SEC Chair Jay Clayton urged the SEC Small Business Capital Formation Advisory Committee (the "Committee") to consider ways to facilitate investment opportunities for "Main Street" investors, and for small businesses to raise capital, through private placements.
In remarks before the Committee, Mr. Clayton advocated for a less costly and complicated approach to private offering regulation that would facilitate better opportunities for "Main Street" investors. According to Mr. Clayton, differences between the opportunities available to Main Street and institutional investors result in part from the current "overly complex and rigid" approach to private offering regulation. He said that this approach - which began 35 years ago and was implemented on a "patchwork basis" - relies on the wealth-based definition of "accredited investor," leading to only the wealthiest investors being able to invest in the private markets.
Mr. Clayton stated that businesses seeking to raise capital in the private markets typically favor institutional investors due to the cost of raising capital from Main Street investors. He said that the private capital markets do not sufficiently help small- and medium-sized companies raise capital. Further, most small- and medium-sized companies cannot grow beyond the start-up stage unless they have "established relationships with professional investors." Mr. Clayton advised the Committee to examine whether there are regulatory changes that would remedy this.
The SEC issued a concept release reviewing the framework for exempt offerings, particularly as to private placements. The agency is requesting public comment on ways to simplify, harmonize and improve that framework.
Regulators and industry members discussed issues and potential remedies for small businesses in relation to capital formation.
The House Financial Services Committee approved six bills intended to enhance capital formation.
At the 35th Annual SEC Government-Business Forum on Small Business Capital Formation, SEC Chair Mary Jo White and Commissioner Michael Piwowar reflected on rulemaking initiatives intended to remove barriers to capital formation for small and emerging companies.