PRINCIPLE FIVE:
Congress should support small and emerging businesses by helping them raise capital responsibly from investors.
For the benefit of the U.S. economy, Congress should support efforts to promote responsible capital formation by small and emerging businesses that are consistent with investor protection principles. Given the abundance of capital raising options already available to promising small businesses, Congress should make coordination and outreach by federal agencies to these businesses a priority, especially for businesses that may be at a disadvantage due to factors such a race, gender, or geographic location.
Education and Outreach to Small Businesses Seeking to Raise New Capital.
Today, there are more avenues than ever for small businesses to raise capital, including newly enacted or expanded securities law exemptions and grant and loan programs. Indeed, from the JOBS Act of 2012, to recent and sweeping rules adopted by the SEC in relation to the harmonization of the exempt offering framework,[i] to state crowdfunding statutes and exemptions,[ii] there have never been more viable options for raising capital available to U.S. businesses.
One of the lessons from the states’ ongoing experiment with intrastate crowdfunding laws is that there can be a direct and powerful correlation between the amount of outreach conducted by regulators and government agencies tasked with administering securities laws, and the utility and success of these exemptions. For example, state-led outreach campaigns undertaken in Georgia and Vermont appear to have directly resulted in dozens of small-sized offerings in these states.[iii]
The 117th Congress should explore ways to support outreach by federal and state authorities to local businesses seeking capital. Congress should specifically examine the role of the Small Business Administration (SBA) and other federal agencies in working with the SEC in reaching out to small businesses across the country to educate small business entrepreneurs about the myriad of programs available to them.
Responsibly Improve and Support Markets for “Crowdfunding” and Other Small-Sized Offerings.
NASAA continues to support legislative efforts to improve the federal crowdfunding marketplace, including through increased protections and transparency for consumers. For example, NASAA has supported adjustments to federal crowdfunding laws, including authorizing certain special purpose vehicles (SPVs) in the fundraising process,[iv] and has urged Congress to direct the SEC to coordinate with the states more closely in this area to unify or harmonize certain federal and state exemptions.
Proactive Education and Outreach to Underserved and Minority Entrepreneurs.
From their position on the ground in all U.S. states and territories, state securities regulators have a strong appreciation for the positive impact of expanding access to capital for women and minority founders to create change within diverse communities. State regulators also understand the challenges women and minority founders face, especially if they do not have an existing network of wealthy friends and family. [v] Congress should encourage the SEC to proactively work with state regulators, state small business agencies, state and local development agencies, and other stakeholders to develop outreach programs targeted toward diverse investors, communities, and small businesses.
NOTES:
[i] On November 2, 2020, the SEC voted to adopt a series of major changes to the exempt offering framework. According to the SEC, the new rules “address gaps and complexities in the exempt offering framework that impede access to capital for issuers and access to investment opportunities for investors.” The new rules are aimed at capital formation activity for businesses of all sizes, “from raising seed capital for new businesses to growth capital for companies of all sizes, including those on the path to a registered initial public offering.” See https://www.sec.gov/news/press-release/2020-273.
[ii] For additional information about intrastate crowdfunding, See https://www.nasaa.org/industry-resources/securities-issuers/instrastate-crowdfunding-resources/.
[iii] For example, the Invest Georgia Program (IGP) is a long-term investment program, backed by the State of Georgia, that is designed to help grow and mentor current, new and future Georgia venture capital investment funds in the state of Georgia. The goal of the program is to “create new Georgia companies, new Georgia entrepreneurs and long-term, high-paying Georgia jobs.” As of December 2020, the IGP had directly facilitated capital raises by some 70 companies, resulting in the creation of an estimated 2,200 new jobs in the state. See https://investgeorgia.net
[iv] See NASAA Legislative Agenda for the 116th Congress, Principle 3 (2019) at 6, available at https://www.nasaa.org/wp-content/uploads/2019/03/NASAA-Legislative-Agenda-for-116th-Congress.pdf.
[v] Ilene H. Lang and Reggie Van Lee, Institutional Investors Must Help Close the Race and Gender Gaps in Venture Capital, Harvard Business Review (Aug. 27, 2020) available at https://hbr.org/2020/08/institutional-investors-must-help-close-the-race-and-gender-gaps-in-venture-capital.
