SEC Commissioners Challenge Small Business Advisory Committee to Improve Access to Capital
Commentary by Steven Lofchie
SEC Commissioners challenged the Small Business Capital Formation Advisory Committee (the "Committee") to address obstacles to raising capital for small businesses and for minority- and women- owned businesses.
In their remarks, SEC Chair Jay Clayton, Commissioner Allison Herren Lee and Commissioner Elad L. Roisman each underscored the difficulties of providing access to capital for minority- and women-owned small businesses, especially during times of economic distress (see here, here and here). Ms. Lee asked the Committee to consider ways in which the SEC can systematically address racial and gender disparities, including:
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requiring an analysis of whether and how rule proposals are specifically tailored to assist underserved communities;
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giving the Office of Women and Minority Inclusion a larger role in rulemakings; and
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taking a more active role in addressing the lack of diversity in the financial services industry.
In her statement, Commissioner Hester M. Peirce pointed to the lack of fundraising options for entrepreneurs as an indication that the existing regulatory framework needs changes. Ms. Peirce requested feedback on several options, including:
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expanding fundraising opportunities under Regulation Crowdfunding by (i) eliminating or increasing investment limits for accredited and non-accredited investors, (ii) reducing disclosure requirements while also protecting investors, (iii) eliminating the ban on advertising of a crowdfunding offering, and (iv) allowing intermediaries to accept carried interest or performance-based fees to promote the alignment of intermediary-investor interests;
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offering a microcap exemption so that entrepreneurs can raise money from their local communities without having to pay for an attorney; and
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implementing a proposed exemption from general solicitation for "demo days" to provide entrepreneurs with an opportunity to gain greater exposure to potential investors.
Commentary
Commissioner Peirce provided specific examples of ways in which the SEC could afford small businesses a greater opportunity to raise money. The policy tension is that making it easier for issuers to raise money by lowering the costs of conducting a securities offering necessarily means reducing the degree of regulation over those offerings (such regulation may be protective, but it raises expenses). Commissioner Peirce is willing to make that trade-off to improve the regulatory framework and reduce barriers.