OASB annual report details capital raising, activities in FY2021

By Rodney F. Tonkovic, J.D.

The SEC's Office of the Advocate for Small Business Capital Formation issued its annual report detailing capital raising during the past fiscal year. The 2021 Annual Report highlights the OASB's advocacy work, shares policy recommendations, and contains data concerning small business capital formation in several categories. The report also summarizes the activities of the OASB's Advisory Committee in 2021.

"The past year has been a banner year for capital raising in the aggregate; however, that headline only tells part of the story," said Martha Legg Miller the OASB's director. "For every headline on a successful founder’s seed round or IPO, there are countless entrepreneurs who are struggling. Our report examines the challenges of navigating the inside baseball world of capital raising, bridging founders' personal networks to sophisticated investors, building first-time funds in the middle of the country, or determining which exit path to pursue, and our team proposes solutions to each of these issues."

Annual report. The Annual Report is intended as a comprehensive resource on the dynamics of capital raising across the country. The data is derived from a combination of SEC filings, as analyzed by DERA, supplemented with figures and findings from third parties. The report provides data on small business capital formation in:

• Small and emerging businesses
• Mature and later-stage businesses
• Small public companies
• Women-owned businesses and investors
• Minority-owned businesses and investors
• Natural disaster areas
• Rural communities

COVID impact. Among the report's contents are findings concerning the effect of the COVID-19 pandemic on small businesses. According to the OASB, both the total entrepreneurial activity rate and the established business ownership rates dipped in 2020. And, emergency assistance played a critical role in funding these businesses with over 90 percent of employer firms applying for and receiving Paycheck Protection Program (PPP) loans. The pandemic also disproportionately impacted businesses in the service sector, where women and minorities tend to own more businesses, the report says.

Policy recommendations. Based on feedback received from small businesses and investors affected by the capital raising rules, the OASB developed several policy recommendations. The feedback was condensed into four categories addressing the most significant issues raised:

• Entrepreneurs need support navigating complex securities laws.
• Founders need bridges from their personal networks to savvy investors.
• Diversifying capital allocators requires supporting emerging fund managers.
• Smaller public companies are integral to a vibrant public market.

For each category, the report details Commission actions taken in that area as well as the OASB's proposed solution to the issue.

The report was delivered to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate and the Committee on Financial Services of the U.S. House of Representatives. The report was provided directly to Congress without any prior review or comment from the Commission and does not necessarily reflect the views of the Commission, Commissioners, or Commission staff.

Capital Call. The Office will host its third annual "Capital Call" on January 19, 2022. Participants in this virtual event can inquire about the report and share their perspectives on capital raising.