Remarks to the Small Business Capital Formation Advisory Committee

Good morning. It is great to see the members of the Committee here in Washington. I am pleased that there is some fine Washington autumn weather to welcome you. Thank you for your continued service and thank you to the Commission's staff for making today's meeting happen.

Over the past summer, the Committee has been hard at work on its recommendations to modernize access to the public markets. I look forward to considering the Committee's views on the Commission's proposals, which are aimed at reducing the regulatory hurdles for a company's IPO. One broader theme also emerged from the Committee's deliberations: disclosure obligations are an important part of the puzzle to making IPOs great again, but we should also be paying attention to other areas of friction that can affect a company's ability to remain public and raise capital.

This morning's agenda addresses two areas where that friction can show up: the rules governing how companies communicate with investors before and during an IPO, and the thin or often times non-existent research coverage that many smaller companies face once they are public. These two areas are connected. A smaller company that cannot readily tell its story before the offering and that attracts little or no professional analyst coverage after it, may reasonably conclude that going public is simply not worth the cost. I welcome the Committee's views on what steps might be taken to encourage more thoughtful and value-adding research on smaller companies. We made some choices a long time ago, such as the Global Research Analyst Settlement, which were intended to be short-term remedies and not intended to last twenty years or longer, and only applied to 12 firms. Since the settlement was announced, the SEC has adopted Regulation AC and FINRA has adopted rules to further improve these professional research coverage requirements.1

The afternoon portion of the meeting will turn to Regulation Crowdfunding, which turned ten years old this past May. I remember when we proposed and adopted the rule since I was on the staff here at the time, tasked with working on them at the time. As Chairman Atkins noted, time flies at the Commission. The 10^th anniversary raises a natural question for Regulation Crowdfunding: How is it doing? How effective has it been as a mechanism for channeling capital to small businesses and where should we go from here?

I was pleased with the changes made under former Chairman Jay Clayton, which were further fine-tuned based on negative feedback with respect to parts of the original rules. We should continually conduct a retrospective review of the effectiveness of these rules and whether they should be updated. But let me be clear: the anti-fraud provisions already apply to any statement made with respect to crowdfund offerings. The SEC, criminal authorities, and state securities regulators can enforce the anti-fraud rules. The question, therefore, is how extensive of a prescriptive and prophylactic regime ought to be required given the relatively low-dollar amounts being raised.

Many have pointed to the offering limit as a place to explore further. The Commission raised it from $1.07 million to $5 million in 2020.2 This year, participants at the Commission's 45^th Annual Small Business Forum ranked an increase to $20 million among their top recommendations.3 Is the current cap limiting risk or simply splitting a single financing into several financial efforts, each with its own fees, filings, and campaign costs?

However, the offering limit should not be viewed as the sole question. A higher ceiling matters little if the path to it remains expensive. As an issuer raises more capital, its financial statement requirements escalate from review to audit. Its communications are constrained by advertising restrictions that can seem out of step with how companies communicate to their stakeholders today. Ten years on, the question remains whether Regulation Crowdfunding remains fit for purpose given its cost, and whether, as offering sizes grow, some protections should scale up while others perhaps should be simplified.

There is also the matter of what happens after the offering. A crowdfunding issuer that succeeds may find itself with thousands of shareholders and an exemption from Exchange Act registration that is conditioned on staying below certain thresholds.4 Investors generally have limited avenues for resale. If Regulation Crowdfunding is to serve growing companies rather than only the earliest ones, these issues affecting exit strategies and liquidity events deserve as much attention as the front-end offering limit.

Crowdfunding is distinctive because it allows a company to raise capital from the people who know it best: its customers, its neighbors, and its community. The goal should be to make that path practical, not merely available, as a foundational step to creating an enduring business. I would particularly appreciate your views on what the Commission got right, and where it could make improvements, on Regulation Crowdfunding.

Let me close with a brief note about former Committee member Dennis Sugino, who recently passed away. For several years, Dennis had been very interested in contributing to the public, particularly using his skills and experience in investing. As a member of this Committee, he had the opportunity to do so and provided his time and energy to build a better environment for companies to raise capital and for investors to invest in them. I am grateful when citizens like Dennis step up to serve the public and I will miss him.

• 1

  Regulation Analyst Certification, Securities Act Release No. 8193 (Feb. 20, 2003) [68 FR 9482 (Feb. 27, 2003)], available at https://www.sec.gov/rules/2003/02/regulation-analyst-certification#33-8193; FINRA Rule 2241 (2015).

• 2Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Release No. 33-10884 (Nov. 2, 2020) [86 FR 3496 (Jan. 14, 2021)].
• 3Report on the 45th Annual SEC Small Business Forum (Mar. 9, 2026), available at https://www.sec.gov/files/2026-oasb-annual-forum-report.pdf.
• 4See 17 CFR 240.12g-6.