SEC Small Business Advocate Martha Miller discussed challenges and capital-raising opportunities for smaller businesses, and particularly women- and minority-owned businesses, at a fireside chat hosted by the National Association of Securities Professionals.
Pamela Gibbs, SEC Director of Minority and Women Inclusion, and Martha Miller, SEC Advocate for Small Business, discussed the challenges facing small businesses and women- and minority-owned businesses and how the Advocate’s office is working to address them. The National Association of Securities Professionals (NASP) hosted the webinar, which also featured a brief Q&A from participants.
Miller focused many of her comments on capital-raising opportunities for smaller businesses. Although NASP’s description of the event highlighted a focus on COVID-19, the tools Miller discussed apply more broadly. However, one example of relief that was tailored specifically to addressing the pandemic was the SEC’s May rulemaking to temporarily allow small businesses to expedite crowdfunding offerings. Miller said that this was a good first step, but that it is a short-term step, and her office is still looking into longer-term solutions to the disparate impacts on small businesses, and particularly on women- and minority-owned businesses.
Landscape for minority businesses. Miller said that COVID-19 caused 41 percent of Black-owned businesses to close, about double the overall closure rate. Black-owned businesses are statistically less likely to seek professional securities advice, she said, and women-owned businesses are less likely to bootstrap. But the realization rate for Black-owned businesses that do pitch for capital is higher than national averages, and studies show that diversity means stronger revenues and better solutions. Miller called this a mismatch between what companies could do if they had the capital and where the capital is actually going.
Diversity and inclusion. Miller also drew a distinction between diversity, which means looking at the data to see who is already in the room, and inclusion, which is a proactive effort to get more people in the room. This awareness is sparking conversations within the SEC about possible unintended consequences from the regulatory regime. She cited network effects as an example: rules that say a small business cannot create a website or otherwise solicit investors broadly may just further entrench the entrepreneurs that already have a strong network of investors among their friends and family. Miller also said that the recent meeting of the Asset Management Advisory Committee, which focused in part on diversity and inclusion, highlighted that the people who are funding businesses look a lot like the businesses that are being funded. To that, Gibbs said that leaders like herself and Miller have to keep pushing for improvements. As an example, Gibbs tries to market her office’s diversity market assessment report by explaining the business value of diversity.
Education. Miller also stressed the importance of education and awareness around what tools are available to small businesses looking to raise capital. She noted that the small companies with the best founders and strongest prospects tend to know the least about securities laws, because their focus is on the business itself. Her office is working towards leveling the informational playing field, including through its website, because the capital-raising option that is the most visible or most familiar may not be the best.
Crowdfunding and reparations. Finally, Miller took questions from the webinar audience. One attendee asked whether Miller knows if and when the crowdfunding limit will be increased from $1 million to $5 million, as proposed in March. Miller said that she does know, but cannot say, because that information is not yet public. She also said that the comment period has closed, but invited the inquirer to send feedback. Another audience member asked if the SEC would support a reparations fund. Miller responded that they get asked frequently about grants, but currently there are only two mechanisms where money leaves the agency: via whistleblower payments or restitution to harmed investors.
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