Remarks at the Small Business Advisory Committee Meeting

Good morning, and thank you to Carla and the rest of the Committee for your time and input today. It is a pleasure to address an SEC advisory committee for the first time and on a topic as profoundly important as small business capital formation.

In preparing for today’s event, I revisited the legislative history of the statute that established the SEC’s Office of the Advocate for Small Business Capital Formation (OASB) and its advisory committee. What stood out to me is how smoothly the legislation moved – by voice vote in the House, and by unanimous consent in the Senate. With no amendments.

This swift enactment demonstrates the strong support in Congress for this Office and for this Committee’s essential role in advocating for small business capital formation and small business investors.

As members of this Committee, you have a unique opportunity to shape the regulatory dialogue. It’s a commitment that I know you take seriously and that adds distinct value to the SEC’s capital formation mission.

Central to the Office’s statutory mandate is reporting to Congress on the most serious issues encountered by small businesses and small business investors.

A few key findings from the Office’s latest Annual Report bear mention here:

On the plus side, the representation of women is steadily increasing on corporate boards and in the boards of venture-backed private companies. I’m also encouraged to see growing recognition among investors about the value of diversity and inclusion.

However, the report also highlights significant concerns. With respect to capital formation more broadly, mature and later-stage businesses are seeing limited opportunities to access venture capital outside of existing personal and professional networks.

In addition, there are persistent challenges unique to minority and women-owned businesses:

• Capital raising by women-owned businesses pales in comparison to the proportion raised by men-owned business.
• Many underrepresented entrepreneurs confront additional barriers due to the wealth gap.
• A large percentage of LGBTQ+ small business owners cite raising capital as their greatest business challenge.
• The share of minority entrepreneurs seeking angel capital in 2020 dropped four percentage points relative to 2019 – another likely indicator of the disproportionate impact of the COVID-19 pandemic on minority entrepreneurs.

The notable lack of significant progress in these key areas illustrates the need for exploring new and innovative regulatory solutions that can address existing disparities. Proposals to adjust regulation in traditional ways must be evaluated against whether they truly level the playing field for all market participants.

Meaningfully addressing the unique challenges that women- and minority-owned businesses face is critical to fulfilling the SEC’s capital formation mission. I would note, by the way, that the phrase “unique challenges” comes directly from the authorizing statute and is additive to other challenges small businesses face.

I had a front-seat view of some of these challenges as the son of immigrant small business owners who ran a Mexican food business out of our home. The barriers to their business’ growth are common to many immigrant families: language difficulties; a financial system they perceive as unapproachable or out of touch with their needs; and deeply ingrained cultural practices surrounding the search for growth capital. This is on top of all the usual capital-raising challenges that small business owners face, some of which are also highlighted in the annual report.

The Advisory Committee can be instrumental in arriving at viable solutions to these unique challenges. The statute was written to ensure that the voices of officers and directors of women- or minority-owned businesses are not only heard, but represented, on the Committee. Your role is vital to ensuring that millions of small businesses across America can have the best possible opportunity to grow and succeed.

I urge the Committee to keep these unique challenges at the forefront as it considers how best to address liquidity in the secondary markets for private offerings.

Thank you for your valuable contributions and I look forward to today’s discussion.