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Small Business Capital Formation

2022 Annual Report Of The Office Of The Advocate For Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) has published its Annual Report for fiscal year 2022 (“Report”).  The Report is delivered to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate and the Committee on Financial Services of the U.S. House of Representatives directly by the Office, without review or input from the SEC at large.

Background

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  The mission of the Office is to advocate for pragmatic solutions to accessing capital markets and business growth.

The Office has the following functions: (i) assist small businesses (privately held or public with a market cap of less than $250 million) and their investors in resolving problems with the SEC or self-regulatory organizations; (ii) identify and propose regulatory changes that would benefit small businesses

Report Of Government-Business Forum On Small Business Capital Formation

On July 28, 2022, the SEC released its report from the 41st Annual Government-Business Forum on Small Business Capital Formation.  The report provides a summary of the forum proceedings, including the recommendations developed by participants for changes needed to the capital raising framework and the SEC’s responses to the recommendations.  The forum featured panelists and discussions on (i) empowering entrepreneurs with tools to navigate capital raising; (ii) hometown entrepreneurship, including how entrepreneurs can thrive outside of traditional capital raising hubs; (iii) how emerging fund managers are diversifying capital; and (iv) what to know and how to think ahead in the small cap world.  The forum had a focus on diversity, including panel speakers and discussion topics.  A clear message across the board is that women- and minority-owned businesses face the biggest challenges in the capital markets.

Background

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant

2021 Annual Report of Office of Advocate for Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) has delivered a report to Congress following the 40th annual small business forum (“Report”).  The Report includes recommendations of the Office and its annual forum participants.  The forum itself featured panelists and discussions on (i) navigating ways to raise early rounds; (ii) diligence including how savvy early-stage investors build diversified portfolios; (iii) tools for emerging and smaller funds and their managers; and (iv) perspectives on smaller public companies.  The forum itself had a focus on diversity, including panel speakers and discussion topics.  A clear message across the board is that women- and minority-owned businesses face the biggest challenges in the capital markets.

Background

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  One of the core tenants of the Office is recognizing that small businesses 

Annual Report of Office of Advocate for Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) issued its 2020 Annual Report and it breaks down one of the strangest years in any of our lives, into facts and figures that continue to illustrate the resilience of the U.S. capital markets.  Although the report is for fiscal year end September 30, 2020, prior to much of the impact of Covid-19, the Office supplemented the Report with initial Covid-19 impact information.

Background on Office of the Advocate for Small Business Capital Formation

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  One of the core tenants of the Office is recognizing that small businesses are job creators, generators of economic opportunity and fundamental to the growth of the country, a drum I often beat.

The Office has the following functions: (i) assist small businesses

A COVID IPO

On June 25, 2020, SEC Chair Jay Clayton gave testimony before the Investor Protection, Entrepreneurship and Capital Markets Subcommittee of the U.S. House Committee on Financial Services on the topic of capital markets and emergency lending in the Covid-19 era.  The next day, on June 26, Chair Clayton, William Hinman, Director of the Division of Corporation Finance, Dalia Blass, Director of the Division of Investment Management and Brett Redfearn, Director of the Division of Trading and Markets issued a public statement on the same topic but expanded to include efforts to ensure the orderly function of U.S. capital markets.

Chair Clayton Testimony

Chair Clayton breaks down his testimony over five topics including: (i) market monitoring and regulatory coordination; (ii) guidance and targeted assistance and relief; (iii) investor protection, education and outreach efforts; (iv) ongoing mission-oriented work; and (v) the SEC’s fiscal-year 2021 budget request.

Market Monitoring and Regulatory Coordination

Despite the extraordinary volumes and volatility we have seen in the

SEC Statements On Capital Markets Amid Covid-19

On June 25, 2020, SEC Chair Jay Clayton gave testimony before the Investor Protection, Entrepreneurship and Capital Markets Subcommittee of the U.S. House Committee on Financial Services on the topic of capital markets and emergency lending in the Covid-19 era.  The next day, on June 26, Chair Clayton, William Hinman, Director of the Division of Corporation Finance, Dalia Blass, Director of the Division of Investment Management and Brett Redfearn, Director of the Division of Trading and Markets issued a public statement on the same topic but expanded to include efforts to ensure the orderly function of U.S. capital markets.

Chair Clayton Testimony

Chair Clayton breaks down his testimony over five topics including: (i) market monitoring and regulatory coordination; (ii) guidance and targeted assistance and relief; (iii) investor protection, education and outreach efforts; (iv) ongoing mission-oriented work; and (v) the SEC’s fiscal-year 2021 budget request.

Market Monitoring and Regulatory Coordination

Despite the extraordinary volumes and volatility we have seen

SEC Enacts Temporary Expedited Crowdfunding Rules

Following the April 2, 2020 virtual meeting of the SEC Small Business Capital Formation Advisory Committee in which the Committee urged the SEC to ease crowdfunding restrictions to allow established small businesses to quickly access potential investors (see HERE), the SEC has provided temporary, conditional expedited crowdfunding access to small businesses.  The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by Covid-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding.

The temporary rules will provide eligible companies with relief from certain rules with respect to the timing of a company’s offering and the financial statements required.  To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The relief will apply to offerings launched between May 4, 2020 and August 31,

The 2017 SEC Government-Business Forum On Small Business Capital Formation Final Report

The SEC has published the final report and recommendations of the 2017 annual Government-Business Forum on Small Business Capital Formation (the “Forum”). As required by the Small Business Investment Incentive Act of 1980, each year the SEC holds a forum focused on small business capital formation.  The goal of the forum is to develop recommendations for government and private action to eliminate or reduce impediments to small business capital formation.  I previously summarized the opening remarks of the SEC Commissioners. See HERE.

The forum is taken seriously by the SEC and its participants, including the NASAA, and leading small business and professional organizations.  Recommendations often gain traction. For example, the forum first recommended reducing the Rule 144 holding period for Exchange Act reporting companies to six months, a rule which was passed in 2008. In 2015 the forum recommended increasing the financial thresholds for the smaller reporting company definition, and the SEC did indeed propose a change

The 2017 SEC Government-Business Forum On Small Business Capital Formation

On November 30, 2017, the SEC held its annual Government-Business Forum on Small Business Capital Formation (the “Forum”). It will be several months until the final report with recommendations from the forum is published, but the opening remarks from SEC Chair Jay Clayton and Commissioners Kara Stein and Michael Piwowar provide ongoing and consistent guidance as to the current focus of the SEC. For a review of the recommendations by last year’s forum, see HERE.

As expected, the topics of cryptocurrency and ICO’s were front and center at the Forum. In his opening remarks at the Forum, Division of Corporation Finance Director William Hinman confirmed that the SEC believes that ICO’s generally involve securities offerings and that the securities laws must be complied with. Hinman continued that the SEC is providing guidance through enforcement and public statements on the topic.

As with other statements and speeches, the SEC hedges by pointing out the validity of an ICO as

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