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Yesterday, the SEC announced the release of a report to Congress summarizing policy recommendations made during the 42nd Annual Government-Business Forum on Small Business Capital Formation. The SEC’s announcement notes that “[t]he report provides a summary of the forum proceedings, including the recommendations developed by participants for changes to the capital raising framework and the Commission’s responses to those recommendations.”

The report includes numerous recommendations and Commission responses, including:

– 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.
– Harmonize the annual reporting requirements for issuers that utilize different exempt pathways, such as Regulation Crowdfunding and Regulation A.
– 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.
– Do not revise the accredited investor definition to make it more difficult to qualify based on wealth thresholds.
– Ensure capital-raising rules provide equitable access to capital for underrepresented founders and investors.
– Collaborate with market experts to establish a regulatory framework for finders that includes an exemption from broker-dealer registration and helps facilitate small business capital formation.
– Support entrepreneurs, including underrepresented founders, who lack the technical assistance to understand how to access capital from investors.
– Improve the exempt offering framework to reduce concentration and increase diversity – access to capital should not be practically limited to only rich people the company knows.
– 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.
– Support underrepresented emerging fund managers—specifically minorities and women—building funds that diversify capital allocation, engage sophisticated investors, and challenge pattern matching trends.
– Allow non-accredited investors to participate in venture capital funds.
– Increase the number of investors allowed in 3(c)(1) funds (private funds structured in the traditional manner under Section 3(c)(1) of the Company Act above 100 investors.
– Increase the number of investors and the capital limit for funds structured under Section 3(c)(1), including traditional 3(c)(1) funds as well as Qualified Venture Capital Funds to achieve greater diversity among startup investors and entrepreneurs.
– Incentivize investors to invest in funds that support startup founders.
– Revise Exchange Act Section 12(g) to increase the number of holders that are non-accredited investors and increase the asset threshold.
– Before considering any changes that increase the smaller public company requirements, narrowly tie any changes to an identified problem so smaller public companies can have a stable and predictable regulatory environment.
– Facilitate the creation of venture markets that provide investors with a transparent and regulated environment for trading in stocks of smaller companies.
– Revise the proposed 2022 Climate-Related Disclosure rules to exempt smaller reporting companies, non-accelerated filers, emerging growth companies, and other midsized companies. If any of these issuers are subject to the rules, scale and delay the rules.
– Improve public trading for small companies by requiring more disclosures about short selling, institutional holdings, insider and affiliate holdings and transactions, paid stock promotion, and information about the security from transfer agents.

The SEC’s Office of the Advocate for Small Business Capital Formation leads this annual event, in collaboration with the SEC Commissioners and other SEC offices and divisions.

– Dave Lynn