For those of you who have been reading my articles over the past four months, I have tried to create heightened awareness of a perennial SEC event, the SEC Government-Small Business Forum, an annual event borne out of bi-partisan legislation in 1980. Its primary purpose: to highlight and address unnecessary impediments to small business capital formation.
Indeed, at the 2013 Forum according to the SEC’s website not a single Commissioner found the time to attend in person. So sunlight being the best disinfectant, I did my part to call more attention to the 2014 SEC Forum, with all of its warts, to raise its visibility, with the hope that the Forum could serve with renewed vigor as a genuine catalyst for ideas that ultimately would be put into action – and rise above a perception by some that the Forum was more akin to “Ground Hog Day.”
It seems that some people took notice of my articulated disappointment with past SEC Forums, not the least of whom was Jeb Hensarling, Chair of the House Financial Services Committee. He issued this statement on the day preceding the 2014 SEC Forum:
“Year in and year out the SEC has failed to act on many, if not most, of the recommendations provided by the Forum. In fact, a number of reforms contained in the bipartisan JOBS Act and other bipartisan bills passed by the Financial Services Committee are based on Forum recommendations that the SEC ignored. It’s not enough for the SEC to simply talk about promoting small business; it needs to take action – like Congress and our committee has done – on innovative ideas that will help small businesses and create jobs.”
What a Difference a Year Makes
I am happy to report that it seems, to me at least, that this year the Commission got the message before learning of Congressman Hensarling’s published remarks.
All five of the SEC Commissioners were present at the 2014 Forum – and participating. Two of the Commissioners, Piwowar and Stein, participated in the morning panels which followed the speeches by each of the five Commissioners. And the Director of the Division of Corporation Finance, Keith Higgins, was actively engaged in the morning session, including moderating one of the panels.
Chair Mary Jo White opened the Forum with welcoming remarks. For me what was notable was the early part of her remarks, where, seemingly on defense – she pointed to five specific initiatives over the past decade which were born out of past SEC Forums.
“On a recent trip to Los Angeles’s “Silicon Beach,” I had the privilege of visiting a technology venture accelerator at University of Southern California’s Viterbi School of Engineering called the Start-Up Garage. The people I met, as well as their ideas, were truly exciting.”
From my vantage point in the audience I truly believe that this remark reflected her realization of the importance of nurturing the entrepreneurial spirit from the bottom up – and the importance of opening up US capital markets to serve this community.
Commissioner Daniel Gallagher, in the short time allotted to speak, managed to cap off his remarks with an overwhelming round of applause from the audience. And for good reason. He not only came with high minded thoughts and concrete objectives, but was one who was clearly committed to doing what needed to be done, even if he had to roll up his sleeves and do it himself:
“ I will conclude with a final thought. This Forum has advanced some truly excellent recommendations in the past, and I’m sure will continue to do so in the future. And yet there is at least a perception that these recommendations are not given their due. So I hope that, going forward, we can commit to respond to each Forum recommendation in writing, as a way of validating that the proper attention has been paid to your voices. If the Commission cannot make that commitment, at least this Commissioner will”.
Commissioner Gallagher did not squander an opportunity to stress the importance of the need for venture capital exchanges, tailored to the needs of “microcap” and “nanocap” companies.
“I also hope and expect that we will complete our Regulation A+ rulemaking, mandated by the JOBS Act, in the very near future. To fully activate the benefits of this new exemption, however, we need to consider how to create secondary markets in these shares. I am a strong proponent of an idea that this Forum has floated in the past: Venture Exchanges, where Regulation A+ shares could be listed and traded by anyone, not just accredited investors, and could do so with an exemption from state blue sky laws and with scaled listing standards appropriate for Regulation A+ issuers. I believe this could truly revolutionize small business capital formation.”
Nor were these words hollow rhetoric intended to play to his small business base. This Commissioner does more than simply walk and chew gum at the same time. Though not known to those in the audience who greeted Commissioner Gallagher with loud applause, he was scheduled to spend part of the day before the Forum briefing the Staff of a House Financial Services Subcommittee member on – you guessed it – Venture Exchanges.
Another Take on the Fate of Small Business in Washington DC – Outside the SEC Forum
With all due respect to the 2014 Forum and the participants, perhaps some of the most important statements affecting small business capital formation were made the day before – outside the walls of the SEC.
On the same day that Commissioner Gallagher was to address HFSC staffers, I too made a visit to Capitol Hill, to both brief and de-brief those who had their ear to the new bosses on Capitol Hill – the Republican leadership. But it was a chance meeting with Frank Luntz on the steps of the Capitol that for me set the tone for SEC Forum week. For those of you who do not know of Mr. Luntz, he is a gentleman who Atlantic magazine earlier this year described as “America’s best known public opinion guru,” even scoring an appearance on the popular TV Show The View in 2014.
Being somewhat in awe of both my surroundings and the presence of Mr. Luntz, I introduced myself and my humble mission that day – to speak to some Congressmen about issues important to small business. Apologetically I told him, there were not enough people in this town speaking up for small business. After a long, cool pause, Luntz erupted the silence:
“No one is speaking up for small business.”
Being one of curious mind, I did a little digging, pulling up an interview Mr. Luntz gave to Atlantic magazine earlier this year. Mr. Luntz reportedly is a dyed in the wool Republican:
“You should not expect a handout,” . . .You should not even expect a safety net. When my house burns down, I should not go to the government to rebuild it. I should have the savings, and if I don’t, my neighbors should pitch in for me, because I would do that for them.” . . .”We have now created a sense of dependency and a sense of entitlement that is so great that you had, on the day that [President Obama] was elected, women thinking that Obama was going to pay their mortgage payment, and that’s why they voted for him – And that, to me, is the end of what made this country so great.”
Sounds a bit like crowdfunding, huh?
A Tale of Two Forums
On the same day that SEC Commissioner Gallagher was set to meet with members in the House, encouraging words on the importance of entrepreneurship and the need for government to unlock excessive regulatory barriers to small business capital formation, were spoken by none other than that dyed in the wool Democrat, Vice President Joe Biden. The VP was not speaking at the SEC’s Small Business Forum, however. Rather, he was addressing the Fifth Annual Global Entrepreneurial Summit, an event originated by President Barack Obama back in 2010 to foster U.S. partnerships with foreign entrepreneurs – specifically targeting entrepreneurship in the Muslim world. The venue for this event: Marakech, Morocco. In attendance were a number of leading voices in the U.S. entrepreneurial community, including the recently appointed Administrator of the U.S. Small Business Administration, Maria Contreras – Sweet.
“The single most valuable resource on this planet I think we could all agree on in this room is not what’s in the ground, but what’s in the mind. It’s the single least explored part of the world, the mind. The things that are going to happen in the next two, five, 10, 15 years are breathtaking. Investors, they have to be willing to expand the horizon and invest in early stage entrepreneurs — not only in Silicon Valley — but . . . everywhere, everywhere where there’s talent.”
“Governments have to unlock the marketplace of ideas by allowing people to express their views openly about what they’re thinking and what they’re trying.”
“They must unlock the commercial marketplace by eliminating barriers to access to capital; ensuring that rules are fair and predictable, removing excessive cumbersome regulations.”
“The government can’t grow the economy by itself. As a matter of fact, it’s not the major reason. It’s a catalyst for growth — no matter how big the megaproject. To prosper in the 21st century, you also need to grow from the bottom up, allowing your people to unlock their talents through private enterprise and political and economic freedom and action.”
Pretty enlightening rhetoric, particularly coming from someone who reportedly does have difficulty walking and chewing gum at the same time: “Growing from the bottom up,” removing barriers to capital formation at the lower end of the food chain, encouraging investment outside of the traditional VC havens.
From the Veep’s Mouth to God’s Ears.
So perhaps it is not unrealistic to hope and expect that once the partisan wrangling dies down on Capitol Hill in the early months of 2015, both Congress and the President can come together one more time in a bi-partisan manner, continuing a task they began with the JOBS Act of 2012, to adopt a laundry list of much needed measures truly intended to unlock avenues of capital formation for small business.
Samuel S. Guzik, a Senior Contributor to Crowdfund Insider, is a corporate and securities attorney and business advisor with the law firm of Guzik & Associates, with more than 30 years of experience in private practice. A nationally recognized authority on the JOBS Act, including Regulation D private placements, investment crowdfunding and Regulation A+, he is and an advisor to legislators, researchers and private businesses, including crowdfunding issuers, service providers and platforms, on matters relating to the JOBS Act. As an advocate for small and medium sized business he has engaged with major stakeholders in the ongoing post-JOBS Act reform, including legislators, industry advocates and federal and state securities regulators. In 2014, some of his speaking engagements have included leading a Crowdfunding Roundtable in Washington, DC sponsored by the U.S. Small Business Administration Office of Advocacy, a panelist at the MIT Sloan School of Business 2014 Crowdfunding Roundtable, and a panelist at a national bar association event which included private practitioners, investor advocates and officials of NASAA. His articles on JOBS Act issues, including two published in the Harvard Law School Forum on Corporate Governance and Financial Regulation, have also served as a basis for post-JOBS Act proposed legislation. Recently he was cited by SEC Commissioner Daniel M. Gallagher in a public address for his advocacy on SEC regulatory reform for small business. He is admitted to practice before the SEC and in New York and California. Guzik has represented a number of public and privately held businesses, from startup to exit, concentrating in financing startups and emerging growth companies. He also frequent blogger on securities and corporate law issues at The Corporate Securities Lawyer Blog.