Remarks at Meeting of the SEC Small Business Capital Formation Advisory Committee

Thank you, Carla [Garrett] and welcome, Kesha Cash and Sue Washer, to the Committee. I look forward to hearing your thoughts today and in the months to come and, I hope, meeting you sometime in person. You are joining a committee made up of people who share a common passion for capital formation and whose hard work greatly benefits the Commission. Thank you to today’s panelists for joining us. A special welcome to fellow Ohioan Densil Porteous.

Today’s meeting is an opportunity for us to think about ways we can open the doors of our capital markets so that more Americans walk through them as investors and as entrepreneurs in need of capital. Our capital markets have the ability to empower individuals, transform communities, bring us together in shared enterprises, and enhance our great nation’s prosperity. Capital markets can and should work for every American. When entrepreneurs with exciting ideas cannot find funding through our capital markets, we must consider whether our existing regulatory framework is contributing to these unnecessary barriers to capital formation.

One existing exemption that has not lived up to its full potential is Regulation Crowdfunding. While the Commission has proposed to increase the offering limit of Regulation Crowdfunding to $5 million and to permit the use of certain special purpose vehicles to facilitate investments, there is much more we can do to make crowdfunding an attractive fundraising option and one that people without built-in networks of wealthy friends can use. Some of the issues that I am thinking about include:

• Should we consider eliminating or raising the individual investment limits for both accredited and non-accredited investors? If any individual investment limits are retained, should we simplify their calculation?
• Are there ways to reduce the existing disclosure requirements while preserving investor protection? For example, should we consider raising the current threshold requirements for reviewed and audited financial statements or scaling ongoing reporting obligations based on the offering size?
• Given the highly regulated nature of sales through crowdfunding portals, should we eliminate the prohibition on advertising of a crowdfunding offering?
• Can we encourage intermediaries to increase their involvement and better align their interests with investors by permitting them to receive carried interest or performance-based fees?

Another potential way to get capital to entrepreneurs without easy access to capital could be a micro-offering exemption that would enable entrepreneurs to raise money from their local communities without having to hire an attorney. Would a micro-offering exemption permitting offerings up to $1 million, coupled with bright-line individual investment limitations provide a meaningful framework? Is another offering threshold more appropriate? Should we consider creating a micro-offering tier within Regulation Crowdfunding with reduced disclosure obligations?

Demo days are another way that entrepreneurs without ready-made funding networks can get in front of potential investors. We proposed an exemption from general solicitation for these events, which may be sponsored by, for example, a university, a local incubator, or an angel investment group. Is that exemption appropriately designed to allow young companies, consistent with investor protection objectives, to show off their ideas to people who are able to fund them?

I will stop talking so that our panel and the Committee can weigh in on whether these solutions or others would work. At the end of the day, we want a regulatory framework that facilitates the flow of capital into the hands of the people who can put it to the best use, wherever they live and whatever they look like. Thank you and I look forward to today’s discussions.