Thank you, Carla (Garrett), and thank you to the Committee members for joining us today.

I also want to thank this Committee for your engagement and productivity over the past several years. Your efforts have informed and driven policy action. And by effort, I do not mean just time and attention, which you have provided in ample supply. I also mean true, outcome-oriented analysis, pragmatic advice and actionable recommendations. You have identified important issues, including the clear difficulty small businesses – those with values between $500,000 and $20 to $30 million – have raising capital from any source. You also recognized, and have incorporated in your work, two unassailable characteristics of the local, regional and national economy and the regulation of small businesses, including their capital formation activities:

1. First, small and medium-sized businesses are the lifeblood of our interconnected economy; they are the capillaries in our circulatory system. Without them, employment and consumer spending atrophy, and capital investment slows. With a dynamic and growing small business community, employment opportunities expand and wages rise; and consumer spending steadies and capital investment flow. Now, with our collective national effort to recover from the economic impact of the COVID-19 shock in the middle innings, we need the economic and societal dynamism of new, growing and strong small and medium-sized businesses.
2. Second, regulation of small businesses, including the regulation of capital raising, must be effective. What do I mean by effective? Speaking through the lens of the SEC’s mission, I mean that it must further both capital formation and investor protection. But, and this is important, in the case of small and medium sized business, effective regulation must be different from the regulation of capital formation for large enterprises. Why? Because the economics, businesses, and investors are vastly different. With small businesses, because of the, hopefully, high number of businesses seeking capital and the relatively low dollar amounts involved, regulation must be low cost and substantially self-effecting. In other words, the regulation of the relationship between investors and small businesses must be such that frictions — paperwork, fees for lawyers and other professionals, commissions, placement fees, regulatory costs, etc. — are low, and improper behavior is deterred or, when not deterred, is promptly detected and remedied.

With those realities in mind, you have brought together diverse perspectives and experiences, as well as technical expertise. You have distilled that mix of ingredients into cogent analyses and tangible recommendations. Importantly, as a group and as individuals, you have not let your personal interests, in common parlance your “day jobs,” interfere with that outcome-oriented, collective spirit. In short, you have been all we could ask for in an Advisory Committee. I thank all of you and, in particular, Carla Garrett and Jeff Solomon, for their leadership, including creating an environment of inclusion and mutual respect.

Now let’s turn to some of the fruits of those tangible actions of the Committee.

I am pleased that you took the time to discuss our recently proposed “finders” exemption — and I understand that discussion may continue this afternoon given the complexities of this issue. This is an area of capital formation and investment where costs are way too high, for both businesses and investors, largely because the rules of the road for intermediaries are not clear. We have not provided meaningful guidance in this area since the days of gas lines, disco and parachute pants.[1]

The proposed exemptive order is a long overdue step stemming from decades of repeated calls for clarity in this area. We know that smaller businesses seeking traction in our economy and their investors frequently encounter challenges connecting with each other, particularly in regions that lack established robust capital-raising networks. For many of these companies, banks and institutional investors (such as venture funds) are not a viable option and, for all of them – all of them – the public markets are not available. In these areas, finders can play an important and discrete role in bridging the gap between small businesses that need capital and investors who are interested in supporting emerging enterprises.

Over the years, we have heard from businesses that want to comply with our rules on connecting with potential investors but struggle to understand whether they can engage a finder that isn’t a registered broker-dealer. At the same time, individuals seeking to help companies raise capital may find themselves inadvertently engaged in brokerage activity, or alternatively, may refrain from any activity because of the regulatory uncertainty.

Last month’s proposed exemptive order offers a two-tiered potential solution to these challenges in order to address the capital formation needs of entrepreneurs and certain smaller issuers while preserving investor protections. I can see a number ways that we could structure an exemption in this area, any of which would be a welcome improvement over the status quo. Let me say that a different way, there are a range of terms and conditions we could place on “finder” activity that would greatly improve capital formation and investor protection. What we should not do is prolong the uncertainty and other costs of the status quo. The proposing release includes a request for comment on all aspects of the proposed exemption, and we welcome the Committee’s feedback and encourage each of you as small businesses, accredited investors, potential finders, state regulators, or otherwise to engage with us during the comment period.

More generally, and as I noted at the outset, the current environment and the disproportionate impact that the COVID-19 pandemic has had on smaller companies illustrates how critical it is for small businesses to be able to access capital from various channels. I appreciate you all sharing your recent experiences and marketplace observations, and I welcome your suggestions for how the Commission can serve these critical players in our markets and in our economy.

Thank you.