It’s Going to be Really Bad: SEC Small Business Committee Discusses COVID-19 Impact

The Securities and Exchange Commission (SEC) Small Business Capital Formation Advisory Committee met today in a teleconference to discuss the impact of COVID-19 and small business. In brief, several Committee members expressed the opinion that it is going to be really bad.

Martha Legg Miller, who leads the  SEC Office of the Advocate for Small Business Capital Formation, said there has been a transition from “growth capital to survival capital.”

Youngro Lee, CEO of NextSeed and Chair of the Association of Online Investment Platforms, said the situation was dire. Lee asked for immediate relief on the Reg CF funding caps – something currently included in an ongoing SEC proposal.

SEC Commissioner Hester Peirce suggested a micro-exemption, something that has been in discussion for years, be quickly approved.

To quote the Commissioner:

“Bold action will be necessary so, in brainstorming solutions, we ought not to tether ourselves to our existing framework.  For example, I have previously advocated for a micro-offering exemption for entrepreneurs to raise small amounts of capital from the people that know them best.  Could a micro-offering exemption assist the hundreds of thousands of restaurants and other local businesses that, while beloved by their communities, are not currently allowed to operate?  Would getting such an exemption up and running on a pilot basis make sense at a time like this?”

One member asked the Commission to immediately revoke some of the audit requirements for firms raising capital via crowdfunding. The person said that past financial results are now meaningless.

The comments regarding the CARES Act (the COVID relief legislation) and the programs to provide access to capital to small business was fairly positive but there was a concern regarding confusion on the process and a question as to how well the banking industry will be able to manage the demand.

One committee member noted that banking credit has pulled back. Something that can cause even further stress to the economy.

Another participant shared that some VC funding has been canceled in light of the Coronavirus – a move that can kill early-stage firms.

Overall, the conversation was more than a bit grim as policymakers attempt to mitigate the economic collapse.

On the flip side, one venture capitalist said that once we are on the other side of the COVID pandemic, he expects some strong opportunities to emerge. The question remains when will the country get to the other side.

SEC Chairman Jay Clayton who participated in the call expressed his intent to share the discussion with the wider regulatory and legislative community in DC. In a prepared statement, Clayton said:

“Small businesses also have been, and will continue to be, significantly impacted as many small business owners are asked to make difficult personal and financial sacrifices … Over the past several weeks, I have shared more detailed personal views on the functioning of our capital markets, and the importance of those markets, in our national response to COVID-19.  My view is that preserving the flows of credit and capital in our economy—to businesses and individuals alike—will help us better fight COVID-19, as well as speed and strengthen our recovery.”

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