Remarks to the Small Business Capital Formation Advisory Committee

Good morning, it is a pleasure to be with you at today’s meeting. At the last meeting, the committee discussed how Regulation Crowdfunding (“Reg. CF”) could be improved to expand its use for early-stage capital raising. Thank you for your thoughtful recommendation that Reg. CF’s threshold, for which reviewed financial statements are required, be raised from $124,000 to $350,000.[1] This increase would mean that companies offering less than $350,000 within a 12-month period would be able to use certified financial statements and tax return information in lieu of financial statements reviewed by an accountant.

While financial statements can be informative to investors, independent review by an outside accountant can be costly relative to both the modest amount of capital being raised and the benefits to investors for such review. The antifraud provisions of both federal and state securities laws are already strong deterrents against the presentation of false and misleading financial statements and other offering materials. By avoiding the costs of hiring an outside accountant, companies may be more likely to use Reg. CF. I encourage the Commission to consider this recommendation to improve capital formation.

Today, committee members will provide their observations on the state of small business capital raising. When discussing this topic and making recommendations, I encourage you to consider three things.

First, do not be limited by existing laws and regulations. While some ideas can be implemented by Commission rulemaking, others may require Congressional legislation. That is OK. The audience for your discussion and recommendations is not only the Commission. Members of Congress, their staff, practitioners, academics, and the public will see your recommendations – so do not hold back.

Second, be as specific as possible in identifying the problem needing to be solved. While capital formation and investor protection are part of the Commission’s mission, they can be abstract concepts. Consider pinpointing the specific factors that are preventing small businesses and entrepreneurs from obtaining the capital that they need. If investors are not being adequately protected, how would additional disclosure or rule changes offer that protection?

Finally, to the extent possible, provide data or ask for data to support the problem that you have identified or the solution you propose. Anecdotes and examples are helpful, but regulatory policy should not be driven by a handful of stories and incidents. In contrast, decisions driven by data reflect a more thoughtful approach to regulation. Stacey [Bowers] and her team have a wealth of data available, so please use the resources available to you.

The afternoon topic on today’s agenda is recent changes to the Small Business Investment Company (“SBIC”) Program. This program provides another avenue for small businesses to access early-stage capital. We are fortunate that one of the committee members, Bailey DeVries, leads the SBIC program in her role with the Small Business Administration. I look forward to reviewing a readout of this discussion.

Thank you, and I hope that you have a productive meeting.