The Securities and Exchange Commission’s (SEC) Small Business Capital Formation Advisory Committee (SBCFAC)will reconvene once again to discuss the definition of an Accredited Investor. At the same meeting, the Committee will review the status of the IPO market in the US along with several other topics.
Previously, the SBCFAC met last November when it reviewed the current status of the Definition.
As it stands today, in brief, an Accredited Investor is someone who earns over $200,000 a year or has a net worth of more than $1 million (not counting a primary residence). If married, the income hurdle jumps to $300,000. While there have been slight modifications in the past few years, the Definition has largely remained the same since it was established decades ago.
The Definition determines who may participate in certain private placements (Reg D) – one of the most important markets in the US. Most promising early-stage firms utilize Reg D to raise growth capital. It is a vital variable in the innovation economy in the US and helps to sustain the economy and generate wealth.
While most insiders recognize the current definition disenfranchises the vast majority of the country, there are some who believe the government should make it more rigorous to participate in these private securities offerings. In a country obsessed with inclusivity, there is a fear that the Commission wants to make the Defintion less inclusive. What is obvious to all is the fact that the current definition does not take into consideration education or sophistication, a far better metric. Additionally, it excludes an opportunity for wealth creation for underserved segments of the country.
The previous incarnation of the SBCAF told the Commission not to increase the difficulty of becoming Accredited, requesting it to do the opposite and broaden the definition as the market is a “critical source of early-stage capital for small businesses in communities across the country” and a change could “shrink the pool of currently accredited investors would have a detrimental effect on small business capital formation.” At that time, the Commission ignored the advice of the Committee.
The meeting will be held on Tuesday, February 23, 2024, beginning at 10 AM ET. The proceedings will be live-streamed to the public on the SEC’s website.
The Agenda for the meeting is below.
Agenda – Meeting of SEC Small Business Capital Formation Advisory Committee
Date: Tuesday, February 27, 2024 – 10:00 a.m. – 3:00 p.m. (ET)
| Time | Description |
|---|---|
| 10:00 | Call to Order; Introductory Remarks by Commissioners and Stacey Bowers, new Director of the SEC’s Office of the Advocate for Small Business Capital Formation |
| 10:15 | Member Observations on the State of Small Business Capital Raising
|
| 10:30 | Update from the SEC’s Office of the Advocate for Small Business Capital Formation
The SEC’s Office of the Advocate for Small Business Capital Formation will provide an overview of the Office’s FY2023 Annual Report, which includes in-depth data on the state of capital raising activity from startup to small cap along with the Office’s policy recommendations. |
| 10:45 | Accredited Investor Definition |
| 12:15 | Lunch Break |
| 1:30 | Remarks from Allison Wise, Acting Director, SEC’s Office of Minority and Women Inclusion
The SEC’s Office of Women and Minority Inclusion (OMWI) will discuss its role in the SEC’s mission and provide an overview of its work. |
| 1:45 | Where Have All the IPOs Gone? The State of the IPO Market IPO activity has fallen significantly in recent years, and there are a declining number of small public companies. Invited speakers will share data and their views on the state of the IPO market, trends, and factors that may be at play. As part of this discussion, the Committee will discuss how decreased IPO activity and market shifts are impacting smaller companies (including growth and exit strategies) and related capital raising challenges. Speakers:
|
| 3:00 | Wrap-up and Adjournment |