Remarks at the Virtual Small Business Forum

Good afternoon. Thank you to Martha Miller and her team for putting together this virtual forum and thank you to the participants for taking time out of your busy schedules today to share your first-hand knowledge of the challenges small businesses face in raising capital. Today’s agenda is ambitious, so I will keep my remarks brief.

One topic that I anticipate will make an appearance in this afternoon’s discussion is finders. Great uncertainty persists in this area because of decades of Commission inaction and a patchwork of shifting positions in staff no-action letters. Indeed, this forum first advocated for reform in 1998 and has raised the request repeatedly over the last two decades. The need for more clarity on finders is, under current circumstances, particularly acute. At last month’s Small Business Capital Formation Advisory Committee, committee member Greg Yadley explained,

Particularly these days, where companies are going to become even more desperate for money and we are loosening up so many ways for people to be able to raise money, there is still a disconnect between issuers who need a little bit of money and accredited investors who are willing to invest. But how do they find one another?[1]

The ongoing COVID-19 pandemic has placed tremendous stress on the economy. Small businesses have responded with their characteristic creativity and flexibility. As demonstrated by today’s keynote speaker, Administrator Carranza, whose agency was charged with the immense task of implementing the Paycheck Protection Program, government also must be flexible and creative in times like these. The SEC has issued emergency relief and guidance for issuers, broker-dealers, advisers, and other market participants. In May, for example, the Commission provided temporary, conditional relief for small businesses to pursue Regulation Crowdfunding offerings based on suggestions by the Small Business Capital Formation Advisory Committee. I will look to recommendations developed at today’s forum for ideas about other short-term and longer-term measures we can put in place.

Today’s discussions will highlight the role that a good regulatory structure can have in getting capital into every community across the country. We sometimes forget that innovators do not all look alike, think alike, or live in the same few coastal cities. It is not surprising that investors and smart, innovative people have benefited from gathering in places like Silicon Valley. We saw this innovation clustering play out in the forerunner of Silicon Valley—my hometown of Cleveland, Ohio. Garrett Morgan, the son of a formerly enslaved father, who made his way to Cleveland and a job in the city’s thriving manufacturing sector, is one example of this phenomenon at work. Ever on the lookout for problems in need of solving, and after establishing himself in Cleveland, he became a serial innovator and successful businessman.[2] His ideas caught the attention of others in Cleveland’s business community, including General Electric, which had a large presence in Cleveland and purchased Morgan’s patent on a revolutionary traffic signal after seeing first-hand how well it worked.

This pandemic and the attendant embrace of working from home may change what it means for a business to be located in a particular place, and new technology is changing the way innovators collaborate. It is, therefore, the perfect time to work on ways to ensure that capital can follow the talent wherever it goes. I urge today’s forum to consider whether, and if so which, regulatory factors contribute to the current concentration of capital on the coasts. For example, should we consider adjusting the current financial thresholds in the accredited investor definition to take into account income disparities in different geographic areas of the country? Further, should we broaden the definition to encompass individuals that have successfully completed an investing-related course at an accredited college or university? Should we create a new micro-offering exemption to enable people to support entrepreneurs they know? Should we make the temporary crowdfunding relief permanent? Are there other ways we can make crowdfunding a more viable option for businesses? I look forward to your thoughts on these and other issues. Enjoy the forum.