Notes from SEC Small Business Conference
By David Feldman at 20 November, 2009, 8:20 am
Yesterday I went to Washington to attend the SEC’s annual small business conference, which they are mandated to hold by statute. SEC Chair Mary Schapiro opened it up recognizing the importance of smaller companies to help take the company out of recession and reminding us of the three key goals of the SEC: protecting investors, ensuring fair and orderly markets, and facilitating capital formation. She talked about how each of these pillars is intertwined. Of course we all know these goals often conflict, creating the many conundrums the Commission often faces. She noted she is the daughter of a small business operator and that “smal business has to be at the forefront of recovery.”
The various panels talked quite a bit about the current financing market for smaller companies and the regulatory environment. Here are a few take-aways:
1. Turning to personal assets, home equity, credit cards, friends & family and banks is much more difficult for new entrepreneurs these days.
2. The Small Business Administration, using Obama stimulus money, has dramatically increased the volume of small business loans because it increased the percentage it guarantees from lenders and waived fees. This is a good thing. A representative of the SBA warned that things are “improving but still fragile.”
3. The world of angel investors is much more organized now. They invested almost as much as venture capitalists in smaller companies last year. But pretty much all of them took a net worth hit in the last year, and that has to effect their interest in investing currently.
4. The panel worried if the traditional venture capital mold is broken. The “generation Y” entrepreneurs don’t like the controls vc’s put on them and many are shunning this traditional form of financing.
5. There is more and more interest in secondary markets developing for otherwise illiquid securities given the limited opportunity for vc’s and private equity investors to find viable exit strategies these days.
6. There remain many with misconceptions from some in “Big Law” about other alternatives like reverse mergers and self-filings, continuing to tout decade-old concerns about fraud and unclean shells.
7. The IPO market may be permanently hampered by the rise of online brokers, decimalization of trading spreads, high frequency trading and Sarbanes-Oxley.
8. Many pushed for reform to allow more “general solicitation” in private offerings so long as the ultimate purchasers are accredited. The SEC staff present hinted that they may be looking at re-proposing an overhaul of Regulation D regulating private placements that was proposed several years ago. New head of Corporation Finance Meredith Cross made clear the old proposal was from a different Commission and different staff. I assume this was in part why the topics discussed were selected.
All in all, it was a “things are still tough and we hope the SEC provides some additional relief for smaller companies” type of message. Whether the Commission has an appetite to de-regulate, even a little, in order to help spur capital formation, certainly remains to be seen. We hope so!
David
I find your blog very enlightening. I am the owner of a Singapore based IT company that is considering a capital pools RTO on the Toronto Venture Exchange. This is an area I could not find on your blog.
Subsequent to the RTO, we intend to do a secondary list on NASDAQ.
Does these route sound advisable as a tech company operating in the fast growing social media space
Eugene
Eugene - you are right that we haven’t covered CPCs yet as the deal-making there is a pretty new thing. But I am developing information and possibly a guest blogger weighing in on how they work, etc. If there is a reason to be public in Canada (maybe that reason is the money in the CPC), then it would seem worth considering. And more and more foreign listed companies are seeing the benefit of a cross-listing here in the US to help raise capital here, etc. Thanks for the comment!
David