new options expose retail investors – the retiree, the working mom, the young college student – to new risks in unprecedented ways. How will investors fare? Some things worry me more than others. Only time will tell.
In some ways, these initiatives are experiments. As with any experiment, one must transition from the design and implementation phase to the data collection and evaluation phase. That’s why I think today’s meeting is so important. Your input will be critical in helping the Commission evaluate what we have done so far, both for small businesses and investors. Help us think through the tough questions. For example, what data and metrics should we be using to evaluate whether our experiments are working for small businesses? What about for investors?
We should also be monitoring how those experiments are working in different regions, sectors, and communities. For example, are the new capital raising options being deployed more effectively in some regions of the country than in others? Do some options work better for some sectors than for others? What about for different types of investors? And, critically, is capital formation working for entrepreneurs and investors from diverse backgrounds?
I hope the answers to these questions can help us improve our continuum of capital formation to maximize healthy opportunities for small businesses and for investors.
I look forward to your input. Let me know what you think. My office door is always open. Thank you again for joining us today to share some of your thoughts and insights with the Commission.