By Suzanne Cosgrove
Addressing a meeting Wednesday of the SEC’s small business advisory committee, Chairman Gary Gensler enumerated the group’s discussion priorities: providing feedback on the effect of rising interest rates and the challenges of regional banks on small businesses, looking at the increased use of predictive data analytics and how these technologies are changing funding practices and availability, and addressing funding gaps for underrepresented startups.
“That input, formal and informal, helps us advance our mission-- including with regard to capital formation for small businesses,” Gensler said.
Exploring legal obstacles. SEC Commissioner Mark Uyeda also asked committee members to weigh in on whether small business owners, especially those located in more rural areas, have access to the quality legal services necessary to help them understand their capital raising options.
“Has the Securities Act’s regulatory framework for registration exemptions become too complicated, and if so, how can it be simplified?” Uyeda asked in prepared remarks. “What are the common foot faults in compliance – before, during, and after the offering?”
Challenges for underrepresented founders are widely recognized, Uyeda said. “As we search for ways to address these challenges, how can the Commission ensure that its future regulations do not exacerbate the problem?” he asked. For example, would increasing income and net worth thresholds in the “accredited investor” definition, as the SEC has discussed, make it even more challenging for underrepresented founders to obtain funding?
Capital access limits. Commissioner Jaime Lizárraga, who also spoke to the committee, noted a recent report by the Small Business Advocate, stating that 78 percent of the entrepreneurs surveyed reported that access to capital limits their day-to-day operations, 89 percent said that barriers to accessing capital limit their business growth potential, and 73 percent of owners sought support in preparing to apply for and use business financing.
Bridging gaps between entrepreneurs and investors remains the biggest challenge for early-stage startups when raising capital, Lizárraga said, with 40 percent of entrepreneurs finding it challenging to find a lead investor.
But Lizárraga said he remains optimistic. “New and innovative solutions can help address funding gaps for the 94 percent of small businesses that are in need of access to growth capital but have not sought to do so through equity investments,” he said.
“While many of the solutions may take time to develop, there is also low-hanging fruit that can easily be harvested right now,” he added. That includes basics like making information about how disadvantaged businesses can benefit from the securities law framework more available to owners, Lizárraga said.