SEC Commissioner Peirce Asks All the Right Questions of the Small Business Capital Formation Advisory Committee

Today the SEC’s Small Business Capital Formation Advisory Committee (SBCFAC) held a meeting to address two important topics. The sagging initial public offering (IPO) market and access to capital for vital entrepreneurial markets. Both, are key policy ambitions – more so during a time of economic struggle.

During the introductory segment of the meeting, SEC Commissioner Hester Peirce once again focused on the important regulatory areas that may need some burnishing.

Commissioner Peirce noted that even today, in a time of digital finance, most funding for early-stage firms remains rooted in innovation hubs like the San Francisco Bay Area and the Northeast corridor from DC to Boston, while flyover country struggles to gain access to growth capital. She asked what the Commission can do to improve the situation.

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Regarding questions on fostering a more vibrant entrepreneurial ecosystem, Commissioner Peirce posed the following questions:

  • Would expanding the definition of “accredited investor” help facilitate vibrant entrepreneurship ecosystems, particularly outside of the largest cities? If so, how should the Commission expand this definition?
  • Should the Commission explore ways to make it easier for companies to find investors, particularly by creating a safe harbor from broker registration for finders?
  • Should the Commission authorize the creation of a micro-offering safe harbor that exempts small raises of around $250,000 to $500,000 from state and federal securities registration requirements?
  • Should the Commission expand the reach of angel funds under Section 3(c)(1) of the Investment Company Act by allowing them to be as large as $50 million with 500 investors, instead of $10 million and 250 investors?

Noting the US is poised to book the smallest amount raised by IPOs since 2003, Commissioner Peirce inquired about the following topics:

  • Are these recent market trends a short-term phenomenon or indicative of broader, long-term developments? Market trends should inform Commission action, but only if they are long-term structural market changes, not flash-in-the-pan trends.
  • Is any of this drop-off attributable to an uncertain and increasingly costly regulatory environment for public companies, caused by new and pending SEC regulations and guidance?
  • Do these recent market trends speak to how the SEC can properly calibrate rules for traditional IPOs, direct listings, reverse mergers, and SPACs, without overly discouraging any particular method of going public, or creating unnecessary opportunities for regulatory arbitrage?

Most of these topics were addressed during the SBCFAC meeting, with some receiving recommendations from the Committee. The SBCFAC will be posting the official outcome of the meeting. While the Commission will review the feedback, there is little guarantee the Commission will take action on the items Committee members highlighted as important to boosting economic activity and entrepreneurship in the country.

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