Remarks at the Small Business Capital Formation Advisory Committee Meeting

Good morning, thank you Erica [Duignan Minnihan], I am pleased to join the second meeting of 2025 for the Committee. I appreciate the Committee’s focus on exploring ways to expand access to early-stage and growth capital raising, and particularly the experience of companies using Regulation A.

The Commission has a statutory obligation to consider capital formation in our rulemaking.[1] We try to have a rulebook that benefits entrepreneurs and investors, but we are not always as successful as we would like to be.

Conversations regarding the Commission’s exempt offering regulations usually have two aspects.[2] First is how do we enable private companies to obtain more capital through cost-effective means. Second is how do we enable more retail investors to place their capital into private companies. Regulation A, if administered in a manner that reflects the experience of entrepreneurs, investors and practitioners, could help address these issues.

In revisiting Regulation A and other rules, we should consider whether the existing framework is unnecessarily rigid. For example, in Regulation D, the Commission takes an “all or nothing” approach to evaluating whether certain investors can participate in private offerings. A person is either an accredited investor or not. This approach, however, may be an obstacle in achieving the optimal regulatory outcome. A graduated framework — with a wide-ranging spectrum of outcomes — might be more appropriate. On one end, a scenario where retail investors can invest in private companies without any regulatory limitations and, on the other end, a scenario where retail investors are functionally prohibited from having exposure to private company investments.

Similarly, an “all or nothing” scenario somewhat exists for companies seeking to raise capital. They can either pursue a fully-registered offering under the Securities Act with extensive disclosure requirements or pursue an exempt offering under Regulation D to accredited investors and have no legal obligation to provide any disclosure to investors.[3] I recognize that there are nuances – such as whether a company might qualify as an emerging growth company, smaller reporting company, or whether a private placement memorandum or other disclosure is voluntarily provided in an exempt offering – but as the data indicates, issuers effectively choose one of two paths – an “all or none” situation.[4]

Regulation A might be a third way between that gap, but it has not been frequently used even after Tier 2 was adopted after the enactment of the JOBS Act. As Commissioner Crenshaw pointed out, she and I spent a lot of time in different capacities working on these rules. I note that when you work on rules, you hope that they will be utilized – you hope that both companies and investors will find value in them. As Chairman Atkins pointed out, we have not seen very much use of Regulation A since then.[5]

I look forward to hearing proposed approaches in expanding exit opportunities for investors in Regulation A deals and evaluating secondary market liquidity challenges. Enhancing opportunities in this space necessitates a comprehensive evaluation of the entire investment lifecycle.

Thank you to the participants and attendees for joining us today.