Commissioner Hester M. Peirce
Thank you, Carla [Garrett] and the rest of the Committee members. I look forward to today’s discussion. Panels and discussions at prior Committee meetings have helped me think about ways to ensure that capital is able to reach communities that have previously seen little capital flowing their way. We have heard how most money comes from people within a founder’s own community, so we need both to empower and expand founders’ communities by embracing technology and maintaining open minds. I am going to keep my comments brief because I have mentioned most of these things before, but I continue to believe the following items are part of the solution to the problems you are going to discuss today:
Allow for greater flexibility in determining who is an accredited investor. An entrepreneur who is plugged in to a network of financially sophisticated people should be able to go to those people for funding, even if they are not wealthy enough to meet our financial thresholds. We need to open additional doors to accredited investor status, such as educational credentials. We laid the groundwork for such an opening in our most recent accredited investor rulemaking.[1] Now we need to act on it, and the Commission specifically invited this Committee to “make further recommendations, including additional certifications, designations, or credentials that further the purpose of the accredited investor definition.”[2]
Establish a framework for finders. The Commission proposed a framework last year and received quite a few comments.[3] One of those commenters explained that the proposal would “enabl[e] less well-off entrepreneurs to raise capital more efficiently [and] will on balance be good for society.”[4] The Angel Capital Association observed that “in some cases, Finders can provide a specific role in facilitating capital formation for nascent, early-stage small businesses that often struggle to find cost-effective methods to raise funds beyond their immediate circle of family and friends . . . particularly . . . in smaller, less urban locales where the density of accredited investors is limited”[5] Some other commenters were not as favorable, and many commenters suggested helpful changes.
Create a streamlined micro-offering exemption. One of the refrains from prior meetings is that access to early money is essential, and, for many founders, a bank loan or dipping into personal savings are impossibilities. A micro-offering exemption could allow an entrepreneur to raise $250,000 or $500,000 with only a simple notice-filing requirement (to allow us to monitor its use) and antifraud protection for investors.
I also understand that you will discuss the Qualifying Venture Capital Fund exemption. Congress modified the exemption in 2018 to allow funds to have up to 250 investors—up from 99—so long as other criteria are met. This qualifying venture capital fund exemption might be more useful if the fund could have more than the $10 million in assets currently permitted.
I look forward to your discussion of these and other options for ensuring that capital goes where it can be put to good use, which will benefit not only the entrepreneurs who get it, but their communities, and society at large.
[1] See Accredited Investor Definition, Release No. 33-10824 (Aug. 26, 2020), https://www.sec.gov/rules/final/2020/33-10824.pdf at 32-33 (“[T]he process we are adopting, by which the Commission may designate qualifying professional certifications, designations, and credentials by order, will provide the Commission with flexibility to designate other certifications, designations, or credentials if new certifications, designations, or credentials develop or are identified that are consistent with the specified criteria and that the Commission determines are appropriate. As a result, if an accredited educational institution, self-regulatory organization, or other industry body believes that it has a program of study or credential that fulfills the nonexclusive list of attributes enumerated in 501(a)(10), such institution or body may apply to the Commission for consideration as a qualifying professional certification or designation or credential under 501(a)(10). Similarly, members of the public may wish to propose to the Commission that a specific degree or program of study should be included in the accredited investor definition. Any such proposal does not need to be limited to a degree or program of study at a specific educational institution. Any such request for Commission consideration must address how a particular certification, designation, or credential satisfies the nonexclusive list of attributes set forth in the new rule, and may include additional information that the requestor believes the Commission may wish consider.”).
[2] Id. at n. 109.
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