Remarks at SEC Small Business Capital Formation Advisory Committee Meeting

Thank you, Carla [Garrett] and thank you to the Committee members and today’s panelists.  Welcome to Andrea [Seidt] to the Committee.  I am particularly happy to have a fellow Ohioan involved.  Thanks to Mike [Pieciak] for serving on the Committee.  I am looking forward to today’s discussions on small business capital formation trends at this stage in the pandemic, and the changing dynamics of pre-IPO financing and going public.  Two trends to be featured today – SPACs and the significant increase of institutional investor participation in late stage private capital raising rounds – demonstrate the hunger for growth opportunities in our markets.  Making it possible for retail investors to get access to some of this early growth remains an important matter for the Commission’s consideration.

The desire to expand private investment opportunities to more individuals was on full display at our May 2021 Small Business Forum.  The Forum’s Report,[1] which was released this morning, includes valuable policy recommendations by the participants, many of which have been discussed by this Committee.  The Report includes some frustratingly non-committal responses by the Commission.  History teaches us that the Commission’s non-committal responses with regard to Forum recommendations could translate into no action at all.  Now is not the time for a full response to all of the Forum’s recommendations, but I will address a few of them and urge this Committee to continue pushing the Commission to show more of a commitment to facilitating small business capital formation. 

Forum participants recommended that we “expand the accredited investor definition to include other measures of sophistication, such as specialized industry knowledge or professional credentials.”[2]   Another recommendation similarly suggested that we expand the definition “to include an investor certification course or test whose curriculum has been approved by FINRA or the SEC.”[3] 

My response:  Ideally, the Commission would get out of the business of telling Americans that they are either not rich enough or smart enough to invest their money as they wish.  Short of that approach, the Commission should entertain proposals from the public to expand the accredited investor definition to cover additional certifications, designations, and other credentials.[4]  My preference would be to avoid anointing one institution or entity to design and administer a knowledge-based exam.  We might consider instead allowing multiple tests or crediting successful completion of two or more investing-related courses at any accredited college or university, but I am open to other options. 

Forum participants also recommended that we “revise Regulation Crowdfunding to remove the GAAP financial statement requirement for businesses looking to raise a small amount,” preempt state law for secondary transactions for shares issued under Reg A and Crowdfunding rules, and establish a micro-offering exemption.[5]

My response:  We need to create workable options and remove regulatory barriers that prevent small businesses from using these options.  Since the beginning of the pandemic, Regulation Crowdfunding has emerged as a vital capital formation tool, and I am pleased that the Commission provided temporary relief with respect to the financial statement review requirements in Regulation Crowdfunding.  The positive feedback from that exercise suggests that we should be open to exploring other tweaks to Regulation Crowdfunding.  Likewise, changes to Reg A may help to expand its use, and a streamlined micro-offering exemption might be particularly helpful for early-stage founders in communities without many deep pockets or easy access to specialized legal help. 

Thank you, and I look forward to your thoughts and observations as today’s agenda focuses at the other end of the spectrum of private companies—those close to going public.