SEC Commissioners Weigh-In on Small Business "Access to Capital"

At the 44th Annual SEC Small Business Forum, SEC Commissioners shared different opinions on the challenges small businesses face in accessing capital. 

Director of the Office of the Advocate for Small Business Capital Formation Stacey Bowers cited a recent report showing that "small businesses created 80% of net new jobs since 2011," but that 77% of these businesses raised concerns about accessing capital. She highlighted the importance of entrepreneurial support organizations, like incubators and accelerators, that "play a key role in supporting and mentoring early-stage companies," noting that entrepreneurs who work with those organizations are likely to raise more capital and generate more revenue. She emphasized that "while VC ecosystems are growing across the country outside of the traditional hubs, many areas do not have a strong community to support small businesses." Ms. Bowers also pointed out that, while IPOs increased slightly in early 2024, smaller company IPOs made up 40% of the total number since 2022, but only 4% of the deal value. 

SEC Acting Chair Mark T. Uyeda emphasized the need for "cost-effective regulations without sacrificing investor protection" to spur innovation and job creation. He criticized overly complex rules, noting that entrepreneurs should not face compliance costs that drain scarce resources. He warned: "the answer should not be 'it depends,'" when entrepreneurs ask about "exemption[s] for friends and family round[s]." On growth-stage and private funds, he questioned an "all or nothing" accredited investor standard and suggested exploring whether "every individual be permitted to invest at least a small amount every year in private companies." On public company reporting, Mr. Uyeda said current rules treat vastly different-sized firms the same, with "a $250 million public float ... subject to the same disclosure requirements as a company with a $250 billion" one.

Commissioner Hester M. Peirce argued that the SEC "still has a lot of work to do on making it easier for small companies to find funding and meet their regulatory burdens." She posed open-ended questions for consideration: (i) are current capital-raising exemptions too hard to use; (ii) is Regulation Crowdfunding viable, or do costs and low returns limit its use; (iii) how can Regulation A be improved, especially for digital assets; (iv) should the accredited investor definition be expanded or removed; and (v) can filer status rules be simplified?

Commissioner Caroline A. Crenshaw highlighted the stress on small businesses following recent "whipsawing market events." On accredited investor standards, she criticized the current definition's failure to adjust for inflation. Regarding the decline in IPOs, she challenged the idea that regulation is the main deterrent, stating that the US IPO market has "declined for decades." Ms. Crenshaw cautioned against expanding retail investor access to private funds, questioning how retail investors would fare alongside more sophisticated investors during market stress.