Yesterday, the SEC held its 45th Annual Small Business Forum. The Forum is hosted by the SEC’s Office of the Advocate for Small Business Capital Formation, and as Meredith noted in this blog from last month, the Forum seeks to bring together individuals with a wide range of viewpoints for the purpose of discussing and providing suggestions to improve securities policy affecting how companies raise capital from investors. Prior to the Forum, the Office of the Advocate for Small Business Capital Formation collects policy recommendations, and the Forum participants prioritize those recommendations. The top policy recommendations are published in a report that the SEC delivers to Congress.

At this year’s Forum the Chairman and Commissioners each delivered remarks. Chairman Atkins described the agenda for the Forum and called on the Commission to build on the concept of an “IPO on-ramp” that was addressed in the JOBS Act, noting:

For newly public companies, the SEC should consider building upon the “IPO on-ramp” that Congress established in the JOBS Act. For example, allowing companies to remain on the “on-ramp” for a minimum number of years, rather than forcing them off as soon as the first year after the initial offering, could provide companies with greater certainty and incentivize more IPOs, especially among smaller companies.

Raising capital through an IPO should not be a privilege reserved for those few “unicorns.” More and more, public investments are concentrated in a handful of companies that are generally in the same one or two industries. Our regulatory framework should provide companies in all stages of their growth and from all industries with the opportunity for an IPO, particularly one that represents a capital raising mechanism for the company, instead of a liquidity event for insiders.

Commissioner Peirce addressed the challenges faced by founders in raising capital, noting:

Fittingly, the first panel starts at the start, funding founders. Founders’ paths to raising money for their promising idea are riddled with regulatory landmines—a source of deep dismay and consternation for well-intentioned founders. The first thing they may encounter is the much-discussed concept of “Accredited Investor.” But simply knowing what makes an investor “accredited” does not solve a founder’s problems. Rather, it is just the beginning of a list of questions without neat answers. Can you sell only to accredited investors? It depends. What do you need to do to make sure that your investors are accredited? It depends. What information do you need to give to investors? It depends. Founders can find some help in wading through these questions on the SEC’s website. Today’s discussions could help to shape substantive steps by the SEC to make life easier for founders. Among the topics you might want to consider are a micro-offering exemption that would simplify early-stage fundraising: under such an approach, as long as an issuer stays below a set offering amount, it would be able to sell shares of its company to investors without any strings other than avoidance of fraud. A regulatory structure for finders, an idea under consideration by the Small Business Capital Formation Advisory Committee, also might help founders find funders.

Commissioner Uyeda addressed the interplay of federal and state securities laws, stating:

The interplay between federal and state securities laws should be a matter of continuing study by the Commission. It is both impractical, costly and unrealistic to expect an issuer to register a small securities offering in dozens of states. This is especially true given the lack of uniformity among states. However, states can play an important role in preventing fraud for offerings conducted in their jurisdiction.

Regulators should consider moving beyond a binary approach to preemption. For example, when an offering is qualified in the state of a company’s principal place of business, should the offering still be reviewed by multiple other states? Why should not a notice filing in the other states be sufficient? Such a framework could promote more effective oversight among state regulators, reduce the time it takes to fully comply with offering regulations, and maintain effective investor protection.

With all of the efforts now focused on capital formation in Congress and at the SEC, we suspect that the discussion and recommendations from this year’s Forum will be particularly useful to policymakers.

– Dave Lynn