Founders, Funders, and Forty-Five Forums: Remarks at the 45th Annual Small Business Forum

Good afternoon and welcome everyone to the 45^th Annual Small Business Forum. Today's event is a wonderful opportunity to hear from a wide range of folks with a shared passion for the entrepreneurial spirit of America. Essential to our nation's prosperity is the willingness of founders and the investors who fund them to take on the risk of building and growing new businesses. As SEC Commissioner Barbara Thomas explained 45 years ago, "We at the Securities and Exchange Commission must help foster the kind of environment which will encourage people to accept, rather than avoid, the opportunity to take a risk in search of reward."[1] I look forward to hearing your thoughts on how the SEC can foster such an environment.

Today's panels cover capital formation challenges across all stages of the corporate cycle. We will hear about problems that are a universal experience as well as those that are unique to a particular stage of development.

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.[2] 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.[3] A regulatory structure for finders, an idea under consideration by the Small Business Capital Formation Advisory Committee, also might help founders find funders.

The second panel takes on the next step in a company's development-the growth stage. Business development companies, venture capital funds, and small private funds provide much needed capital to growth-stage companies, which are engines of innovation. Broadening access to these smaller funds would increase the capital available for investment in growth-stage companies.

Ideas for increasing capital for growth-stage companies include an idea embodied in the INVEST Act, which passed the House and would amend section 3(c)(1) of the Investment Company Act of 1940 to enable a qualifying venture capital fund to have 500 investors and $50 million, up from 250 and $10 million, respectively. Additional changes could include increasing the limit for issuers that are not qualifying venture capital funds and expanding the definition of "Qualified Purchaser" under the Investment Company Act. I look forward to hearing your thoughts on these and other ideas for helping growth-stage companies.

Today's final panel will discuss the IPO process and key considerations for smaller public companies. Last year at this forum we heard from the CFO of a smaller reporting company who explained how, with limited personnel in-house, the quarterly reporting process can be a continuous year-round activity.[4] Moving away from mandatory quarterly reporting could allow smaller companies to more effectively allocate their limited resources. More generally, the Commission's ongoing initiative to streamline Regulation S-K could benefit small public companies. An important part of that initiative is listening to feedback from issuers that are already public or are considering becoming public. [5] We already have heard that executive compensation disclosures, having ballooned over the years, rankle issuers of all sizes, particularly because investors show a complete disinterest in much of the information our rules require. Similarly, because some disclosure obligations are based on dollar thresholds that have not been updated in years, disclosure burdens have increased over time. What disclosure obligations are the most onerous, and how could the SEC lower the burden on small public companies while still protecting investors?

The Small Business Forum convenes people who care deeply about creating a healthy environment for entrepreneurship. I would like to thank all the offices and teams that worked together to make this event possible. Thank you especially to today's panelists, moderators, and participants who have volunteered their time to provide the Commission with ideas about how best to help small businesses find the capital they need to serve the communities in which they operate.