Statement Summary
During the sixth anniversary meeting of the Small Business Capital Formation Advisory Committee, SEC Chairman highlighted the importance of supporting entrepreneurs and small businesses. The Committee advises the SEC on fostering capital formation while ensuring investor protection. Discussion centered on enhancing Regulation A, which allows small companies to raise capital, although its usage has declined despite an increased offering limit. Suggestions include providing federal preemption for secondary resales to improve liquidity, permitting at-the-market offerings, and addressing geographic concentration in Regulation A usage. The Chairman encouraged evaluating broader changes to make Regulation A more accessible for all issuers, especially those involving emerging assets like crypto securities.
Original Statement
Good morning. Today is the sixth-year anniversary of the first-ever meeting of the Small Business Capital Formation Advisory Committee. Since that initial meeting, I have followed the discussions and recommendations by this Committee from outside the agency. Now it gives me great pleasure to have the opportunity to address this Committee for the first time as Chairman of the SEC. It is particularly appropriate that this meeting takes place during this year’s National Small Business Week, when we are recognizing America’s entrepreneurs and small business owners.
This Committee serves the important function of advising the Commission on achieving its three-part mission – protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets – as that mission relates to emerging, privately held small businesses and smaller publicly traded companies. This Committee’s voice will be critical over the next few years, as I intend for the Commission to focus on providing meaningful pathways for entrepreneurs to obtain the capital that they need to execute their innovative ideas and grow their companies in both the private and public markets. At the same time, persons that provide such capital must be able to continue to depend on effective enforcement against fraudulent activities.
Today, this Committee will explore how companies have used Regulation A for capital raising and discuss whether there are improvements that can be made to facilitate greater use of the rules. Companies have raised approximately three times as much capital under Regulation A as compared to Regulation Crowdfunding and rule 504 combined. However, the amount raised under Regulation A is less than one percent of the amount of capital raised under rules 506(b) and 506(c) combined. Although the Commission raised the offering limit under Regulation A from $50 million to $75 million in March 2021, there has not been a significant number of Regulation A offerings seeking to take advantage of the increased limit. In fact, the overall number of Regulation A offerings has declined the past two years, after increases the prior three years.
Besides increasing the offering limit, what else can be done to incentivize greater use of Regulation A? In September 2022, this Committee recommended that the Commission “provide federal preemption from state regulation for secondary resales by investors of securities initially sold pursuant to Tier 2 of Regulation A.” Although the Commission has not acted on this recommendation, this Committee should consider further evaluating whether federal preemption can help alleviate secondary market liquidity challenges associated with securities sold pursuant to Regulation A.
Additionally, at-the-market offerings are currently not permitted under Regulation A. Would eliminating this prohibition provide entrepreneurs with a more effective way of obtaining capital, without sacrificing investor protection? Finally, use of Regulation A has been concentrated in six states – California, Florida, Nevada, New York, Texas, and Washington. Most other states did not have more than two Regulation A offerings. Why is there a geographic concentration for use of Regulation A and would decreasing the concentration make the rules more viable?
Beyond these specific issues, Regulation A has not been a viable regulatory framework for widespread use by all issuers, including those offering certain types of crypto asset securities, to raise capital without disproportionate compliance costs. As this Committee considers amendments to Regulation A, I encourage it to evaluate broader changes, as well as targeted revisions, with the goal of making the framework an effective regulatory regime for all types of issuers.
I look forward to the presentation this morning by Daniel Forman of Lowenstein Sandler, as well as this Committee’s discussion of these and other Regulation A issues. I am also excited about the opportunity to hear from this Committee each quarter on important issues affecting emerging, privately held small businesses and smaller publicly traded companies. Thank you.
Last Reviewed or Updated: May 6, 2025
