ANNUAL REPORT FOR FISCAL YEAR 2019

Office of the Advocate for 

Small Business 

Capital Formation

U.S. SECURITIES AND EXCHANGE COMMISSION
ABOUT THIS REPORT + ACKNOWLEDGEMENTS

This annual report of the Office of the Advocate for Small Business Capital 

Formation for Fiscal Year 2019 is being 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 in accordance 

with Section 4(j) of the Securities Exchange Act of 1934 (the Exchange 

Act), as amended by the SEC Small Business Advocate Act of 2016, 

15 U.S.C. § 78d(j)(6).

Pursuant to Section 4(j)(6)(D) of the Exchange Act, this Report is provided 

directly to the committees of Congress without any prior review or 

comment from the Commission, any Commissioner, any other officer 

or employee of the Commission, or the Office of Management and 

Budget. It does not necessarily reflect the views of the Commission, the 

Commissioners, or staff of the Commission.

The work of the Office is possible only through the support of a talented 

and passionate team. While the Office has been supported by many 

colleagues across the agency during its first year in operation, we recognize 

the following team members who worked in the Office during FY2019:

Emerald Greywoode Boston-Mammah Jessica W. McKinney

Colin A. Caleb Jennifer Riegel

Julie Zelman Davis Malika Sullivan

Special thanks to our colleagues within the SEC for providing resources 

for this Report, including the Division of Economic and Risk Analysis 

for providing SEC data to quantify the state of small business capital 

formation and contextualize issues, and the Office of Public Affairs 

for making our written product for this report visually engaging. We 

particularly thank the following individuals: Daniel Bresler, Vlad Ivanov, 

Andy Kim, Anzhela Knyazeva, Wei Liu, Chris Onrubia, Narahari Phatak, 

Zehra Sikandar, and John Zheng.
ANNUAL REPORT: FISCAL YEAR 2019 | i

Message from the Advocate

“Small businesses are the backbone of our economy” is a statement so 

often repeated that it has become a standard line used almost ubiquitously 

by leaders, both political and apolitical.1 Rightly so, given the role smaller 

companies play in our economy—from being the primary job creators 

over the past two decades, to the innovators of new technologies that 

change lives, to the generators of wealth for many investors. Yet small 

businesses are often underrepresented here in Washington, DC, where 

laws and rules impacting their operations are made.

I have the opportunity of a lifetime to serve as the U.S. Securities and 

Exchange Commission’s (SEC) first Advocate for Small Business Capital 

Formation after being appointed in December 2018 and beginning to build the SEC’s newest office starting 

in January 2019.2

 During our formative first year of operation, I approached building our Office with the 

only frame of reference I had coming from the private sector: like a start-up. We crafted a business plan3

to communicate with the public our mission, vision, and approach for supporting small businesses’ capital 

formation needs, just like many start-ups do before pitching to investors. Knowing that we needed to scale 

pragmatically and efficiently, we defined our minimum viable product (or MVP) and documented the steps 

we would take to achieve full scale programming, along with a timeline to provide visibility of what you 

could expect from us and when.

At almost every event we host, we simultaneously engage with businesses and their investors, recognizing 

that the success of businesses is interwoven with the success of their investors. In speaking with new 

audiences, I often analogize our Office to a megaphone, explaining that we take the ecosystem’s voices and 

make them louder within the SEC and the broader regulatory landscape to positively impact policy. It is 

my hope that this inaugural report will do just that: take the many voices that we hear, distill them into a 

concise summary, and communicate in a compelling manner what small businesses and their investors tell 

us that they need from our capital markets.

Looking back at FY2019 and our first nine months, I am proud of what we have accomplished to date, 

and I look forward to working collaboratively with the Commission, Congress, and our agency partners to 

deliver meaningful solutions to support the backbone of our economy: small businesses. We are proud to 

be, as many a small business storefront sign says, “Open for Business.”

MARTHA LEGG MILLER

Advocate for Small Business Capital Formation
Breaking Down Our Long Title

An independent office housed 

within the U.S. Securities

and Exchange Commission, 

created by Congress via 

special legislation

One called to use your 

voice for others, derived 

from Medieval Latin

Office of the Advocate for

Small Business Capital Formation

From start-ups to small cap, 

“small” is relative for the SEC’s 

newest Office, which supports 

emerging, privately-held 

companies up to small public 

companies

The deployment of 

productive capital by 

informed investors to 

create economic growth
ANNUAL REPORT: FISCAL YEAR 2019 | iii

Contents

ABOUT THE OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

INAUGURAL YEAR OF THE OFFICE IN REVIEW. . . . . . . . . . . . . . . . . . . . . . 14

STATE OF SMALL BUSINESS CAPITAL FORMATION. . . . . . . . . . . . . . . . . . . 1111

Small, Emerging Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Mature and Later-Stage Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Small Public Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Founder Demographics & Capital Formation. . . . . . . . . . . . . . . . . . . . . . . . .26

Natural Disasters & Capital Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Rural Communities & Capital Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . 36

POLICY RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Modernize, Clarify, and Harmonize Exempt Offering Framework. . . . . . . . . . . . 40

Investor Participation in Private Offerings. . . . . . . . . . . . . . . . . . . . . . . . . . 141

Engaging Investors via Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Crowdfunding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Scaled Obligations for Smaller, Less Complex Reporting Companies. . . . . . . . . .48

SMALL BUSINESS CAPITAL FORMATION ADVISORY COMMITTEE. . . . . . . . . . .151

ANNUAL REPORT: FISCAL YEAR 2019 | 1

About the Office

C

ongress created the Office to 

provide a dedicated champion 

to smaller companies accessing 

critical capital to build, grow, and 

thrive. The Office operates pursuant 

to sections 4(j) and 40 of the Securities 

Exchange Act of 1934 (15 U.S.C. §§

78d and 78qq), as added by the SEC 

Small Business Advocate Act of 2016 

(P.L. 114-284) and amended by the 

Small Business Access to Capital after a 

Natural Disaster Act (title IX of division 

S of Public Law 115-141) (collectively, 

the Small Business Advocate Act).

The Office officially commenced operations in January 2019. As an independent office reporting 

directly to the Commission, the Office is statutorily charged with the following functions: 

§	Assisting small businesses and their investors in resolving significant problems they may have 

with the SEC or with self-regulatory organizations (SRO);

§	Identifying areas in which small businesses and their investors would benefit from changes in 

SEC regulations or SRO rules;

§	Identifying problems that small businesses have with securing access to capital;

§	Analyzing the potential impact on small businesses and their investors of proposed SEC 

regulations and SRO rules;

§	Conducting outreach to small businesses and their investors to solicit views on capital 

formation issues;

§	Proposing appropriate regulatory and legislative changes to the SEC and Congress to 

mitigate problems identified with small business capital formation and to promote the interests 

of small businesses and their investors; and

§	Consulting with the Investor Advocate on such regulatory and legislative changes and other 

small business issues.

The Office also proactively works to identify any unique challenges faced by minority-owned small 

businesses, women-owned small businesses, and small businesses affected by natural disasters.

Director Martha Miller describes the role of her office at the SEC to small business 

owners and entrepreneurs in Kansas City, MO.
2 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

The Office hosted a round table in Little Rock, AR at the Venture Center, a nonprofit fintech accelerator focused on solutions 

for community banks.

Scope of Small Businesses

The Office supports a spectrum of small businesses and their investors, from emerging, privately-held 

businesses to publicly traded companies with less than $250 million in public market capitalization.4

Based upon commonalities in sources of capital and issues faced, the Office has segmented its target 

market into three categories of businesses and their corresponding investors:

Complexity of funding sources and offering types

Capital markets + liquidity

Small, emerging 

businesses

Mature and later-stage

businesses

Small reporting

companies
ANNUAL REPORT: FISCAL YEAR 2019 | 3

Our Mission

The Office’s mission is to advocate for small businesses and their investors to foster better access 

to capital markets, strengthening the voice of small business within the SEC and the broader 

regulatory landscape.

Work with small businesses 

to understand their capital 

formation issues through 

education and outreach

Analyze the potential impact of 

proposed rules and regulations 

likely to significantly affect 

small businesses

Help small businesses 

resolve issues with the SEC 

and SROs by recommending 

policy changes

Core Tenets

The Office adheres to the following core tenets in approaching its delivery of services and solutions 

to small businesses and their investors:

§	Small businesses are job creators, generators of economic opportunity, and fundamental to the 

growth of the country.

§	One size does not fit all for small businesses.

§	Good work has been done by the SEC, but we are not done and should continue to evolve as the 

market demands.

§	Small business policy should facilitate trust and confidence in capital markets to encourage 

efficient allocation of investment dollars.

§	We serve as a collaborator with, and contributor to, other SEC divisions and offices and SROs, 

not as an auditor.

Values

The Office is guided by four core values:

§	ACCESSIBILITY — We engage with both small businesses and their investors, as well as with 

the SEC, SROs, Congress, and other agencies on a regular basis through a variety of channels.

§	TRANSPARENCY — We are visible and open in our approach to supporting small businesses 

and their investors.

§	PRAGMATISM — We approach problems with a solution-oriented mindset by making 

practical, market-driven recommendations.

§	EFFICIENCY — We operate like a lean start-up, maximizing resources and focusing activities 

where the Office can have a measurable impact.
Inaugural Year of the Office in Review

LAUNCH OF THE SEC’S NEWEST OFFICE

JANUARY 

31

Martha Legg Miller was sworn in as 

the first Advocate for Small Business 

Capital Formation, with initial team 

members joining shortly thereafter.

MARCH 

18-20

Office hosts first external 

engagement events with 

entrepreneurs and investors in 

Kansas City, MO and KS.

APRIL 

8

Publication of Foundational 

Business Plan5 and roll out 

of plans for 2019 activities at 

SEC Speaks.

MAY 

6-10

National Small Business Week, 

including Small Business Roundtable 

with Commissioners, inaugural meeting 

of the Small Business Capital Formation 

Advisory Committee, and celebration 

of the 100th day of the Office.

JULY 

22

Office launches explanatory videos 

on how to comment, highlighting 

small business-related rulemakings 

in plain English.

AUGUST 

13

Advisory Committee hosts first out 

of DC meeting in Omaha, NE, making 

recommendations on open rulemakings.

AUGUST 

14

Office hosts the 38th Annual 

Government-Business Forum on 

Small Business Capital Formation in 

Omaha, NE at Creighton University.
ANNUAL REPORT: FISCAL YEAR 2019 | 5

Business Plan

Throughout the first year of our Office, we have often referred to ourselves 

as a “start-up within the government,” challenged with operationalizing and 

delivering solutions to our “customers”—small businesses and their investors—

starting from a blank slate. We began building out the Office by engaging in 

the same work that thousands of startups across the United States engage in 

each year: developing a business plan.

6

 Starting with our enabling legislation 

as guideposts, we crafted a statement of our Office’s mission to guide each 

decision we would make, keeping small businesses’ and their investors’ 

needs first of mind. Just as businesses do, we followed that by defining our 

target market and began identifying the capital formation needs of different small 

business market segments. With the mission and target market established, we outlined the products, 

programs, and services our Office would deliver, established projected launch dates, and began 

identifying critical components of each deliverable to ensure that we scale in a lean and efficient 

manner, again adopting a business-oriented mindset to solutions tailored to our target market. We 

created the business plan as a compass to guide decisions internally, as a pacesetter to keep us on track, 

and as a roadmap to guide expectations externally. Because of the premium we place on transparency, 

we put the business plan on our website to be open about our thought process and plan of action.

Outreach Activities

EVENTS/SPEAKING ENGAGEMENTS POINTS OF CONNECTION
6 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Highlighted Engagements in Fiscal Year 2019

In addition to hundreds of meetings, phone calls, emails, and cups of coffee shared with individuals 

across the small business ecosystem, we have sought out opportunities to engage with diverse groups 

of small business thought leaders—our Office’s customers—through events, speaking engagements, 

and networks of potential beneficiaries of our Office’s products, programs and services. Some of the 

events in which we have engaged this year include:

Road to Global 

Entrepreneurship 

Summit7

March 19, 2019

Overland Park, KS

Panel discussion alongside 

individuals from the public 

and private sector, hosted 

by the U.S. Department 

of State.

SEC Speaks 20199

April 8, 2019

Washington, DC

Launch of the Office’s 

Foundational Business 

Plan10 and plans for 

inaugural year of the 

Office.

Investment Company 

Institute’s Small Funds 

Committee

April 30, 2019

Washington, DC

Solicitation of investor 

input from smaller 

funds and investment 

companies.

Roundtable with 

Colorado Small 

Businesses and 

Investors

May 3, 2019

Denver, CO

Roundtable discussion 

with small business 

owners and investors 

on pressing capital 

formation issues.

March 20, 2019

Kansas City, MO

Town hall meeting with 

small business owners, 

investors, and aspiring 

entrepreneurs.

Town Hall Meeting 

at the 1 Million Cups8

April 9, 2019

Washington, DC

Discussion of the creation 

of the Office and role at 

the SEC with international 

securities regulators.

International Institute 

for Securities Market 

Growth and 

Development11

May 3, 2019

Denver, CO

Discussion of legal issues 

in small business capital 

formation in the Rockies.

Rocky Mountain 

Securities Conference12

May 6, 2019

Washington, DC

Roundtable focused 

on experiences of 

businesses and investors 

raising capital and 

investing outside of 

coastal “hot spots.”

National Small Business 

Week Roundtable on 

“Capital Formation 

Between the Coasts”13
ANNUAL REPORT: FISCAL YEAR 2019 | 7

National Association 

of Women Business 

Owners’ Advocacy Day14

June 4, 2019

Washington, DC

Collaboration with female 

entrepreneurs on their 

national advocacy day.

38th GovernmentBusiness Forum on 

Small Business Capital 

Formation15

August 14, 2019

Omaha, NE

Hosted forum, gathering 

members of the public 

and private sectors to 

craft suggestions for 

securities policy.

U.S. Black Chambers 

10th National 

Conference17

August 20, 2019

National Harbor, MD

Panel discussion on 

the art of capital raising 

and deal activity.

Rural RISE 2019 

Summit19

Sept. 18, 2019

Pine Bluff, AR

Panel discussion 

highlighting government 

resources to empower 

rural communities to 

foster entrepreneurship.

June 10, 2019

Washington, DC

Discussion with NSBA’s 

Leadership Council on 

their top issues.

National Small 

Business Association

August 15, 2019

Omaha, NE

Pitched the Office 

like an entrepreneur 

at the largest Midwestern 

entrepreneurship 

conference.

Maha Discovery 

Festival16

Sept. 17, 2019

Little Rock, AR

Roundtable discussion 

with the Little Rock 

startup and fintech 

community.

The Venture Center 

Roundtable18

Sept. 19, 2019

New York City, NY

Fireside chat discussing 

issues faced by small 

reporting companies and 

their investors, and Inside 

the IceHouse podcast 

episode recording.

20

NYSE American 

Emerging Companies 

Summit
8 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Launch of Video Content

Small business owners and their 

investors often do not engage 

with the SEC (or other federal 

government agencies) for many 

reasons, including lack of time and 

resources. In an effort to increase 

engagement in the regulatory 

process, the Office piloted four 

videos in FY2019 that, in 3-5 

minutes, provide a high-level, plain 

English overview of a rulemaking 

topic, how it affects small business interests, and how the viewer can engage and provide feedback. 

These videos are a reflection of growing trends in information consumption, with 80% of all 

internet traffic in 2020 projected to be video.21

The FY2019 videos included:22

§	How to Comment: Engage in the Rulemaking Process

§	Harmonization of the Exempt Offering Framework

§	Accelerated Filer Proposed Amendments

§	Simplifying the M&A Accounting Rules

The videos reflect the changing nature of how people are consuming information and prioritizing 

visual content. External audiences have been far more willing to stream a short video about a 

securities law topic that they see on social media than to dig into a lengthy PDF on SEC.gov to 

find out it if is relevant to them. Going forward, the Office will continue exploring video and other 

forms of media to better engage with and inform small businesses and investors.

Small Business Forum

The Office hosted the SEC’s 38th annual Government-Business Forum on 

Small Business Capital Formation on August 14, 2019 in Omaha, Nebraska 

at the Heider College of Business at Creighton University, continuing the 

SEC’s three-year tradition of taking the Forum outside of Washington, 

DC. The Forum is a unique event where members of the private and 

public sectors converge to identify and highlight issues they experience 

in accessing capital and investing in small businesses and then formulate 

solutions on which the government can take action. The Office assumed 

responsibility for the Forum beginning in FY2019 under the Small 

Business Advocate Act. A separate report has been delivered to Congress 

summarizing the proceedings and recommendations of the participants.23
ANNUAL REPORT: FISCAL YEAR 2019 | 9

[Top] “Capital Formation Success 

Stories from the Silicon Prairie” panelists 

and SEC Commissioners engage in a 

thoughtful dialogue about capital raising.

[Center] SEC Commissioners and 

“Harmonization: What a Concept!” 

panelists.

[Bottom left] Commissioner Rob 

Jackson visits with business owners 

and investors.

[Bottom right] Commissioner Allison 

Herren Lee talks with panelists and 

participants.

ANNUAL REPORT: FISCAL YEAR 2019 | 11

State of Small Business 

Capital Formation

T

he data provided in this Report is derived from a combination of public filings with the SEC, as 

analyzed by the SEC’s Division of Economic and Risk Analysis (DERA), and is supplemented 

with figures and findings from third parties. In doing so, we hope to provide a snapshot view of 

the state of U.S. small business capital formation, amalgamating many important pieces of the

capital formation story into one resource to aid in evaluating the current flow of investment capital 

between small businesses and investors. The data supplements anecdotal evidence and helps quantify 

the successes and challenges in small business capital formation nationwide. Using data, we can better 

identify what tools, strategies, and approaches would be most helpful in crafting policy solutions. Unless

otherwise indicated, the data period utilized for DERA data is July 1, 2018 to June 30, 2019.

What regulatory pathways are companies using to raise capital?24

Private Offerings Public Offerings25

Regulation D

Rule 506(b)

Private Placements

Rule 506(c)

Accredited 

Investor 

Crowdfunding

Rule 504

Limited 

Offerings

Regulation A

Mini IPOs

Regulation CF

Crowdfunding

Initial 

Public 

Offerings

Other Registered 

Offerings, including 

Secondary Offerings

$1.4T

$1.9M 

median

$210B

$1M 

median

$260M

$200,000 

median

$800M

$3.7M 

median

$54M

$80,000 

median

$50B

$90M 

median

$1.2T

$313M 

median
12 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

What are the primary types of offerings and what companies are 

using them?

OFFERING TYPE IN A NUTSHELL TYPICAL CO. PROFILE

Equity Crowdfunding 

Regulation Crowdfunding26

Raising up to $1.07 million 

from many investors online.

Limited Offerings 

Rule 504 of Reg D27

Raising up to $5 million from 

investors, often with whom the 

company has a relationship.

Intrastate Offerings 

Section 3(a)(11) and 

Rules 147 and 147A28

Raising capital locally according 

to state law exemptions, which 

generally cap the offering at 

between $1 million to $5 million, 

depending on the state.

Private Placements 

Rule 506(b) of Reg D or 

Section 4(a)(2)29

Raising unlimited capital from 

higher net worth investors 

with whom the company has a 

relationship.

Accredited Investor Crowdfunding 

Rule 506(c) of Reg D30

Raising unlimited capital from 

higher net worth investors, often 

online, using general solicitation.

Mini Public Offering 

Regulation A31

Raising up to $50 million from 

many investors online.

Registered Offerings (including 

Initial Public Offerings)

Securities Act of 193332 

Raising large amounts of capital 

through “IPOs” or secondary 

offerings through a registration 

statement filed with the SEC.

SMALL, EMERGING 

BUSINESSES

MATURE AND LATER-STAGE 

BUSINESSES

SMALL PUBLIC 

COMPANIES
ANNUAL REPORT: FISCAL YEAR 2019 | 13

How are companies using the offering types in the industries 

that raise the most capital (excluding pooled funds)?33

BANKING

TECHNOLOGY

MANUFACTURING

REAL ESTATE

ENERGY

HEALTH CARE

REGISTERED OFFERINGS REGULATION D REGULATION A

0 100 200 300 400

Billions

$397B

$138B

$129B

$58B

$105B

$92B

$19B

$23B

$67B

$3B

$39B

$2B

$163M

$12M

$48M

$486M

$0M

$49M

The Office joined over 300 rural capacity builders in Pine Bluff, Arkansas at Rural RISE, highlighting government resources to empower 

rural communities fostering entrepreneurship.
Where are companies raising capital?34

The maps included in this section illustrate the concentration of estimated total capital raised under 

various different offering types by issuers that report a primary location in the U.S., with the number of 

offerings conducted indicated on each state.

$0 - $100 MILLION $100 MILLION - $1 BILLION $1 - $10 BILLION Over $10 BILLION

AK

22

AL

185

AR

82

AZ

416

CA

6927

CO

1103

DC

251

FL

1499

DE

382

GA

794

HI

36

ID

81

IL

1762

IN

254

KS

145

KY

168

LA

72

ME

76

MD

535

MI

360

MN

473

MO

316

MS

34

MT

36

NC

690

ND

49

NE

51

NH

119

NM

55

NJ

659 NV

222

NY

7659

OH

638

OK

97

OR

366

PA

1133

SC

171

RI

87

CT

1083

MA

2172

SD

34

TN

345

TX

3155

UT

1501 VA

663

VT

75

WA

1358

WI

231

WV

13

WY

99

PR

50

VI

3

IA

109

GU

1

Regulation D

$10,000 - $500,000 $500,000 - $2 MILLION Over $2 MILLION

Equity 

Crowdfunding

AK

1

AL

0

AR

1

AZ

6

CA

85

CO

7

DC

2

FL

13

DE

2

GA

5

HI

2

ID

1

IL

11

IN

0

KS

0

KY

3

LA

4

ME

1

MI

5

MN

2

MO

6

MS

2

MT

0

NC

2

ND

0

NE

0

NH

0

NM

0

NJ

3 NV

5

NY

44

OH

8

OK

0

OR

4

PA

16

SC

4

CT

5

SD

0

TN

5

TX

26

UT

6 VA

8

VT

1

WA

6

WI

0

WV

0

WY

0

PR

1

VI

0

IA

1

GU

0

DC

2

DE

2

MD

3

NJ

3

RI

3

MA

25

$0 - $10,000
$10,000 - $5 MILLION Over $20 MILLION

Regulation A

AK

0

AL

0

AR

1

AZ

3

CA

26

CO

5

FL

10

GA

3

HI

0

ID

0

IL

4

IN

0

KS

0

KY

0

LA

1

ME

0

MI

1

MN

1

MO

0

MS

0

MT

0

NC

0

ND

0

NE

0

NH

0

NM

0

NV

1

NY

6

OH

2

OK

0

OR

0

PA

4

SC

0

SD

0

TN

0

TX

6

UT

4 VA

5

VT

0

WA

1

WI

0

WV

0

WY

0

PR

0

VI

0

IA

1

GU

0

DC

12

DE

2

MD

2

NJ

1

RI

0

CT

1

MA

0

$0 - $300 MILLION $300 MILLION - $5 BILLION $5 - $20 BILLION Over $20 BILLION

Registered 

Offerings

AK

0

AL

3

AR

11

AZ

14

CA

297

CO

31

FL

72

GA

43

HI

3

ID

5

IL

78

IN

21

KS

2

KY

5

LA

5

ME

1

MI

50

MN

31

MO

14

MS

1

MT

0

NC

94

ND

0

NE

18

NH

3

NM

1

NV

26

NY

251

OH

54

OK

10

OR

8

PA

50

SC

3

SD

9

TN

42

TX

2

UT

9 VA

41

VT

1

WA

28

WI

20

WV

0

WY

6

PR

0

VI

0

IA

5

GU

0

DC

22

DE

39

MD

34

NJ

58

RI

4

CT

37

MA

111

$0 - $10,000 $5 MILLION - $20 MILLION
16 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Small, Emerging Businesses

Companies within this segment of the market generally raise capital through some combination of 

bootstrapping, self-financing, bank debt, friends and family, crowdfunding, angel investors, and seed 

rounds. This funding is commonly used to get companies off the ground and through early prototypes.

How are early stage small businesses accessing capital?

Small businesses often bootstrap and self-finance to overcome access to capital challenges, including 

using the following overlapping resources:35

PERSONAL FUNDS 69%

RETAINED BUSINESS EARNINGS 69%

LOAN OR LINE OF CREDIT 55%

CREDIT CARDS 52%

EQUITY FROM INVESTORS 7%

Notably, funding operations using retained business earnings is generally an option only available 

to established companies.

How are small business loans and lines of credit typically collateralized?36

PERSONAL GUARANTEE 58%

BUSINESS ASSETS 49%

PERSONAL ASSETS 31%

PORTIONS OF FUTURE SALES 8%

NONE 16%

“

Young small businesses are more likely to tap into informal sources of 

credit such as funding from owners or family and friends, while older 

firms are more likely to receive funding from more traditional sources.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM37
ANNUAL REPORT: FISCAL YEAR 2019 | 17

How have community banking trends impacted emerging businesses?

Decline in Number of FDIC-Insured 

Community Banks38

14,323

1988

9,206

1998

7,442

2008

4,979

2018

Banks are moving away from smaller-dollar 

loans, which are less profitable at scale. The 

following figures illustrate that pain point for 

smaller companies:39

Some banks have reportedly 

reduced or eliminated loans below 

a certain threshold, typically

<$100,000

Many banks will reportedly 

not lend to businesses with 

annual revenues

<$2 million

Neither term loans based upon cash flow or 

commercial revolving lines of credit are 

available for companies that are not yet 

revenue-producing or that are temporarily 

choosing to accelerate growth at the expense 

of profitability.40

“

Capital is the lifeblood of 

small businesses, who depend 

on credit to start, operate, 

and grow. Historically, small 

businesses relied on banks to 

access capital. But during the 

2008 financial crisis, credit 

markets froze, and banks 

temporarily stopped lending 

even to businesses with good 

credit. This crisis hit small 

businesses hard and credit 

conditions have been 

slow to recover.

KAREN G. MILLS,

FORMER SBA 

ADMINISTRATOR41
18 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

What is the role of angel investors?

“Angel investors” are generally high net worth individuals who provide financial backing for early-stage 

businesses, often coming from among an entrepreneur’s friends and family.42 They typically invest their 

own funds directly in a business located in close proximity,43 often using convertible debt.44

What is the scale of angel investing in early-stage companies in 2018?45

334,565

active angel investors

66,110

entrepreneurial ventures 

received angel funding

$23.1 billion

in total angel investments

$349,620

average angel funding round

The average angel’s individual investment is between:46 

$5,000 and $100,000

What does the pool of accredited investors look like?47

Angel investors are generally 

“accredited investors,” meaning that 

they meet certain requirements for 

income or net worth set forth by the 

SEC and are eligible to participate in 

many offerings that are not available 

to non-accredited investors.

48

13% OF U.S. 

HOUSEHOLDS 

qualify as accredited

$200,000 individual income 8.9% of U.S. households

$300,000 family income 4.6% of U.S. households

$1,000,000 net worth 9.4% of U.S. households
ANNUAL REPORT: FISCAL YEAR 2019 | 19

How does household income and net worth vary by region of 

the U.S.?49

WEST

Mean household 

income $108,500

Median household 

income $57,500

Mean household 

net worth $873,700

Median household 

net worth $114,300 

SOUTH

Mean household 

income $100,000

Median household 

income $51,500

Mean household 

net worth $636,900

Median household 

net worth $87,000 

MIDWEST

Mean household 

income $102,000

Median household 

income $54,700

Mean household 

net worth $658,800 

Median household 

net worth $103,200 

NORTHEAST

Mean household 

income $136,500

Median household 

income $64,400

Mean household 

net worth $851,300

Median household 

net worth $154,500 

What role do non-accredited investors play?

While there are pathways for non-accredited 

investors to participate in exempt offerings, the 

vast majority of small businesses are still 

limiting their offerings to accredited investors.50

From 2015-2018, non-accredited investors 

participated in only:51

6% of Rule 506(b) transactions

2-3% of total capital raised in transactions 

under Rule 506(b)

“

[S]o much of entrepreneurship 

happens at the local level.

Entrepreneurs raise money 

from local investors, hire from 

the local market, and found 

companies with the people 

who live in the same area.

EWING MARION 

KAUFFMAN FOUNDATION52
20 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

How costly is it for early-stage companies to navigate 

compliance with securities laws?

Companies spend significant money on legal fees in raising early-stage capital, in some cases amounting 

to the cost of an additional employee’s salary. One 2019 start-up guide quotes the costs as:53

$5,000 TO $20,000

for very early stage

$20,000 TO $40,000

for a venture capital raise

The age at which companies raise capital has matured:

While in 2014 a 3-year old company was commonly raising Series A, 

in 2019 that same age company is raising angel and seed-financing.

54

“

[T]he nature of startups receiving financing is fundamentally 

changing as investors continue to concentrate capital in fewer 

yet larger deals. At the seed stage, startups historically have 

been pre-product, but today’s investors tend to prefer a more 

mature company at this stage, which typically means the 

startup should at least have a minimum viable product.

PITCHBOOK55
ANNUAL REPORT: FISCAL YEAR 2019 | 21

Mature and Later-Stage Businesses

Companies within this segment of the market are generally growing and looking for larger amounts 

of capital that can fund operations of scale, ventures into new verticals, and preparation for public 

markets. Most often these investors are institutional in nature, whether syndicate groups, venture 

capital, private equity, or even public funds.

What is the role of venture capital (VC) in funding mature and 

later-stage businesses?

VC funds a small portion of the overall number of small businesses (approximately 0.5%), but 

those businesses tend to have outsized growth trajectories.56 VCs tend to fund companies with 

significant return on investment multiples, realizing profit at the company’s initial public offering 

or sale. A few statistics illustrate VC’s scale and impact on small business capital formation:

18,228

VC deals in 2018, 

up from 6,876 in 200957

1,087

VC-backed IPOs 

from 2009-201858

Increases in the availability of VC funding in metro areas have been 

correlated with job growth:59

10%

increase in VC 

in a metro area

2.6%

2.9%

increase in the number of small employers

increase in employment at small employers

3.9% increase in total payroll
22 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

What is the role of private equity (PE) in funding mature and 

later-stage businesses?

PE funds tend to back companies with return prospects following restructuring, realized through 

dividends and/or sale of the target company, often funded by a combination of investor equity and 

debt. A few statistics illustrate PE’s scale and impact on small business capital formation:

10,000 

average PE yearly deal 

count for the past 5 years60 

1,043

PE-backed IPOs 

from 2009-201861

Some studies have found that PE returns have recently outperformed the public market (12% for PE 

vs. 8% for the S&P),62 while others have noted a greater return dispersion from private equity than 

from the public market, and mutual funds in particular.63

When do mature and later-stage businesses enter the public 

markets following VC and PE investments?

HISTORICALLY

venture-backed tech companies raised

$100 million in total private funding

$100 million IPO64

NOW

>90% of unicorns raise at least 

$100 million 

in a single private financing65
ANNUAL REPORT: FISCAL YEAR 2019 | 23

In what ways do VC-and PE-backed companies enter the 

public markets?

13,695 

Companies backed by PE and late stage VC

700

of which are estimated to become the next 

immediate generation of public companies66

44.8% 

of companies currently listed 

on the NASDAQ were formerly backed 

by PE or VC67

From 2009 to 2018, 

public companies acquired

11,000+ 

PE and VC-backed companies 

for over $3 trillion

to serve various growth, intellectual property, 

talent and strategic needs68
24 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Small Public Companies

Companies can access broad pools of investors when they conduct public offerings, allowing 

companies to raise large amounts of capital to fund activities such as research and development, 

capital expenditures, or debt service. Public offerings also provide liquidity to early-stage investors 

and publicity for the company’s products and services.

How has the prevalence of publicly traded companies changed 

over time?69 Number of Domestic Listed Companies

Market Cap Listed Companies

Market Cap in Trillions (Current USD)

9,000

8,000

7,000

6,000

5,000

4,000

3,000

$35

$30

$25

$20

$15

$10

$5

$-

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

4,397 in 2018

8,090 in 1996

6-7

years

average holding period 

for a company in a PE or VC portfolio prior to exit70

Companies are increasingly going public at a later stage in their lifecycle after raising more capital 

from the private markets, providing for less growth following their IPO. In other words, companies 

are generally choosing to enter the public markets after maturing beyond the smaller reporting 

company thresholds.71
ANNUAL REPORT: FISCAL YEAR 2019 | 25

Small Public Companies All IPOs from July 1, 2018 through June 30, 2019:72

204 

IPOs

$243 Million

Average Proceeds

IPOs and other registered offerings by small public companies73 from July 1, 2018 through 

June 30, 2019:

294 

Offerings

$47 Million

Average Proceeds

The Fortune 500 has changed dramatically 

since 1955:74

only

12%

remain on 

the list 

in 2014

the other 88%

have gone out of existence, 

merged, or fallen off the list

Small companies struggle for attention:

61%

of exchange-traded companies with 

<$100 million market capitalization have

no research coverage75

“

The old pattern was that small companies raised small amounts 

of speculative capital from venture capitalists at speculative 

valuations, and then the ones that worked out went public at 

much higher valuations. The new pattern is that large companies 

raise large amounts of not-particularly-speculative growth capital 

from mutual funds at mature-company valuations, and then 

eventually they sort of quietly slip into being public.

MATT LEVINE, BLOOMBERG76
26 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Founder Demographics & Capital Formation

Women-Owned Businesses

Women are founding more start-ups:77

21.6%

of start-ups 

in 2018

4%

of start-ups 

in 2001

Capital used at start-up varies by gender:78

$54,375

for women

$80,285

for men

Women are less likely to apply for bank loans, 

despite research finding no differences in 

approval rates.79

Women constituted

25.9%

of entrepreneurs seeking capital in 2018...

and had an investment yield rate of 

17.5%

compared to a baseline rate of 

23.2%80
ANNUAL REPORT: FISCAL YEAR 2019 | 27

In 2018, women founding teams received less VC funding than their male peers of the approximately 

$130 billion reportedly invested:81

All-Women Mixed-Gender All-Male Not Identified

One study found that companies founded or co-founded by women generate more revenue:

82

Per $1 of 

investment...

31¢ of revenue

male-only 

teams create 

female teams 

create 78¢ of 

revenue
28 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

What effect does sexual orientation have on access to capital?

Research by StartOut found that gender had a far greater effect 

on startup funding levels than sexual orientation of the founders.

83

Women Investors in Small Businesses

29.5%

of angel investors are women84

only

11% 

of VCs across the industry are women85

71% 

of VC firms have no female partners86
ANNUAL REPORT: FISCAL YEAR 2019 | 29

Minority-Owned Businesses

The most recent estimates show that 8 million businesses are minority owned, or 29.3% of U.S. firms.87

Since 2007, there has been a 38% increase in the number 

of minority-owned businesses88

Numbers of Minority-Owned Businesses89

American Indians and 

Alaska Natives

272,919

Asian

1,917,902

Native Hawaiians and 

other Pacific Islanders

54,749

Black

2,584,403

Latinx

3,305,873

AK

AL

AR AZ

CA

CO

DC

FL

DE

GA

HI

ID

IL IN

KS KY

LA

ME

MD

MI

MN

MO

MS

MT

NC

ND

NE

NH

NM

NJ

NV

NY

OH

OK

OR

PA

SC

RI CT

MA SD

TN

TX

UT

VA

VT

WA

WI

WV

WY

IA

1—2 million 

500,000—999,000

100,000—499,000 

50,000—99,000 

10,000—49,000

1,000—10,000

Number of Minority-Owned Businesses by State90
30 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

What challenges do minority-owned businesses face in 

accessing capital?

Minority-owned businesses face challenges in 

accessing loans from banks, including:91

3X

more likely to be denied loans 

7.8%

average interest rate

(vs. 6.4% for non-minority)

new black-owned 

businesses start 

with almost three 

times less in terms 

of overall capital

$35,205

compared with 

new white-owned 

businesses

$106,72092

Minorities constitute

10.7%

of entrepreneurs seeking capital in 2018 

and had an investment yield rate of 

22%

compared to a baseline rate of 

23.2%93
ANNUAL REPORT: FISCAL YEAR 2019 | 31

Minority entrepreneurs report profitability is disproportionately impacted by lack of access 

to capital:94

AFRICAN AMERICAN

LATINX

ASIAN-AMERICAN

WHITE

22%

15%

13%

9%

What challenges do Latinx business owners report in accessing 

debt financing?95

Application rate for financing

47%

Latinx

40%

Non-Latinx

Likelihood of funding shortfalls

28%

Latinx

49%

Non-Latinx
32 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Founder Diversity in VC-backed Businesses:96

1% Black

77% White

2% Middle Eastern

2% Latino

18% Asian

Minority Investors in Small Businesses

Only

5.3% 

of angel investors are minorities97
ANNUAL REPORT: FISCAL YEAR 2019 | 33

VC Workforce Representation98

Employees Investment positions

Investment partners

Black Asian/Pacific Islander Latinx White
34 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Natural Disasters & Capital Formation

When natural disasters strike communities, they often impact the survival prospects for small 

business, who may have fewer resources to weather the challenges to rebuild the business and 

reinvigorate its customer base.

Impact of Natural Disasters on Small Businesses99

Immediate

40% will not reopen

1 Year Later

25% will close

3 Years Later

75% without a 

business continuity 

plan will fail

Reported Small Businesses Losses Following Natural Disasters100

$1-$25,000

45%

61%

$25,000+

19%

35%

ASSETS REVENUE
ANNUAL REPORT: FISCAL YEAR 2019 | 35

How does the percentage of the population affected by natural 

disasters compare to the amount of capital being raised? 

27%

of the US population101 lives in an area 

that was affected by a natural disaster102

over three years ending June 30, 2019

However, businesses in areas affected by natural disasters over that three year time period are 

generally raising less capital relative to the affected population:103 Percentage of Capital Raised Over 3 Years in Areas Affected by Natural Disasters

35%

30%

25%

20%

15%

10%

5%

0%

Regulation D Regulation A Regulation CF Registered Offerings

by Small Public 

Companies

$307B

total

$271M

total

$44M

total

$3B

total

Compared 

to 27% of 

affected 

population

“

Counties hit by severe disasters 

experienced greater out-migration, lower 

home prices and higher poverty rates.

NATIONAL BUREAU OF 

ECONOMIC RESEARCH104
36 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Rural Communities & Capital Formation

Much of entrepreneurship happens at a local level, particularly in early stages of company formation and 

growth. The importance of local ecosystems can exacerbate company challenges in rural communities 

facing population declines, impacting access to potential angel investors, talent, and customers.

How does the rural population compare to the amount of 

capital being raised? 

19% of the U.S. population

lived in rural areas105

17% of small employer firms 

are located in rural areas106

However, businesses in rural areas107 are raising less capital over three years ending June 30, 2019 

relative to affected population:

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

Percentage of Capital Raised Over 3 Years in 

Rural Communities

Regulation D Regulation A Regulation CF Registered Offerings

by Small Public 

Companies

$7.5B

total

$86M

total

$2.2M

total

$777M

total

Compared 

to 19% of 

affected 

population

In recent decades, startup activity has declined in rural areas:108

20%

1977

12%

2017

RURAL NON-RURAL
ANNUAL REPORT: FISCAL YEAR 2019 | 37

The decline in community banks in rural areas is crippling access to early-stage debt for small 

businesses.109 As of 2017 in the U.S.’s 1,980 rural counties:110

115

have just 

one community 

bank branch 

625

do not have a 

locally-owned 

community bank

35

have no bank

Many angel groups are working to find investment opportunities outside of the “four hour drive 

radius” rule of thumb, such as through state-wide networks.111

“

For venture capital, the data indicate that while the average 

deal size and concentration of deals (inputs) in rural 

geographies may be less than that of urban regions, there 

is little difference in the performance of a rural investment 

in terms of multipliers, jobs, or exit types (outcomes).

PATRICIA SCRUGGS, WAYNE EMBREE AND ROB WILTBANK112

ANNUAL REPORT: FISCAL YEAR 2019 | 39

Policy Recommendations

O

ver the course of the first year in operation, the Office has received feedback on various issues 

encountered by small businesses and their investors from start-up to small cap, from coast 

to coast, and across industries. The recommendations set forth in this report are proposed 

as pragmatic and principles-based solutions to the most serious issues raised with the Office. 

Our general experience has shown that where an issue affects a broad segment of the market, 

the magnitude of the issue’s impact is often greater for minority-owned and women-owned small 

businesses and investors, as well as on small businesses and investors in areas affected by natural 

disasters or in rural areas. 

Our Office is generally supportive of the current initiatives and rulemakings underway at the 

SEC as they relate to small business capital formation.113 We present these recommendations 

as an opportunity to distill specific marketplace calls for action that are either not a part of the 

current regulatory or congressional agenda or that are complimentary to ongoing efforts. These 

recommendations provide a focused set of five critical challenges expressed by the market, with 

corresponding background discussion, summary of issues raised, and proposed solutions.

The Office, Commissioners, and SEC staff tour an opportunity zone construction site in Omaha, NE.
40 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Modernize, Clarify, and Harmonize Exempt Offering Framework

Background

Access to capital markets is critical for much of small business financing, with investor capital playing 

separate and complimentary roles to financing from the banking sector.114 In meeting with businesses 

and their investors across the country about capital formation, one of the most consistent critiques 

expressed has been that the current exempt offering framework is complex and confusing. While the 

current rules contain a relatively broad “menu” of tools to raise capital, the requirements for each 

differ and in some cases conflict.115 This challenging regulatory puzzle is understandably difficult 

to navigate, with each puzzle piece originating at different times and in response to different policy 

demands, with origins all the way back to 1933 with the Securities Act’s passage. A complex path 

to capital to grow, scale, and mature makes it all the more challenging for companies to fulfill our 

collective expectation of new entrants joining the public markets to supplant the past two decades’ 

approximate 50% drop in listed companies.116 It is imperative that companies and investors have 

navigable and functional tools for the exchange of capital in early, pre-IPO stages to build the pillars 

of tomorrow’s public markets.

Issues Raised

To understand securities law compliance, marketplace participants tend to need either a law degree 

or access to sophisticated counsel who can help them navigate the rules, both of which carry a 

significant price tag and can be a barrier to entry. 

This issue is exacerbated for those without broad 

networks or without excess funds to hire counsel in 

the midst of raising capital (which naturally tends 

to occur when capital is at its scarcest). While the 

“menu” of exemptions contains many options, 

regulatory uncertainty or confusion often incents 

companies and their investors to avoid using certain 

exemptions in favor of the most common and 

well understood pathways.117 For example, the 

integration doctrine is used to determine when more 

than one transaction should be “integrated” and 

considered a single offering, and it entails a facts 

and circumstances analysis dating back to 1933.118

Although it has been modernized and clarified 

over the years, companies and investors, as well as 

their counsel, struggle when trying to raise money 

using different offering exemptions that do not all 

allow general solicitation.119 When the rules confuse 

not only the actors who are directly impacted by 

the rules—namely, businesses and investors—but 

also counsel on whom they rely for expert advice, 

capital formation is negatively affected.

A small business owner in Pine Bluff, Arkansas shares 

her perspectives with the Office over coffee.
ANNUAL REPORT: FISCAL YEAR 2019 | 41

Proposed Solution: Harmonization

The SEC’s recent Harmonization Concept Release120 sought unprecedented feedback on the areas in 

which the exempt offering framework works effectively, as well as where it can be improved to support 

efficient flow of capital while maintaining appropriate investor protections. Many ideas have been 

proposed to modernize, clarify, and streamline the regulations on the offer and sale of securities, and 

we have overwhelmingly heard support from marketplace participants for implementing many of the 

ideas suggested. In doing so, we would prioritize the following guiding principles:

§	The rules, as well as how we at the SEC communicate compliance obligations, should be accessible 

to both companies and their investors, regardless of legal acumen.121

§	The rules should allow companies to progressively and efficiently raise capital at each stage of the 

company life cycle as they grow, scale, and mature.

§	The internet and technology have revolutionized communication since the Securities Act of 1933, 

including how businesses reach customers and operate. Any changes to the rules should incorporate 

an understanding of current communication practices, while also providing flexibility for the inevitable 

evolution of tomorrow’s tools.

§	To the extent that dollar amount caps are incorporated,122 they should be tied to expressed marketplace 

needs for capital and provide flexibility for future review and adjustment. Caps should also take into 

consideration the varying demands for capital depending upon industry, geography, and life cycle stage.

§	In evaluating the capital formation tools and investor protective measures, Congress and the 

Commission should reexamine the principles underlying regulation of capital raising transactions in 

light of the changing needs of the market.123

See also: Small Business Capital Formation Advisory Committee Recommendation.

124

Investor Participation in Private Offerings

Background

Much attention has been paid recently to investors’ access to opportunities in the private markets, 

where much of today’s companies’ “J-curve” growth is occurring prior to their IPOs, which are 

increasingly used as a liquidity rather than capital raising event. Many of the offering exemptions used 

in the private markets, whether under Rules 506(b) or 506(c) of Regulation D or under Regulation A, 

limit participation to accredited investors or contain restrictions on participation by non-accredited 

investors, including complete participation restrictions or investment limitations. The definition of 

“accredited investor” is “intended to encompass those persons whose financial sophistication and 

ability to sustain the risk of loss of investment or ability to fend for themselves render the protections 

of the Securities Act’s registration process unnecessary.”125 The Senate Committee on Banking, Housing, 

and Urban Affairs noted that the addition of the accredited investor definition in the Small Business 

Investment Incentive Act of 1980126 was intended to “give small businesses greater access to ... 

sophisticated investors without the costs associated with the registration requirements.”127
42 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

The SEC’s current rules128 define a natural person as an accredited investor if that investor either:

§	earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior 

two years, and reasonably expects the same for the current year; or

§	has a net worth over $1 million, either alone or together with a spouse (excluding the value of the 

person’s primary residence).

The definition also qualifies many types of entities as accredited investors if they have assets exceeding 

$5 million. However, the definition’s enumerated list omits certain types of entities, such as American 

Indian tribal corporations, which has the practical effect of excluding otherwise sophisticated investors 

from participating in investment opportunities.

For retail investors (i.e., individuals 

buying securities for their own account), 

there are few opportunities to participate 

in the growth of the private markets via 

diversified portfolio holdings, whether 

through pooled investment vehicles 

(i.e., mutual funds or exchange-traded 

funds) or otherwise. Private funds, such 

as venture capital funds and private 

equity funds, generally operate under 

exemptions from registration, which 

limit their accessibility to most retail 

investors.129 Current liquidity and valuation requirements on open-end funds, the most popular fund 

type for retail investors,130 present challenges to significant holdings in private companies.131 Closed-end 

funds, such as interval funds and tender offer funds, issue shares that are not freely redeemable and thus 

not subject to the liquidity risk management rules of open-ended funds, making them better suited to hold 

interests in private companies.132 However, they often trade at a discount to net asset value, contributing 

to their relative lack of popularity with investors.133 Business development companies (BDCs)134 and small 

business investment companies (SBICs)135 are other types of funds that invest in private companies, but 

they may be more difficult for retail investors to gain exposure to in practice.136

Issues Raised

Any changes to the definition of “accredited investor” or to retail access to private markets will have 

dual impacts on investors’ access to investment opportunities as well as the supply of capital to the 

exempt markets. Throughout our conversations in FY2019 on raising earlier stage capital from individual 

investors, whether from angels or friends and family, both businesses and investors have acknowledged 

the benefit of guardrails for retail investors, while also highlighting the imbalance of a single test based 

solely on income, net worth, or total assets. Women, minorities, and rural communities have expressed 

disproportionate challenges with the standard, which often draws a line between the investors’ network 

and qualification for the most attractive offering exemptions.137 The current standard arguably prioritizes 

an investor’s ability to sustain the risk of loss without sufficient consideration of an investor’s financial 

sophistication. Many have recommended creating avenues for sophisticated investors to participate in 

exempt offerings by adding alternative criteria for qualification.

The Office participated in a panel discussion on the art of capital raising 

and deal activity at the U.S. Black Chambers’ 10th National Conference.
ANNUAL REPORT: FISCAL YEAR 2019 | 43

In addition, investors—both accredited and 

non-accredited alike—have criticized their lack 

of access to high-growth potential companies 

in the private markets, who often trade on the 

public markets only after achieving most of 

their growth potential. Some have expressed 

frustration with the idea that “you have to 

be rich to get rich” under the current rules. 

For some accredited investors, they lack the 

time and resources to personally source, vet, 

and invest in a diversified portfolio of private 

companies that balances return potential with 

inevitable risk of failure of many early-stage 

businesses.

Proposed Solution: Accredited 

Investor Refinement

Adding alternative measures for evaluating investor sophistication would further Congress’s 

and the Commission’s stated goals of facilitating capital formation while providing appropriate 

protections for investors. Additional qualifying pathways to individuals being accredited based upon 

sophistication in making investment decisions could include:

§	financial professionals licensed by or registered with the SEC, state securities regulators, or 

appropriate self-regulatory organizations (e.g., FINRA); and

§	attainment of designated financial industry examinations or licenses.

Any additional means of qualifying should provide companies, investors, and their advisors with 

simplicity and certainty in ascertaining qualification to avoid inadvertent increases in transaction 

costs and thereby costs of capital. Based upon the differential access to investors, varying costs of 

living, and corresponding income and net worth levels by geography, we note that increasing the base 

income and net worth thresholds would have a disproportionate impact in more rural and emerging 

entrepreneurial ecosystems, as well as on under-represented business owners and investors.

When updating the definition of accredited investor, it would further add simplicity and clarity 

to eliminate the list of enumerated entities that may qualify if such entity has over $5 million in 

assets139 and instead make clear that any entity that has more than the asset threshold would qualify 

regardless of corporate form.

See also: Small Business Capital Formation Advisory Committee Recommendation,

140 former 

Advisory Committee on Small Business Capital Formation (ACSEC) Recommendation,

141

Harmonization Concept Release, 2019 Small Business Forum Report and historical reports,

142

2017 Treasury Report.

143

“

To the extent that companies 

decide not to go public due to 

anticipated regulatory burdens, 

regulatory policy may be 

unintentionally exacerbating 

wealth inequality in the United 

States by restricting certain 

investment opportunities to 

high income and high net 

worth investors.

2017 U.S. TREASURY REPORT138
44 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Proposed Solution: Retail Investor Access to Pooled Vehicles

Current fund rules allow investment companies to deploy limited strategies to invest in less liquid 

assets, such as private funds, as well as direct holdings in private companies. However, as the abovereferenced data indicates, the current tool set is not well-utilized. Attention should be given to 

whether that underutilization is a byproduct of market preferences or whether the fund rules make 

those vehicles less attractive for fund formation, management and investment, with corresponding 

changes to the rules suggested. While the structure of public funds investing in private funds may be 

critiqued for a double-layer of management fees, reasonable fees may be justified where they afford 

investors asset management by professionals with experience in private markets, deal terms on 

parity with other sophisticated institutional investors, and an otherwise inaccessible diversified 

portfolio of private market holdings. Efficient fee structures should be prioritized in developing 

pooled vehicle solutions.

In addition, continued focus on retail investors’ access to smaller funds—including those that invest 

primarily in smaller cap public companies, those with diversified positions including private holdings, 

as well as those focused on private market holdings—will further support competition and small 

business capital formation.144

See also: Small Business Capital Formation Advisory Committee Recommendation,

145 Committee on 

Capital Markets Regulation 2018 Report.

146

Engaging Investors via Finders

Background

One of the biggest challenges that small businesses face when they seek to raise capital is identifying 

and connecting with potential investors who are a good fit from market/industry experience, risk 

tolerance, and investment capability perspectives. Sometimes companies, particularly those raising 

The Office collaborates with female business owners on their national advocacy day in Washington, DC, answering 

questions about their challenges finding investors.
ANNUAL REPORT: FISCAL YEAR 2019 | 45

large amounts of capital pre-IPO, engage registered broker-dealers to line up a book of investors 

in exchange for a success or other fee. However, broker-dealers are increasingly concentrating their 

activity upstream in the market where they can offer a package of services, leaving companies 

seeking more routine introductions or relatively smaller amounts of capital (e.g., as one source noted, 

under $5 million147) without a connection to capital sources. Finders often bridge the gap between 

entrepreneurs who need funding and potential investors interested in supporting emerging companies 

by making introductions, often for a fee.148 Finders may also provide businesses with support services, 

such as consulting on market deal terms or commentary on pitch materials, generally engaging in 

activities short of what many suggest should require registration as a broker-dealer.149 Over the course 

of many decades and through a series of SEC no-action letters and case law, a nebulous distinction 

between finders and broker-dealers has emerged.150 Many proposals have been put forward to 

provide clarity on where the line should be drawn between exempt finders, on the one hand, and full 

registration as a broker-dealer, on the other.151

Issues Raised

Locating the right investors is challenging no matter where a company is located, but that pain 

point is felt more acutely for entrepreneurs located far from the “hotspots” of VC and other 

funding sources where their network may not extend. Some demographic groups—namely women 

and minority business owners—have expressed that they face higher hurdles to connecting with 

funders based upon their network of potential investors who may not be accredited, often needing 

the support of finders to locate investors with the right investment capacity and risk tolerance. In 

short, the lack of clarity on the role for finders in matchmaking between companies and investors 

disproportionately impacts smaller companies, companies in geographic areas or segments of the 

market not served by registered broker-dealers, and companies with under-represented founders.

Proposed Solution: Clear Finders Framework

Small businesses and their investors need clarity on what role finders can play in providing 

services that fall short of requiring registration as a broker-dealer. Over the years, many potential 

solutions have been offered, from bright line exemptions to carve-outs for de minimus activity to 

“light” registration requirements.152 In implementing a framework for finders to support emerging 

businesses’ capital needs and provide clarity to investors participating in the market, it is critical 

that the rules be clear for marketplace participants to reduce confusion, defining in plain English the 

activities that do not trigger registration and delineating when the scope of activities rises to the level 

that registration is appropriate. The framework should make clear what offering exemptions are 

eligible, whether the introduced investors must be accredited, the nature of compensation the finder 

may receive, the types of other incidental activities that the finder may engage in on behalf of the 

business, and the respective roles of federal and state regulators. Providing a clear framework should 

bring welcomed transparency to an otherwise opaque area of the market.153

See also: 2019 Small Business Forum Report and historical reports,

154 ABA Report on Private 

Placement Broker-Dealers, ACSEC Finders Recommendation, 2017 Treasury Report.
46 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

Crowdfunding

Background

Crowdfunding—or the practice of raising capital in relatively small amounts from a large number of 

investors, typically over the internet—is one of the newest offering exemptions, with rules finalized 

by the SEC in 2015 following the Jumpstart Our Business Startups (JOBS) Act of 2012.155 This 

mode of capital raising originated overseas156 in the wake of the 2008 financial crisis because of the 

difficulty entrepreneurs and small businesses faced in raising funds.157 In a nutshell: with traditional 

banks providing fewer loans to earlier stage companies, entrepreneurs began looking elsewhere for 

capital.158 While some states had an intrastate crowdfunding framework prior to the JOBS Act, the 

equity crowdfunding industry did not take off until after the 2012 legislation and SEC rules that 

followed. Many online portals support companies raising capital through two different regulatory 

pathways that originated in the JOBS Act: (1) Regulation Crowdfunding under Title III (or Reg 

CF), which caps the offering at $1.07 million per year and includes other limitations on individual 

investments, and (2) Rule 506(c) general solicitation offerings to verified accredited investors, 

sometimes referred to as “accredited investor crowdfunding.”159 This section focuses on the Reg CF 

path for crowdfunding.

Further to the origins of the equity crowdfunding funding model, these offerings provide an 

alternative source of capital where community bank presence has waned. Some studies, as well as 

anecdotal evidence, have indicated that crowdfunding is boosting success in raising capital for certain 

demographics of entrepreneurs disproportionately to the rest of the entrepreneurial population, 

including women-owned, minority-owned, and rural businesses, as well as younger entrepreneurs.160

These are populations of business owners who are notoriously underserved by traditional capital 

raising, such as through private placements to accredited investors.161 In other words, crowdfunding 

may be bridging the gap between entrepreneurs without broad networks of high wealth investors and 

interested backers of their companies. Feedback to our Office indicates that the primary beneficiaries 

of crowdfunding investments are twofold:

1. businesses in communities where smaller or community banks are less accessible;162 and

2. businesses with meaningful growth potential but who lack “venture returns” of 10x+, such as 

lifestyle, services, or retail businesses. 

For businesses in the first group, they are often raising capital below the current $1.07 million Reg 

CF offering cap, many times from a loyal customer base. This may be reflected by the $25,000 

median target amount sought by companies in Reg CF offerings,163 where crowdfunding is filling 

the gap left by banks for small dollar loans. However, for businesses in the second group, the current 

offering cap has been described as a deterrent or hindrance to utilization of crowdfunding in the first 

place, with those companies needing significantly more capital than the $1.07 million cap permits.

The SEC published its three-year lookback report in May 2019164 examining utilization of the 

nascent Reg CF exemption, showing modest adoption rates, which may be in part driven by some of 

the limitations flagged by companies, portals, and investors.
ANNUAL REPORT: FISCAL YEAR 2019 | 47

The Office hosts “Capital Formation Between the Coasts” roundtable focused on experiences of businesses and investors 

raising capital, including through crowdfunding, and investing outside of coastal “hot spots” to kick off National Small 

Business Week.

Issues Raised

Users of crowdfunding have flagged various issues with the framework as designed by both statute and 

regulation. The current constructs may unduly limit investor interest in participation. Company appetite 

for compliance costs relative to the available proceeds may point them towards offering types with 

lower compliance costs. Contrasted with their foreign counterparts, companies are raising more capital 

overseas using crowdfunding in an arguably more efficient manner.165 Portals, many of which are small 

businesses themselves that have raised capital to fund initial operations, have flagged the challenges 

they face with profitability of their business model given the limitations on equity compensation166 and 

the high costs of compliance, which may push portals to redirect their focus to other vibrant overseas 

crowdfunding markets or to other more profitable segments of the domestic market.

Proposed Solutions: Crowdfunding Updates

Changes to the current structure and requirements for Reg CF would enable companies and investors 

to use equity crowdfunding to its fullest potential. Potential solutions include:

§	Increase the total amount that companies can raise in a 12-month period from the current $1.07 

million to better align with early-stage companies’ evolving capital needs,167 as well as international 

practices.168 Trends are showing that Series A is “the new” seed funding, as companies seek 

increased capital to fund early-stage operations (e.g., in 2018 the average seed funding was $5.7 

million and average Series A round was $15.7 million, compared with 2010 averages of $1.3 

million for seed and $5.1 million for Series A169). An increased cap would allow companies to raise 

meaningful early-stage capital using crowdfunding rather than limiting companies’ options to a 

narrower set of exemptions. 
48 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

§	Remove the investment cap for accredited investors, which would harmonize the crowdfunding 

rules with Regulations A and D, neither of which limit investment amounts by accredited investors.

§	Reevaluate the thresholds for the various disclosure obligations, such as reviewed and audited 

financials, to appropriately tier to the capital raised and the costs incurred by companies at 

investors’ expense. For example, reporting requirements could be simplified for companies raising 

under $250,000. 

§	Enable the use of special purpose vehicles (or SPVs), which would have the potential benefits of 

cleaning up the cap tables for companies, making them more attractive to follow-on investors and 

mitigating Rule 12(g) threshold concerns, and streamlining management of investor rights, potentially 

providing a more impactful voice for investors and providing companies with a more engaged investor 

for strategic support.

§	Reevaluate the compliance requirements for portals as well as permissible types of compensation, such 

as increasing flexibility for equity compensation.

See also: Small Business Capital Formation Advisory Committee Recommendation,

170 Association of 

Online Investment Platforms Policy Paper,

171 2017 Treasury Report, 2019 Small Business Forum Report

and historical reports.

172

Scaled Obligations for Smaller, Less Complex Reporting Companies

Background

The U.S. securities laws allow companies to access the public markets in exchange for disclosures to 

investors about relevant financial and operating information. Over the years, the disclosure obligations of 

public companies have evolved and 

substantially increased in breadth. In 

addition to the costs of going public, 

which cost most companies over $1 

million, companies incur significant 

ongoing compliance costs for being

public.173 In one survey, two-thirds 

of CFOs estimated spending $1 

million to $1.9 million annually for 

ongoing compliance costs, allocated 

among auditing fees (32%), 

financial reporting (18%), legal 

costs (16%), regulatory compliance 

(12%), public and investor relations 

(9%), and various other expenses.174

These costs are separate from the 

staffing needs of companies to 

implement compliance. Put simply, 

the reporting compliance costs— The Office engages in a fireside chat discussion about the issues faced by small 

reporting companies and their investors at the New York Stock Exchange.
ANNUAL REPORT: FISCAL YEAR 2019 | 49

in addition to the increased costs of potential shareholder litigation—are costs unique to public 

companies that are not borne by private companies on a comparable scale.

Issues Raised

In discussing the decision to remain private 

or to embark upon an IPO, many investors 

and companies—particularly those who are 

smaller—have pointed towards balancing 

allocation of resources to compliance 

obligations versus funding innovation at 

scale.175 When weighing the potential costs 

of public company compliance, the impact of 

those obligations often has a relatively greater 

resource-constraining effect on smaller entities, 

many of whom lack the complexity both 

organizationally and financially that many of 

the compliance rules were drafted to address. 

This debate among marketplace participants 

on striking the right balance has occurred 

concurrently with concerns over the waning 

entrance of smaller public companies in 

recent years.176

Proposed Solution: Continued 

Scaling Obligations

Congress and the Commission have recently 

taken actions to streamline the pathways for 

growing companies to access the public markets 

without unnecessary compliance burdens 

swaying companies’ and their investors’ 

decision to remain private.178 Recently, the SEC 

has embarked upon a series of rulemakings 

aimed at improving disclosures for investors 

while simplifying compliance for companies, with many of the changes aimed at improving the 

readability of disclosure documents and reducing repetition or disclosure of information that is not 

material.179 Many recent amendments to the rules emphasize a principles-based approach, reflecting 

the evolution of businesses and the philosophy that a one-size-fits-all approach can be both under 

and over-inclusive. The Office encourages Congress and the Commission to continue to tailor the 

disclosure and reporting framework to scale the obligations of reporting companies to the complexity 

and scale of operations in furtherance of capital formation and appropriate investor protection. 

See also: 2017 Treasury Report, 2019 Small Business Forum Report and historical reports.

180

“

Well-intentioned regulations 

aimed at protecting the public 

from the misrepresentations 

of a small number of large 

companies have unintentionally 

placed significant burdens on 

the large number of smaller 

companies. As a result, fewer 

high-growth entrepreneurial 

companies are going public 

and more are opting to 

provide liquidity and an exit 

for investors by selling out to 

larger companies. This hurts 

job creation, as the data clearly 

shows that job growth 

accelerates when companies 

go public, but often 

decelerates when companies 

are acquired.

PRESIDENT OBAMA’S 

COUNCIL ON JOBS AND 

COMPETITIVENESS 

(OCT. 2011)177

ANNUAL REPORT: FISCAL YEAR 2019 | 51

T

he Small Business Advocate Act also established the SEC’s new Small Business Capital Formation 

Advisory Committee,

181 which replaced the SEC’s former Advisory Committee on Small and 

Emerging Companies. The new Advisory Committee is designed to provide a formal mechanism 

for the Commission to received advice and recommendations on Commission rules, regulations, 

and policy matters related to emerging, privately held small businesses to publicly traded companies 

with less than $250 million in public market capitalization; trading in securities of such companies; 

and public reporting and corporate governance of such companies. The Office provides administrative 

support for the Advisory Committee, which otherwise functions independently.

In April 2019, the Commission appointed the inaugural members of the Advisory Committee.182

The membership includes companies and investors from across a diverse set of experiences, industries, 

geographies, and company life cycle stages.

CARLA GARRETT, Chair

Corporate Partner, Potomac Law Group PLLC

Washington, DC

JEFFREY M. SOLOMON, Vice Chair

Chief Executive Officer, Cowen, Inc.

New York, NY

GREGORY YADLEY, Secretary

Partner, Shumaker, Loop & Kendrick, LLP

Tampa, FL

YOUNGRO LEE, Assistant Secretary

CEO and Co-Founder, NextSeed

Houston, TX

GREG DEAN*

Senior Vice President of the Office of 

Government Affairs, FINRA

Washington, DC

ROBERT FOX 

National Managing Partner, Professional 

Standards Group, Grant Thornton LLP

Chicago, IL

STEPHEN GRAHAM

Co-Chair, Fenwick & West LLP’s Life 

Sciences Practice

Seattle, WA

SARA HANKS

CEO and Co-Founder, CrowdCheck, Inc.

Alexandria, VA

BRIAN LEVEY

Chief Business Affairs and Legal Officer, 

Upwork Inc.

Santa Clara, CA

Small Business Capital 

Formation Advisory 

Committee FY 2019 Summary
52 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

TERRY MCNEW

President and CEO, MasterCraft Boat Holdings

Vonore, TN

SAPNA MEHTA

General Counsel & Chief Compliance Officer, 

Rise of the Rest Seed Fund; Associate General 

Counsel, Revolution

Washington, DC

MARTHA LEGG MILLER*

Director, Office of the Advocate for Small 

Business Capital Formation, U.S. Securities 

& Exchange Commission

Washington, DC

KAREN G. MILLS

President, MMP Group, Inc.

Boston, MA

CATHERINE MOTT

Founder and CEO of BlueTree Capital 

Group, BlueTree Allied Angels, and BlueTree 

Venture Fund

Pittsburgh, PA

POORVI PATODIA

CEO and Founder, Biena Snacks

Allston, MA

MICHAEL S. PIECIAK*

Commissioner of the Vermont Department of 

Financial Regulation

Montpelier, VT

JASON SEATS

Chief Investment Officer, Techstars

Austin, TX

MARC OORLOFF SHARMA*

Chief Counsel of the Office of the Investor 

Advocate, U.S. Securities & Exchange Commission

Washington, DC

JOSEPH SHEPHERD*

Associate Administrator, U.S. Small Business 

Administration

Washington, DC

HANK TORBERT

President, AltaMax, LLC

New Orleans, LA

*Advisory Committee members include the SEC’s Advocate for Small Business Capital Formation and 

three non-voting members appointed by each of the SEC’s Investor Advocate, the North American 

Securities Administrators Association (NASAA), and the Small Business Administration, as well as an 

observer appointed by the Financial Industry Regulatory Authority (FINRA).
ANNUAL REPORT: FISCAL YEAR 2019 | 53

The Advisory Committee held its inaugural meeting on May 6, 2019 during National Small Business

Week and its second meeting on August 13, 2019 in Omaha, Nebraska. During the fiscal year, the

Advisory Committee put forward two recommendations183 to the Commission.

RECOMMENDATION RE: COMMISSION’S PROPOSAL TO AMEND FINANCIAL 

DISCLOSURE REQUIREMENTS RELATING TO ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

August 23, 2019

The Committee supports the Commission’s proposal to amend the financial reporting 

requirements for the acquisitions and dispositions of businesses including Rules 3-05, 3-14, 

and Article 11 of Regulation S-X, subject to following recommendations:

§	That the Commission continue to look at Regulation A companies and whether they 

warrant different treatment under these rules; and 

§	That the Commission further look at the proposed amendments to the pro forma 

financial information requirements with respect to whether the proposed addition 

of Management’s Adjustments, which are intended to reflect reasonably estimable 

synergies and transaction effects, should be optional or not required at all.

Specifically, 

§	The Committee supports the proposed amendments to the Significance Tests under 

these rules by:

— Revising the Income Test to include the addition of a revenue component, such that 

the registrant must exceed both the revenue and net income components; and 

— Revising the Investment Test to change the denominator of the Investment Test from 

the registrant’s total assets to the registrant’s fair market value.

§	The Committee supports the proposed amendment that would require financial 

statements of the acquired business to cover up to the two most recent fiscal years 

rather than up to the three most recent fiscal years.

COMMISSION RESPONSE

As indicated on the Fall 2019 Unified Agenda of Federal Regulatory and Deregulatory Long-term 

Actions (Fall 2019 Unified Agenda),184 the Division of Corporation Finance is considering recommending that the Commission adopt amendments to Regulation S-X (Rule 3-05) that affect the 

disclosure of financial information of acquired businesses. Staff in the Division of Corporation 

Finance will consider this Advisory Committee recommendation in connection with this initiative.
54 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

[Top left] Members of the SEC’s Small 

Business Capital Formation Advisory 

Committee discuss capital formation 

initiatives at the Committee’s inaugural 

meeting on May 6, 2019.

[Top right] Members Catherine Mott and 

Jason Seats discuss recent Commission 

rulemakings.

[Center left] Chair Carla Garrett and 

Vice-Chair Jeff Solomon lead the 

Committee in the development of 

recommendations at the Committee’s 

meeting.

[Center right] Members Youngro Lee and 

Bert Fox engage in discussion with other 

Committee members.

[Right top] Member Hank Torbert weighs 

in on recommendations with experience 

from his business operations.

[Right bottom] Members of the Advisory 

Committee met at Creighton University in 

Omaha, NE on August 13, 2019.
ANNUAL REPORT: FISCAL YEAR 2019 | 55

RECOMMENDATION RE: COMMISSION’S PROPOSAL TO AMEND THE 

ACCELERATED AND LARGE ACCELERATED FILER DEFINITIONS

August 23, 2019

The Committee supports the proposal to amend the “accelerated filer” and “large

accelerated filer” definitions such that an issuer that is eligible to be a Smaller Reporting 

Company and has less than $100 million in revenue in the most recent fiscal year shall 

be a non-accelerated filer.

However, the Committee would welcome the Commission to explore additional 

further amendments to the definitions of “accelerated filer” and “large accelerated 

filer” such that more companies could be non-accelerated filers. The Committee’s 

recommendations include: 

§	Exploring raising the revenue threshold to be a non-accelerated filer, so that issuers 

that are eligible to be a Smaller Reporting Company and have more than $100 million 

in revenues could be a non-accelerated filer. 

§	Instead of basing revenues for the non-accelerated filer test on the amount of revenues 

in the most recent fiscal year, base the revenues for the non-accelerated filer test on 

the three-year rolling average of the amount of the company’s revenues.

§	Looking at whether all Smaller Reporting Companies should be non-accelerated filers. 

The Commission should also consider input from institutional investors regarding whether 

or not the auditor attestation of SOX 404(b) is determinative in their investment decision.

COMMISSION RESPONSE

As indicated on the Fall 2019 Unified Agenda,

185 the Division of Corporation Finance is considering 

recommending that the Commission adopt changes to the “accelerated filer” definition in Exchange 

Act Rule 12b-2 that would have the effect of reducing the number of registrants that are subject to 

the Sarbanes-Oxley Act Section 404(b) attestation requirement. Staff in the Division of Corporation 

Finance will consider this Advisory Committee recommendation in connection with this initiative.

ANNUAL REPORT: FISCAL YEAR 2019 | 57

1 See, e.g., Last Week Tonight with John Oliver, 

https://www.youtube.com/watch?v=XkLXMHYLTAY.

2 The Office was established pursuant to sections 

4(j) and 40 of the Securities Exchange Act of 

1934 (15 U.S.C. §§ 78d and 78qq), as added by 

the SEC Small Business Advocate Act of 2016 

(P.L. 114-284) and amended by the Small Business Access to Capital after a Natural Disaster 

Act (title IX of division S of Public Law 115-

141). See https://www.sec.gov/files/Small%20

Business%20Advocate%20Act%20of%20

2016-as%20amended.pdf

3 See https://www.sec.gov/files/2019%20

OASB%20Business%20Plan.pdf. 

4 The legislation that created the Office also 

established a Small Business Capital Formation Advisory Committee at the SEC. See 15 

U.S.C. §78qq. The Office uses the Committee’s 

parameters to define the scope of small 

businesses that it serves.

5 See supra note 3. 

6 See id. 

7 See https://www.state.gov/global-entrepreneurship-summits/; see also https://www.sec.gov/

secs-small-business-advocate-meets-midwest-entrepreneurs. 

8 Introductory remarks published at https://www.

sec.gov/news/speech/speech-miller-032019; see 

also https://www.sec.gov/secs-small-business-advocate-meets-midwest-entrepreneurs.

9 Remarks published at https://www.sec.gov/

news/speech/miller-bolstering-capital-formation-040819. 

10 See supra note 3.

11 See https://www.sec.gov/about/offices/oia/oia_

institutes.htm.

12 See http://cle.cobar.org/securities-conference/. 

13 See https://www.sec.gov/page/capital-formation-between-coasts.

14 Remarks published at https://www.sec.gov/

news/speech/speech-miller-060419. 

15 Opening remarks published at https://www.

sec.gov/news/public-statement/statement-miller-081419. 

16 Remarks and slide deck published at https://

www.sec.gov/news/speech/sec-office-advocate-small-business-capital-formation-long-title-big-mission. 

17 See https://usblackchambers.org/conference/. 

18 See https://www.sec.gov/page/small-business-capital-formation-runs-deep-arkansas.

19 See https://www.ruralrise.org/; see also https://

www.sec.gov/page/small-business-capital-formation-runs-deep-arkansas.

20 https://www.theice.com/insights/conversations/

inside-the-ice-house/a-champion-for-small-businesses-in-washington. 

21 See, e.g., Amy Balliett, “The 5 Most Engaging 

Types of Marketing Content,” Inc. (Apr. 15, 

2019), https://www.inc.com/amy-balliett/5-

types-of-content-your-audiences-will-love.html. 

22 See https://www.sec.gov/page/oasb-videos. 

23 The SEC conducts the Forum annually and 

prepares a report in accordance with the Small 

Business Investment Incentive Act of 1980 [15 

U.S.C. 80c-1 (codifying section 503 of Pub. L. 

No. 96-477, 94 Stat. 2275 (1980))].

24 This graphic depicts amounts reported or estimated as raised from July 1, 2018 through June 

30, 2019. Data on offerings under Regulations 

D and Crowdfunding is based on information reported by companies and was collected 

from filings (new filings and amendments) on 

EDGAR on Forms D and C, respectively. Data 

on registered offerings was collected from 

Thomson Financial’s SDC Platinum database. 

For offerings under Regulation A, estimates 

are based on proceeds reported in filings made 

during the report period. Capital raised is based 

on information reported by companies in Forms 

1-Z, 1-K, 1-SA, 1-U, and offering circular supplements pertaining to completed and ongoing 

Regulation A offerings and post-qualification 

amendments, and for companies whose shares 

have become exchange-listed, information from 

other public sources. Estimates represent a 

lower bound on the amounts raised given the 

time frames for reporting proceeds following 

completed or terminated offerings and that 

offerings qualified during the report period may 

be ongoing. For the offerings that permit pooled 

investment funds, such as Rule 506(b) and (c) 

of Regulation D and registered offerings, the 

data includes offerings conducted by pooled 

investment funds. We do not yet have data to 

provide an estimated amount raised under Section 4(a)(2) of the Securities Act or transactions 

occurring under Rule 144A for the period under 

consideration.

25 Data for public offerings includes international 

companies.

26 17 C.F.R. § 227.100 et seq.; see https://www.

sec.gov/smallbusiness/exemptofferings/regcrowdfunding. 

27 17 C.F.R. § 230.504; see https://www.sec.gov/

smallbusiness/exemptofferings/rule504. 

28 Securities Act of 1933 § 3(a)(11), 17 C.F.R. §

230.147, and 17 C.F.R. § 230.147A; see https://

www.sec.gov/smallbusiness/exemptofferings/

intrastateofferings. 

END NOTES
58 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

29 17 C.F.R. § 230.506(b); see https://www.sec.

gov/smallbusiness/exemptofferings/rule506b. 

30 17 C.F.R. § 230.506(c); see https://www.sec.gov/

smallbusiness/exemptofferings/rule506c. 

31 17 C.F.R. § 230.251 et seq.; see https://www.

sec.gov/smallbusiness/exemptofferings/rega. 

32 15 U.S.C. § 77a, et seq.; see https://www.sec.

gov/smallbusiness/goingpublic. 

33 This graphic presents capital raised in registered, Regulation D and Regulation A offerings 

across the top six industries from July 1, 2018 

through June 30, 2019. Offerings by nonpooled investment funds in other industries 

accounted for approximately $217 billion, $45 

billion and $37 million in registered, Regulation 

D and Regulation A offerings, respectively. Regulation A and registered offerings were classified 

into industry groups based on the primary SIC 

code reported by the company. Industry groups 

were self-reported by companies on Form D.

Differences in data sources and definitions 

may limit the comparability of industry data. 

Offerings by pooled investment funds, which 

accounted for approximately $26 billion and 

$1.38 trillion in registered offerings and Regulation D, respectively, are excluded from this 

table. See note 24 for a description of how these 

amounts were reported or estimated.

34 The maps included in this section depict the 

amounts reported or estimated as raised by 

issuers, including pooled investment funds that 

report a primary location in the U.S., including 

U.S. territories, from July 1, 2018 through June 

30, 2019. See note 24 for a description of how 

these amounts were reported or estimated.

35 The Board of Governors of the Federal Reserve 

System, “Small Business Credit Survey: 2019 

Report on Employer Firms” (2019), https://

www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2019/sbcs-employer-firms-report.pdf. 

36 Id.

37 Board of Governors of the Federal Reserve System, “Report to the Congress on the Availability 

of Credit to Small Businesses” (Sep. 2017) at 

1, https://www.federalreserve.gov/publications/

files/sbfreport2017.pdf. 

38 Federal Deposit Insurance Corporation, “FDIC 

Community Banking Study Reference Data” 

(updated August 19, 2019), https://www.fdic.

gov/regulations/resources/cbi/data.html.

39 Karen G. Mills, Fintech, Small Business & The 

American Dream, Palgrave Macmillan (2018) at 

52.

40 Brad Feld and Jason Mendelson, Venture Deals: 

Be Smarter Than Your Lawyer and Venture 

Capitalist, John Wiley & Sons, Inc. (4th ed. 

2019) at 149.

41 Mills, supra note 39, at 7.

42 Originally the term “angel” was used to 

describe patrons of Broadway Theater who provided money to support theatrical productions.

43 See Angel Capital Association, “FAQs for 

Angels and Entrepreneurs” (accessed Oct. 29, 

2019), https://www.angelcapitalassociation.org/

faqs/; see also Jason Rowley, “Where Venture 

Capitalists Invest and Why,” TechCrunch (Nov. 

9, 2017), https://techcrunch.com/2017/11/09/

local-loyalty-where-venture-capitalists-invest-and-why/.

44 Feld and Mendelson, supra note 40, at 113.

45 See Jeffrey Sohl, “The Angel Market in 2018: 

More Angels Investing in More Deals at Lower 

Valuations”, Center for Venture Research

(May 9, 2019), https://www.icoast.com/

news/2019/08/01/2investornews/the-angel-market-in-2018-more-angels-investing-in-moredeals-at-lower-valuations/.

46 Angel Capital Association, supra note 43; 

see also Marianne Hudson, “In-Depth Angel 

Investor Survey Sheds Light On Angel Success,” 

Forbes (Dec. 1, 2017), https://www.forbes.com/

sites/mariannehudson/2017/12/01/in-depthangel-investor-survey-sheds-light-on-angel-success/.

47 Concept Release on Harmonization of Securities 

Offering Exemptions, Release No. 33-10649 

(June 18, 2019), https://www.sec.gov/rules/

concept/2019/33-10649.pdf at Table 3 (“Harmonization Concept Release”). The underlying 

household data for this analysis was obtained 

from the Federal Reserve Board’s Survey of 

Consumer Finances for 2016, https://www.

federalreserve.gov/econresdata/scf/scfindex.htm. 

48 See 17 U.S.C. § 230.501(a); see also “Investor Participation in Private Offerings” section 

below.

49 See Harmonization Concept Release at Table 4.

50 See Feld and Mendelson, supra note 40, at 265.

51 See Harmonization Concept Release at note 

47. As a comparison point, during the same 

four-year period, non-accredited investors were 

reported as participating in over 60% of the 

Rule 504 offerings. See Harmonization Concept 

Release at note 264. Rule 504 permits companies to raise up to $5 million in a 12-month 

period from an unlimited number of investors 

(without regard to whether or not those investors are accredited).

52 Ewing Marion Kauffman Foundation, “State of 

Entrepreneurship 2017 | Zero Barriers: Three 

Mega Trends Shaping the Future of Entrepreneurship” (2017) at 22, https://www.kauffman.

org/what-we-do/resources/state-of-entrepreneurship-addresses/2017-state-of-entrepreneurship-address.

53 Feld and Mendelson, supra note 40, at 14.
ANNUAL REPORT: FISCAL YEAR 2019 | 59

54 PitchBook-NVCA, “2Q 2019 Venture Monitor” 

(Jul. 10, 2019) at 6, https://nvca.org/research/

pitchbook-nvca-venture-monitor/. 

55 Id.

56 See Ewing Marion Kauffman Foundation, “The 

State of Capital Access for Entrepreneurs: From 

Barriers to Potential” (Feb. 5, 2019), https://

www.kauffman.org/-/media/kauffman_org/

entrepreneurship-landing-page/capital-access/

capital_access_lab_exec_summary_final.pdf

57 Pitchbook, “Private Markets: A Decade of 

Growth” (Jul. 19, 2019), https://pitchbook.com/

news/reports/3q-2019-pitchbook-private-markets-a-decade-of-growth. 

58 Id.

59 Bhandari, Ryan, “The Opportunity Fund,” 

Third Way (Jul. 9, 2019), https://www.thirdway.

org/report/the-opportunity-fund, citing Rebel 

A. Cole, Douglas J. Cumming, and Dan Li, 

“Do Banks or VCs Spur Small Firm Growth?” 

Journal of International Financial Markets, 

Institutions and Money (Mar. 2016) at 41, 

60-72, https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=2684049. “Small employer,” 

for purposes of this study, was defined as firms 

with 5-19 employees.

60 Pitchbook, supra note 57.

61 Id.

62 Committee on Capital Markets Regulation, 

“Expanding Opportunities for Investors 

and Retirees: Private Equity” (Nov. 2018), 

https://www.capmktsreg.org/wp-content/uploads/2018/10/Private-Equity-Report-FINAL-1.

pdf.

63 See, e.g., McKinsey & Company, “McKinsey 

Global Private Markets Review 2019” (Feb. 

2019) at 11, https://www.mckinsey.com/industries/private-equity-and-principal-investors/

our-insights/mckinseys-private-markets-annual-review. 

64 PitchBook-NVCA, supra note 54, at 13 (Q&A 

with Sulu Mamdani, Managing Partner, SVB 

Capital).

65 Id.

66 Pitchbook, supra note 57.

67 Id.

68 Id.

69 See World Bank Group Open Data, https://data.

worldbank.org/indicator/CM.MKT.LDOM.

NO?locations=US.

70 See, e.g., Committee on Capital Markets 

Regulation, supra note 62; Michael Ewens 

and Joan Farre-Mensa, “The Deregulation of 

the Private Equity Markets and the Decline in 

IPOs,” National Bureau of Economic Research

(Sep. 2019 working paper) at 3.

71 See, e.g., “Expanding the On-Ramp: Recommendations to Help More Companies Go and 

Stay Public” (Apr. 2018) at 5-6, https://nvca.

org/wp-content/uploads/2018/04/ExpandingThe-On-Ramp-Recommendations-to-HelpMore-Companies-Go-and-Stay-Public.pdf. 

72 Data registered offerings was collected from 

Thomson Financial’s SDC Platinum database.

73 Small public companies include public companies with a size less than or equal to $250 

million on the date of the offering, calculated 

by multiplying price of the company’s stock 

at the close of the day of the offering by the 

number of outstanding shares on the day of the 

offering. Data from the Center for Research in 

Securities Prices (CRSP) and Dealogic were used 

to fill in missing information from SDC Platinum. Mutual funds and Closed-end funds are 

excluded from the statistics. Those companies 

with missing a stock price on the offering day or 

number of outstanding shares are not included 

in the statistics.

74 “Expanding the On-Ramp,” supra note 71, at 

5-6.

75 Id.

76 Matt Levine, “The Unicorn Stampede is Coming,” Bloomberg (Mar. 22, 2019), https://www.

bloomberg.com/opinion/articles/2019-03-22/

the-unicorn-stampede-is-coming.

77 Ewing Marion Kauffman Foundation, “Data 

Show that Gender-Inclusive Founding Teams 

Have Greater Success in Fundraising and 

Innovation” (Oct. 3, 2019), https://www.kauffmanfellows.org/journal_posts/data-show-thatgender-inclusive-founding-teams-have-greatersuccess-in-fundraising-and-innovation.

78 Kauffman Foundation, supra note 56 (citing 

2004 figures).

79 Id.

80 Sohl, supra note 45.

81 Emma Hinchcliffe, “Funding For Female 

Founders Stalled at 2.2% of VC Dollars in 

2018,” Fortune (Jan. 28, 2019), https://fortune.com/2019/01/28/funding-female-founders-2018/.

82 See Katie Abouzahr, et. al., “Why Women-Owned Startups Are a Better Bet,” Boston 

Consulting Group (Jun. 6, 2018), https://www.

bcg.com/en-us/publications/2018/why-womenowned-startups-are-better-bet.aspx.

83 See H. Waverly Deutsch, et al., “The State of 

LGBT Entrepreneurship in the U.S.,” StartOut

(Jul. 2016), https://startout.org/wp-content/

uploads/2018/03/State_of_LGBT_Entrepreneurship.pdf. 

84 Sohl, supra note 45.
60 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

85 Rebecca Kaden, “How VC Can Help More 

Women Get Ahead,” Harvard Business Review

(Oct. 1, 2019), https://hbr.org/2019/10/howvc-can-help-more-women-get-ahead; compare

Deloitte University Leadership Center for Inclusion, “NVCA-Deloitte Human Capital Survey,” 

2nd ed. (June 2019), https://www2.deloitte.com/

us/human-capital-survey-2nd-edition (copyright 

Deloitte) (citing survey data that 45% of the 

workforce at VC firms are women, accounting 

for 21% of all investment professionals and 

14% of investment partners).

86 Kaden, supra note 85.

87 U.S. Minority Business Development Agency, 

“Fact Sheet: U.S. Minority-Owned Firms” (Jan. 

2016), https://www.mbda.gov/sites/mbda.gov/

files/migrated/files-attachments/2012SBO_MBEFactSheet020216.pdf.

88 Id.

89 Id.

90 Id.

91 U.S. Minority Business Development Agency, 

“The Minority Business Development Agency: 

Vital to Making America Great” (Dec. 20, 

2018), https://www.mbda.gov/page/minority-business-development-agency-vital-making-america-great. 

92 Kauffman Foundation, supra note 56.

93 Sohl, supra note 45.

94 Kauffman Foundation, supra note 56.

95 Federal Reserve Bank of New York, Stanford 

Graduate School of Business, Latino Entrepreneurship Initiative, and Interise, “Latino-Owned 

Businesses: Shining a Light on National Trends” 

(Nov. 2018), https://www.newyorkfed.org/

medialibrary/media/smallbusiness/2017/Reporton-Latino-Owned-Small-Businesses.pdf.

96 RateMyInvestor, Diversity in U.S. Startups, 

https://ratemyinvestor.com/pdfjs/full?file=%2FDiversityVCReport_Final.pdf (data in the 

report covered the period from January 2013 to 

December 2017).

97 Sohl, supra note 45.

98 Deloitte University Leadership Center for Inclusion, supra note 85. 

99 Federal Emergency Management Agency 

(FEMA), “Hurricane Ready Business Toolkit” 

(Nov. 15, 2017), https://www.fema.gov/media-library/assets/documents/152381. 

100 Federal Reserve Banks, “2017 Small Business 

Credit Survey: Report on Disaster-Affected 

Firms” (2017), https://www.fedsmallbusiness.

org/survey/2018/report-on-disaster-affected-firms.

101 Data from U.S. Census Bureau, American 

Community Survey (ACS) was used to estimate 

the population in zip codes affected by the 

natural disasters as described in infra, note 102. 

However, certain zip codes were identified as 

missing population values, so 27% is likely underestimated.

102 Zip codes designated as affected are defined as 

having one or more residents approved for assistance under FEMA’s IHP program for natural 

disasters with classifications of Major Disaster 

Declaration and incident start dates between 

July 1, 2016 and June 30, 2019.Given the trailing impact caused by natural disasters, each zip 

code affected in that three year period was included. Classification of disaster areas are based 

on Disaster Declaration Summaries data at 

https://www.fema.gov/api/open/v1/DisasterDeclarationsSummaries.csv, and FEMA Housing 

Assistance Program Data at https://www.fema.

gov/media-library/assets/documents/34758. 

The classification method for disaster areas is 

based on the methodology in the “2017 Small 

Business Credit Survey – Report on Disaster-Affected Firms”, Federal Reserve Banks of Dallas, 

New York, Richmond, and San Francisco at 

https://www.newyorkfed.org/medialibrary/media/smallbusiness/2017/SBCS-Report-on-Disaster-Affected-Firms.pdf.

103 Evaluated from July 1, 2016 to June 30, 2019 

using zip codes affected by natural disasters as 

described in supra note 102.

104 National Bureau of Economic Research, “The 

Effect of Natural Disasters on Economic Activity in US Counties: A Century of Data” (Jun. 

2019), https://www.nber.org/papers/w23410.

105 U.S. Census Bureau, ACS, “Understanding and 

Using American Community Survey Data: What 

Users of Data for Rural Areas Need to Know”, 

Section 1 (July 2019) at https://www.census.gov/

content/dam/Census/library/publications/2019/

acs/ACS_rural_handbook_2019_ch01.pdf

(“Data from the ACS indicate that about 61 

million people, or 19 percent of the population, lived in rural areas of the United States in 

2016.”).

106 Federal Reserve, supra note 35.

107 Classification of rural areas are based on the 

list of 2015 Q4 rural area zip codes from the 

Center for Medicare & Medicaid Services at 

https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/DMEPOSFeeSched/

DMEPOS-Fee-Schedule-Items/DME-RuralZip-and-Formats.html?DLPage=1&DLEntries=10&DLSort=2&DLSortDir=descending.

108 Kauffman Foundation, supra note 52, at 21; 

U.S. Census, “How Does the U.S. Census 

Bureau Define ‘Rural?’” at https://gis-portal.

data.census.gov/arcgis/apps/MapSeries/index.

html?appid=7a41374f6b03456e9d138cb014711e01#map; See also https://www.census.

gov/population/censusdata/urpop0090.txt. 

109 See National Community Reinvestment Coalition, “Final Report: Access to Capital and 

Credit in Appalachia and the Impact of the 

Financial Crisis and Recession on Commercial 

Lending and Finance in the Region” (Jul. 2013) 
ANNUAL REPORT: FISCAL YEAR 2019 | 61

(report prepared for Appalachian Regional 

Commission), https://www.arc.gov/assets/research_reports/AccessToCapitalAndCreditInAppalachia-July2013.pdf.

110 Ruth Simon and Coulter Jones, “Goodbye, 

George Bailey: Decline of Rural Lending Crimps 

Small-Town Business,” Wall Street Journal

(Dec. 25, 2017), https://www.wsj.com/articles/

goodbye-george-bailey-decline-of-rural-lendingcrimps-small-town-business-1514219515.

111 Rural Policy Research Institute, “Access to 

Capital in Rural America: Supporting Business 

Startup, Growth and Job Creation, Insights 

from the Field and Policy Recommendations” 

(Oct. 2012), http://www.rupri.org/Forms/CapitalMarkets_FieldInsights.pdf.

112 Patricia Scruggs, Wayne Embree, and Rob Wiltbank, “Wealth Creation in Rural Communities: 

The Role of Equity Capital in Rural Communities” (Feb. 2009), https://community-wealth.

org/sites/clone.community-wealth.org/files/

downloads/report-scruggs-et-al.pdf.

113 See Office of Information and Regulatory 

Affairs, Office of Management and Budget, 

“Fall 2019 Unified Agenda of Regulatory 

and Deregulatory Active Actions in Prerule, 

Proposed Rule and Final Rule Stages by the 

Securities and Exchange Commission,” https://

www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_

LIST¤tPub=true&agencyCode=&showStage=active&agencyCd=3235&Image58.

x=44&Image58.y=11. Active regulatory actions 

are likely to occur in the next 12 months after 

publication of the Fall 2019 Unified Agenda. 

See Office of Information and Regulatory Affairs, Office of Management and Budget, “Fall 

2019 Unified Agenda of Federal Regulatory 

and Deregulatory Long-term Actions by the 

Securities and Exchange Commission,” https://

www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_

RULE_LIST¤tPubId=201904&showStage=longterm&agencyCd=3235&Image58.

x=33&Image58.y=11. Long-term Actions are 

items under development but for which regulatory action is not expected within 12 months after publication of the Fall 2019 Unified Agenda.

114 See “State of Small Business Capital Formation”

section above.

115 Conflicts include when non-accredited investors may participate, investment or offering 

limits, when general solicitation may be used, 

and the particular itemized disclosure requirements under each of the exemptions, including 

Regulation A, Rules 504, 506(b) and 506(c) of 

Regulation D, and Regulation Crowdfunding. 

116 See “State of Small Business Capital Formation” 

section above.

117 For example, regulatory uncertainty has been 

cited as a possible explanation for the relatively 

low levels of utilization of Rule 506(c) offerings 

using general solicitation. See Harmonization 

Concept Release at Section II.B.2.f.

118 See, e.g., SEC Release No. 33-97 (Dec. 28, 

1933).

119 See, e.g., Final Report of the 2016 SEC Government-Business Forum on Small Business 

Capital Formation (Mar. 2017), https://www.

sec.gov/info/smallbus/gbfor35.pdf (“2016 Small 

Business Forum Report”); Final Report of the 

2017 SEC Government-Business Forum on 

Small Business Capital Formation (Mar. 2018), 

https://www.sec.gov/files/gbfor36.pdf (“2017 

Small Business Forum Report”).

120 See Harmonization Concept Release, which 

solicits comment on the exempt offering framework generally as well as each of the following 

topics: accredited investor definition, private 

placement exemption and Rule 506 of Regulation D, Regulation A, limited offerings under 

Rule 504 of Regulation D, intrastate offerings, 

Regulation Crowdfunding, integration, pooled 

investment funds, and the secondary trading of 

certain securities. 

121 See “Launch of Video Content” section above.

122 Currently offering caps exist under Rule 504 

under Regulation D ($5 million), Regulation 

Crowdfunding ($1.07 million), and Regulation 

A ($20 million for Tier 1 and $50 million for 

Tier 2). Each cap has been subject to critiques 

and calls for amendment, and some are subject 

to periodic review requirements by the Commission.

123 See Linda C. Quinn, Reforming the Securities 

Act of 1933: A Conceptual Framework, 10 Insights 25 (Jan. 1996), https://www.sec.gov/info/

smallbus/acsec/reformingsa33.pdf.

124 See Small Business Capital Formation Advisory Committee, Recommendation Regarding 

Harmonization General Principles (Dec. 13, 

2019), https://www.sec.gov/spotlight/sbcfac/

recommendation-harmonization-general-principles.pdf. This recommendation was adopted by 

the Advisory Committee in FY2020 and is not 

included in the summary of FY2019 activities of 

the committee.

125 See, e.g., Regulation D Revisions; Exemption 

for Certain Employee Benefit Plans, Release 

No. 33-6683 (Jan. 16, 1987) [52 FR 3015 (Feb. 

2, 1987)] at note 6; see also Amendments for 

Small and Additional Issues Exemptions under 

the Securities Act (Regulation A), Release No. 

33-9741 (March 25, 2015) [80 FR 21805 (April 

20, 2015)] at note 146.

126 Small Business Incentive Act of 1980, Pub. L. 

No. 96-477, § 602, 94 Stat. 2275 (1980). See 

also 15 U.S.C. § 77b(a)(15).

127 S. Rep. No. 96-958, at 12 (1980).
62 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

128 17 C.F.R. § 230.501(a).

129 For further discussion, see Harmonization Concept Release at Section IV.A.2.

130 Mutual funds make up 56% of defined contribution retirement accounts and 45% of individual retirement account assets. See Investment 

Company Institute, “2019 Investment Company 

Fact Book” (Apr. 2019) at 34, https://www.ici.

org/pdf/2019_factbook.pdf. 

131 See, e.g., 17 CFR 270.22e-4 (liquidity risk management programs); see also 15 U.S.C. 80a-2(a)

(41) (defining “value”).

132 See Harmonization Concept Release at Section 

IV.A.

133 For example, as of December 31, 2018, there 

were only 250 closed-end funds, compared 

with 17,707 mutual funds and 3,371 ETFs. See 

Investment Company Institute, supra note 130, 

at 32.

134 A BDC is a type of closed-end investment company that does not register under the Investment 

Company Act, but rather elects to be subject 

to Sections 55-65 of that act. See 15 U.S.C. 

80a-2(a)(48).

135 An SBIC is a type of fund registered under the 

Small Business Investment Act of 1958 or that 

is approved by the U.S. Small Business Administration. See 17 CFR 230.501(a)(1).

136 See Harmonization Concept Release at Section 

IV.C.

137 See, e.g., Transcript of SEC and Morehouse 

College event “REACHING NEW HEIGHTS: 

Conversations on Raising Capital for Businesses of Color,” (Oct. 24, 2019), https://www.

sec.gov/files/Morehouse%20Conference%20

Transcript%20PDF%20-%20Revised%20

%2812.11.19%29.pdf.

138 U.S. Department of the Treasury, “A Financial 

System That Creates Economic Opportunities 

Capital Markets” (Oct. 2017) (“2017 Treasury Report”) at 27, https://www.treasury.gov/

press-center/press-releases/documents/a-financial-system-capital-markets-final-final.pdf.

139 See 17 CFR 230.501(a)(1), (3) and (7).

140 See Small Business Capital Formation Advisory 

Committee Recommendation on the Accredited 

Investor Definition (Dec. 11, 2019), https://

www.sec.gov/spotlight/sbcfac/recommendation-accredited-investor.pdf. This recommendation was adopted by the Advisory Committee in 

FY2020 and is not included in the summary of 

FY2019 activities of the committee.

141 See Advisory Committee on Small and Emerging Companies, Recommendations Regarding 

the Accredited Investor Definition (Jul. 20, 

2016), https://www.sec.gov/info/smallbus/acsec/

acsec-recommendations-accredited-investor.pdf.

142 See Final Report of the 2019 SEC Government-Business Forum on Small Business Capital 

Formation (Dec. 2019), https://www.sec.

gov/files/small-business-forum-report-2019.

pdf; Final Report of the 2018 SEC Government-Business Forum on Small Business Capital 

Formation (Jun. 2019), https://www.sec.gov/

info/smallbus/gbfor37.pdf (“2018 Small 

Business Forum Report”); 2017 Small Business 

Forum Report; and 2016 Small Business Forum 

Report.

143 See 2017 Treasury Report at 44 et seq.

144 See SEC’s Division of Investment Management’s 

Small Fund Outreach Initiative, https://www.

sec.gov/new-smaller-fund-outreach-effort-seeksto-promote-choice-for-main-street-investors. 

145 See Small Business Capital Formation Advisory 

Committee Recommendation on Retail Investor 

Access to Registered Closed-End Funds Investing in Private Funds (Dec. 11, 2019), https://

www.sec.gov/spotlight/sbcfac/recommendationclosed-end-fund-of-funds.pdf. This recommendation was adopted by the Advisory Committee 

in FY2020 and is not included in the summary 

of FY2019 activities of the committee.

146 Committee on Capital Markets Regulation, 

supra note 62.

147 2017 Treasury Report at 43. 

148 See, e.g, Final Report of the Securities and 

Exchange Commission Advisory Committee 

on Small and Emerging Companies (Sept. 21, 

2017), https://www.sec.gov/info/smallbus/

acsec/acsec-final-report-2017-09.pdf at Section 

IV.1.A.

149 Broker-dealers are generally “engaged in the 

business” of “effecting transactions in securities 

for the account of others.” Securities Exchange 

Act §§ 4(a)(4) (defining “broker”) and 4(a)(5) 

(defining “dealer”).

150 See, e.g., Country Business, Inc., SEC No-Action 

Letter (Nov. 8, 2006); International Business 

Exchange Corporation, SEC No-Action Letter 

(Dec. 12, 1986); Paul Anka, SEC No-Action 

Letter (Jul. 24, 1991); AngelList LLC, SEC 

No-Action Letter (Mar. 28, 2013); FundersClub 

Inc. & FundersClub Mgm’t LLC, SEC No-Action Letter (Mar. 26, 2013); and M&A Brokers, 

SEC No-Action Letter (Feb. 4, 2014); see also

SEC v. Kramer, 778 F.Sup.2d 1320, 1334 (M.D. 

Fla. 2011).

151 See, e.g., SEC Government-Business Forum on 

Small Business Capital Formation historical 

reports, https://www.sec.gov/info/smallbus/

sbforumreps.htm; American Bar Association, 

“Report and Recommendations of the Task 

Force on Private Placement Broker-Dealers” 

(Jun. 20, 2005), https://www.sec.gov/info/smallbus/2009gbforum/abareport062005.pdf (“ABA 

Report on Private Placement Broker-Dealers”); SEC Advisory Committee on Small and 

Emerging Companies, “Recommendation 

Regarding Finders, Private Placement Brokers, 

and Investment Platforms Not Registered as 

Broker-Dealers” (May 10, 2017), https://www.

sec.gov/info/smallbus/acsec/acsec-recommenda-
ANNUAL REPORT: FISCAL YEAR 2019 | 63

tion-051517-finders.pdf (“ACSEC Finders Recommendation”); Unlocking Capital for Small 

Businesses Act, H.R. 6127, 115th Cong. (2018), 

https://www.congress.gov/bill/115th-congress/

house-bill/6127/text; Proposed NASAA Model 

Rule Exempting Certain Merger and Acquisition Brokers from Registration Pursuant to 

State Securities Acts (Jan. 2015); 2017 Treasury Report at 43-44; and Gregory C. Yadley, 

“Notable by Their Absence: Finders and Other 

Financial Intermediaries in Small Business Capital Formation” (Jun. 3, 2015), https://www.sec.

gov/info/smallbus/acsec/finders-and-other-financial-intermediaries-yadley.pdf.

152 See note 151.

153 See, e.g., Faith Colish, Finders and Private 

Placement Brokers: The Missing Link and H.R. 

6127, Bloomberg Law (Nov. 14, 2018), https://

news.bloomberglaw.com/corporate-law/insightfinders-and-private-placement-brokers-the-missing-link-and-hr-6127; Transcript of the 38th 

Annual Government-Business Forum on Small 

Business Capital Formation (Aug. 14, 2019), 

https://www.sec.gov/files/2019-sec-government-business-forum-small-business-capital-formation-transcript.pdf, at 164-166.

154 See, e.g., 2019 Small Business Forum Report; 

2018 Small Business Forum Report; 2017 Small 

Business Forum Report; and 2016 Small Business Forum Report.

155 See Crowdfunding, Release No. 33-9974 (Oct. 

30, 2015) [80 FR 71387 (Nov. 16, 2015)].

156 Australia developed the first equity crowdfunding model, followed by the United Kingdom 

and many other countries, including the United 

States. See Sam Raymond, Anthony Lambkin, 

Richard Swart, Sherwood Neiss, and Jason Best, 

“Crowdfunding’s Potential for the Developing 

World,” infoDev, Finance and Private Sector 

Development Department, World Bank (2013), 

http://documents.worldbank.org/curated/

en/409841468327411701/Crowdfundings-potential-for-the-developing-world.

157 See Mills, supra note 39, at 7.

158 See id.

159 Many portals also facilitate capital formation 

under Regulation A offerings, sometimes referred to as “mini-IPOs.”

160 See, e.g., Douglas Cumming, Michele Meoli, 

and Silvio Vismara, “Does Equity Crowdfunding Democratize Entrepreneurial Finance?,” 

Small Business Economics (Jun. 3, 2019), 

https://doi.org/10.1007/s11187-019-00188-z

(reporting on international crowdfunding); see 

also Republic, “Republic Report – The Business 

of Diversity” (May 3, 2018), https://republic.

co/blog/the-business-of-diversity; cf Sifan Liu 

and Joseph Parilla, “Hidden Entrepreneurs: 

What Crowdfunding Reveals about Startups in 

Metro America,” Brookings Institute (Sep. 18, 

2018), https://www.brookings.edu/research/

hidden-entrepreneurs-what-crowdfunding-reveals-about-startups-in-metro-america/ (regarding rewards-based crowdfunding: “While 

closely tracking venture capital investment, 

Kickstarter funding has a more diverse distribution, both by gender and geography. [...] Women also enjoy higher rates of success in funding 

their projects across all project categories except 

for games.”). 

161 See, e.g., Kaden, supra note 85 (“Last year a 

mere 12% of venture capital dollars went to 

companies with a woman on the founding team, 

a decline from 15% in 2017. The numbers get 

even worse when you look at female-founded 

startups that aren’t focused on female customers: They’ve gotten less than 2% of VC investment dollars since 2014.”).

162 See Mills, supra note 39, at 52 (“Another 

factor working against small business lending 

is that the cost of loan underwriting does not 

scale with the size of the loan. In other words, 

it costs about as much for a bank to process a 

$100,000 loan as a $1 million loan. That means 

that smaller-dollar loans are less profitable for 

banks. As a result, banks are less likely to lend 

at lower dollar amounts. One response for 

a bank is to move away from small business 

lending and focus on more profitable activities. 

Some banks have reduced or eliminated loans 

below a certain threshold, typically $100,000, 

and some will not lend to small businesses with 

annual revenues of less than $2 million.”); id

at 56 (“Three-quarters of small business loan 

applications from employer firms were for 

small-dollar loans—loans under $250,000—and 

more than half of the loan applications were for 

amounts under $100,000.”).

163 See Report to the Commission on Regulation 

Crowdfunding (Jun. 18, 2019), www.sec.gov/

smallbusiness/exemptofferings/regcrowdfunding/2019Report. 

164 See id. 

165 See id at Section III.A.1.

166 See Harmonization Concept Release at Section 

II.F.1.d.

167 See supra note 53.

168 For example, the United Kingdom does not 

limit the amount a company can raise using 

crowdfunding, but does require a prospectus 

for a company to raise more than £8 million, 

matching a recent rule change by Germany. See 

Explanatory Memorandum to The Financial 

Services and Markets Act 2000 (Prospectus 

and Markets in Financial Instruments) Regulations 2018, 2018 No. 786, http://www.

legislation.gov.uk/uksi/2018/786/pdfs/uksiem_20180786_en.pdf; https://www.crowdfundinsider.com/2018/06/135692-germany-raisesthe-equity-crowdfunding-limit-to-e8-million/; 
64 | SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION

and Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 

2017 on the prospectus to be published when 

securities are offered to the public or admitted 

to trading on a regulated market, and repealing 

Directive 2003/71/EC, https://eur-lex.europa.

eu/legal-content/EN/TXT/HTML/?uri=CELEX-

:32017R1129&from=EN. 

169 See Connie Loizos, “A Quick Look at How 

Series A and Seed Rounds Have Ballooned 

in Recent Years, Fueled by Top Investors,” 

TechCrunch (Apr. 25, 2019), https://techcrunch.

com/2019/04/25/a-quick-look-at-how-fast-series-a-and-seed-rounds-have-ballooned-in-recent-years-fueled-by-top-investors/.

170 See Small Business Capital Formation Advisory 

Committee Recommendation on Regulation 

Crowdfunding (Dec. 13, 2019), https://www.

sec.gov/spotlight/sbcfac/recommendation-regulation-crowdfunding.pdf. This recommendation 

was adopted by the Advisory Committee in 

FY2020 and is not included in the summary of 

FY2019 activities of the committee.

171 See Association of Online Investment Platforms 

letter to the Commission (Jul. 5, 2019), https://

www.sec.gov/comments/s7-08-19/s70819-

5761538-186947.pdf. 

172 See 2019 Small Business Forum Report; 2018 

Small Business Forum Report; 2017 Small 

Business Forum Report; 2016 Small Business 

Forum; and Final Report of the 2015 SEC 

Government-Business Forum on Small Business 

Capital Formation (May 2015), https://www.

sec.gov/info/smallbus/gbfor34.pdf (“2015 Small 

Business Forum Report”).

173 See, e.g., PwC survey of CFOs, 83% of whom 

estimate spending more than $1 million on 

one-time costs associated with their IPOs. PwC 

Deals, “Considering an IPO to Fuel Your Company’s Future? Insight into the Costs of Going 

Public and Being Public” (Nov. 2017), https://

www.pwc.com/us/en/services/deals/library/costof-an-ipo.html. 

174 Id.

175 Pitchbook, supra note 57.

176 See “Small Public Companies” section above.

177 President Obama’s Council on Jobs and Competitiveness, “Interim Report: Taking Action, 

Building Confidence: Five Common-Sense 

Initiatives to Boost Jobs and Competitiveness” 

(Oct. 2011), http://files.jobs-council.com/jobscouncil/files/2011/10/JobsCouncil_InterimReport_Oct11.pdf. 

178 See, e.g., Jumpstart Our Business Startups Act 

of 2012 (“JOBS Act”), Pub. L. No. 112-106, 

126 Stat. 306 (2012); Proposed Amendments 

to the Accelerated Filer and Large Accelerated Filer Definitions, Release No. 34-85814 

(May 9, 2019), https://www.sec.gov/rules/proposed/2019/34-85814.pdf; Smaller Reporting 

Company Definition, Release No. 33-10513 

(June 28, 2018), https://www.sec.gov/rules/final/2018/33-10513.pdf.

179 See, e.g., Proposed Modernization of Regulation S-K Items 101, 103, and 105, Release No. 

33-10668 (Aug. 8, 2019), https://www.sec.gov/

rules/proposed/2019/33-10668.pdf; Proposed 

Amendments to Financial Disclosures about 

Acquired and Disposed Businesses, Release No. 

33-10635 (May 3, 2019), https://www.sec.gov/

rules/proposed/2019/33-10635.pdf; FAST Act 

Modernization and Simplification of Regulation 

S-K, Release No. 33-10618 (Mar. 20, 2019), 

https://www.sec.gov/rules/final/2019/33-10618.

pdf; Disclosure Update and Simplification, 

Release No. 33-10532 (Aug. 17, 2018), https://

www.sec.gov/rules/final/2018/33-10532.pdf; 

and Proposed Financial Disclosures about 

Guarantors and Issuers of Guaranteed Securities 

and Affiliates Whose Securities Collateralize a 

Registrant’s Securities, Release No. 33-10526 

(Jul. 24, 2018), https://www.sec.gov/rules/proposed/2018/33-10526.pdf.

180 See 2019 Small Business Forum Report; 2018 

Small Business Forum Report; 2017 Small 

Business Forum Report; 2016 Small Business 

Forum Report; and 2015 Small Business Forum 

Report.

181 https://www.sec.gov/page/small-business-capital-formation-advisory-committee. 

182 See SEC Press Release 2019-61, “SEC Announces Members of Small Business Capital 

Formation Advisory Committee” (Apr. 25, 

2019), https://www.sec.gov/news/press-release/2019-61. 

183 https://www.sec.gov/spotlight/sbcfac/recommendations-rule-3-05-and-accelerated-filer-definition.pdf. 

184 See Office of Information and Regulatory 

Affairs, Office of Management and Budget, “Fall 2019 Unified Agenda of Federal 

Regulatory and Deregulatory Long-term 

Actions by the Securities and Exchange 

Commission,” RIN 3235-AL77, https://www.

reginfo.gov/public/do/eAgendaViewRule?pubId=201910&RIN=3235-AL77. 

185 See Office of Information and Regulatory 

Affairs, Office of Management and Budget, 

“Fall 2019 Unified Agenda of Federal Regulatory and Deregulatory Long-term Actions by the Securities and Exchange Commission,” RIN 3235-AM41, https://www.

reginfo.gov/public/do/eAgendaViewRule?pubId=201910&RIN=3235-AM41. 

OFFICE OF THE 

ADVOCATE FOR SMALL 

BUSINESS CAPITAL 

FORMATION

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.5407

www.sec.gov/oasb

smallbusiness@sec.gov