TheCorporateCounsel.net

Last week, the SEC released a report to Congress that outlined the policy recommendations from the 41st Annual Government-Business Forum on Small Business Capital Formation that took place virtually on April 4-7. The SEC’s report provides a summary of the proceedings, as well as a series of recommendations for changes needed to the capital raising framework that were developed by the Forum participants and recommend by the Commission.

The wide-ranging policy recommendations highlighted in the report include the following:

• Ensure capital-raising rules provide equitable access to capital for underrepresented founders and investors.
  Support entrepreneurs who lack the technical assistance to understand how to access traditional capital.
• Utilize technology and educational resources to help facilitate small business capital markets and decentralize and democratize capital markets.
• In considering any changes to the private capital markets, ensure companies have viable pathways to access capital to allow growth and innovation.
• Revise Regulation Crowdfunding to permit investment companies to conduct a Regulation Crowdfunding offering.
• Expand the accredited investor definition to achieve greater diversity among startup investors and entrepreneurs.
• Expand the accredited investor definition to include additional measures of sophistication.
• Expand the accredited investor definition to include any person who invests not more than 10% of the greater of his/her annual income or net assets.
• In considering changes that raise the wealth thresholds in the accredited investor definition, consider the unintended consequences on access to capital in under-resourced and underrepresented communities.
• Finalize the Commission’s finders order.
• Create a new private fund exemption to allow states to foster intrastate and regional funds focused on community-based investing that is open to non-accredited investors.
• Increase the thresholds (number of investors and cap on fund size) allowed in 3(c)(1) funds to achieve greater diversity among startup investors and entrepreneurs.
• Support underrepresented emerging fund managers—specifically minorities and women—building funds that diversify capital allocators, engage sophisticated investors, and challenge pattern-matching trends.
• Increase the number of investors allowed in 3(c)(1) funds above 99 investors.
• Support underrepresented and emerging fund managers and their investors through targeted resources, in collaboration with other federal agencies.
• Modernize Section 17(b) of the Securities Act to warn against pump-and-dump schemes by requiring additional disclosure about paid stock promotion.
• Consider the impact of the proposed environmental, social, or governance (ESG) regulations on small and medium-sized companies, including whether such requirements will discourage companies from going public.
• Modernize regulation of transfer agents in response to technological and market advancements to increase disclosures made available to broker-dealers to facilitate liquidity for smaller public companies while continuing to protect investors.
  Increase transparency around short selling activities and improve short sale data.
• Collaborate with NSCC, DTCC, clearing firms, and broker-dealers to improve the clearing and settlement process for small public companies.

– Dave Lynn