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FISCAL YEAR 2024

INTERACTIVE VERSION

Based on feedback from users of prior annual reports, we are pleased

to offer this interactive version. The content here is the same as in the

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to navigate easily between sections.

With my one-year anniversary of joining the

SEC as the Small Business Advocate approaching, I

feel incredibly fortunate for the opportunity to serve

and support small businesses and investors on their

capital-raising journey. While there are many areas

these days where people find division, support for

small businesses is one of those rare points where

there is common agreement.

As our team engages with investors and small businesses across lifecycle

stages and geographies, we see founders’ entrepreneurial spirit and ingenuity,

as well as the importance of the investors who back them on their journey.

Throughout our policy discussions a consistent theme resounds—that access

to capital for small businesses is critical and that funding gaps for women,

diverse, and rural entrepreneurs deserve our attention. Likewise, there is a

widespread recognition that those who invest in small businesses deserve

protections. We hear from small businesses and investors alike about the

importance of educational resources to help break down the complexities

in this arena, and the criticality of mentorship to help pave the way as they

embark on their journeys.

I am immensely proud of what the team has accomplished over the past

year, and we look forward to continuing to engage with, advocate for, and

champion our Office’s primary stakeholders—small businesses and their

investors—and the entrepreneurial support organizations, mentors, and allies

who support them on their journey. In order to understand how capital is

being raised and invested, and by whom, this report reflects data showing

what is happening in the marketplace, as well as feedback shared with our

Office by small businesses and their investors. With that in mind, we hope

you enjoy it!

STACEY BOWERS

ADVOCATE FOR SMALL

BUSINESS CAPITAL FORMATION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | ii

Contents

MISSION: Who We Are

POLICY: Recommendations

DATA: State of Capital Formation

Mature and

Later-Stage

Businesses

Small and Emerging

Businesses and Exempt

Offering Data

Initial Public

Offerings and Small

Public Companies

Expand

educational

resources

Support efforts

to foster

mentorship

Support small

businesses using

crowdfunding

Support

diverse capital

allocators

Support

small public

companies

Clarify pathways

to connect founders

and investors

ADVOCACY: What We Do

Women

Founders and

Investors

Natural Disaster

Areas

Diverse

Founders and

Investors

Rural

Communities

COMMITTEE:

Highlights

ENDNOTES:

All the Details

103

109

MISSION

Who We Are

Contents

MISSION | Who We Are

Introduction

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

he Small Business Advocacy Office is an independent office that was established

in January 2019 via the bipartisan SEC Small Business Advocate Act of 2016 to

advance the interests of small businesses and their investors at the SEC and in the

capital markets, from early-stage startups raising initial capital, to later-stage private

companies whose founders and investors are seeking liquidity, all the way to smaller public

companies. The Office proactively works to identify and address unique challenges faced

by minority-owned, women-owned, rural, and natural disaster area small businesses and

their investors. We advocate for small businesses and their investors in capital raising by:

Contents

MISSION | Who We Are

Introduction

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

We engage with small businesses and their investors from around the country to hear

their perspectives on issues facing the small business ecosystem, from policy, to changing

trends in capital raising, to the complexities of the capital-raising regulatory framework,

to unique challenges and opportunities of different demographic groups and geographic

regions. The insight we gain from our events and conversations with small business

ecosystem participants provides timely, practical feedback to inform the Commission’s

policymaking as well as the Office’s further outreach and educational efforts.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 1

DATA

State of Capital

Formation

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 2

Why data?

We seek to provide a comprehensive snapshot of the state of U.S. small business capital

formation, bringing together many important pieces of the capital formation story into

one resource to aid in evaluating the current flow of capital between investors and

small businesses. Data reflecting the successes and challenges in small business capital

raising supplements the feedback and other anecdotal evidence our office receives

throughout the year. Informed by this data, we can better identify what tools, strategies,

and approaches would be most helpful in crafting policy solutions and developing

educational resources. The data provided in this report is derived from public filings

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

and is supplemented with data and analysis from third parties.

Where to start?

To allow small businesses, investors, and market participants to find the data that is

most relevant to them, we have organized this report by life cycle stage of the business.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Women Founders and Investors

Diverse Founders and Investors

Mature and later-stage

businesses

Small public

companies

Self-funding

Grants

Loans

Friends and family

Crowdfunding

Angel investors

Incubator/Accelerator

Pre-seed and seed

VC funds

Corporate venture capital

Family offices

Businesses range

from small businesses

creating local jobs

to high-growth

startups raising capital

to launch prototypes

and products.

These businesses

are generally growing

and looking for larger

amounts of capital to

fund operations of scale,

ventures into new product

lines, and preparation for

public markets.

These later-stage

businesses have access

to a larger pool of capital,

enhanced liquidity,

reputational benefits and

are subject to rigorous SEC

reporting requirements.

Given the wide-ranging

options for funding, the top

industries vary based

on funding source.

Software

Commercial Products

and Services

Pharma and Biotech

Health Care

Consumer Goods

and Services

IT Hardware

Energy

Health Care

Business Services

Technology

Real Estate

Banking and Financial

Services

Manufacturing

TOP

INDUSTRIES

RAISING

CAPITAL1

Natural Disaster Areas

Rural Communities

COMMON

FUNDING

SOURCES

Small and emerging

businesses

BUSINESS

STAGE

LIFE CYCLE

STAGE

Initial Public Offerings and Small

Public Companies

Initial public offerings (IPOs)

Other registered offerings

Exempt offerings

(e.g., private placements

or offshore offerings)

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 3

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Small and Emerging

Businesses and Exempt

Offering Data

his segment of companies includes both small businesses that create local jobs

but may not fit the typical target of venture capital (VC) investments as well as

high-growth startups that are seeking to raise capital to get off the ground and

launch early prototypes.2

Why is access to capital for small businesses so important?

Small businesses are critical to our economy and country.

Contents

MISSION | Who

Who We Are

MISSION

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

of Americans report that it’s important to have a fair

94%

opportunity to start and grow a business.3

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

Small businesses are key to job creation and growth.

Since 2011, small businesses

have created

POLICY

Recommendations

POLIC

Y|R

ecommendations

Of those jobs:

80% of net new jobs.

70%

30%

transitioned to jobs at large

businesses (7.8M jobs)

remained at small businesses

(3.4M jobs)

ADVOCACY

What

VOCACY | W

hat We Do

COMMITTEE | Highlights

ENDNOTES

TES | All the Details

ENDNO

“

Entrepreneurship is an essential driver of societal health and wealth. It is

also a formidable engine of economic growth. It promotes the essential

innovation required not only to exploit new opportunities, promote

productivity, and create employment, but to also address some of

society’s greatest challenges.

GLOBAL ENTREPRENEURSHIP MONITOR5

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 4

Team

eam

OFFICE | Meet the T

Early-stage entrepreneurs continue to report financial challenges

and need access to capital to build and grow their companies.

Contents

ontents

93%

of small businesses experienced financial

challenges in 2023 (down from 94% in 2022).6

Who

MISSION | W

ho We

We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

The top three financial challenges were:7

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

rising costs of

goods, services,

and wages

paying operating

expenses

uneven cash

flow

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Access to capital continues to be a barrier to growth for entrepreneurs.

77% of small business owners are concerned about their

ability to access capital.8

Rural Communities

POLICY

POLIC

Y | Recommenda

Recommendations

tions

ADVOCACY

ADV

OCACY | What

What We

We Do

Lack of financing and running out of cash

remain the top two reasons startups fail.9

Access to

Capital

58% of new businesses began operations

with less than $25,000 in capital.10

41% of small businesses seeking financing and credit

products sought less than $50,000 in capital.11

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 5

COMMITTEE | Highlights

ENDNOTES

ENDNO

TES | All the Details

OFFICE | Meet the Team

Why are small businesses seeking financing?12

Meet operating expenses

Contents

59%

Expand business or

pursue new opportunity

46%

MISSION | Who We

We Are

41%

Have available credit

DATA | State of Capital Formation

28%

Repair or replace assets

Introduction

24%

Refinance or pay debt

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Where do small and emerging businesses turn for their

capital needs?

Initial Public Offerings and Small

Public Companies

When facing financial challenges, over half of small businesses turned to

personal funds or cash reserves, while 40% turned to external funding.13

Women Founders and Investors

Diverse Founders and Investors

FOR

Personal funds 53%

Cash reserves 51%

N G R OA D

Of the businesses that sought

Grants or donations

(with no repayment) 9%

Rural Communities

POLICY | Recommendations

Recommendations

External funds (with repayment) 40%

Natural Disaster Areas

external financing,

69% sought a loan, credit

line, or credit card.14

ADVOCACY | What

ADVOCACY

What We Do

OMMITTEE | Highlights

COMMITTEE

TES | All the Details

ENDNOTES

ENDNO

OFFICE | Meet the Team

Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 6

Some small businesses obtained funding through loans from friends and

family or equity investments.

of small businesses received a

loan from friends

and family

of small businesses

received an equity

investment

Friends and

family

Angel investors

17%

Equity

crowdfunding

60%

30%

Business owners

71%

OF INVES

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

FOR

Investments from business owners and friends and family are the most

common types of equity received.17

Contents

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Venture capital

Natural Disaster Areas

Rural Communities

What networks do founders say are the most important for fundraising?18

POLICY | Recommendations

Recommendations

ADVOCACY | What

ADVOCACY

What We Do

Other entrepreneurs

30%

Professional

networking

groups

20%

Accelerators/

Incubators

17%

COMMITTEE | Highlights

Current

investors

14%

ENDNOTES | All the Details

ENDNOTES

College

network employment

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 7

Team

OFFICE | Meet the Team

Many small and emerging businesses need support to build

and grow their companies.

Entrepreneurial support organizations, like accelerators and incubators,

are designed to support, mentor, and train entrepreneurs to spur

innovation and growth.

Higher value

Network

development

How do entrepreneurs

value the benefits of

Introduction

Mentorship from

business experts

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Awareness and

credibility

FOR

SUP

Like-minded

entrepreneurs

Direct accelerator

funding

Business skills

development

MISSION | Who We

MISSION

We Are

Are

DATA | State of Capital Formation

Access to

potential investors

entrepreneurial

support organizations?19

Contents

ORGANIZ

Lower value

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

“

Natural Disaster Areas

These limited-duration, cohort-based programs provide a variety of resources

for venture development, including seed capital, coworking space, and

feedback from mentors, program directors, peers, and qualified investors,

helping founders define and build their initial products, learn from peers,

identify promising customer segments, and secure resources to grow and scale.

Rural Communities

POLICY | Recommendations

Recommendations

ADVOCACY | W

hat We Do

ADVOCACY

What

VALENTINA A. ASSENOVA AND RAPHAEL AMIT20

COMMITTEE | Highlights

COMMITTEE

Lifecycle stage is a crucial factor in determining the benefits of

accelerator participation.21

ENDNOTES | All the Details

ENDNOTES

Team

OFFICE | Meet the Team

Seed-stage ventures may greatly

benefit from an accelerator.

The needs of mature or later-stage ventures,

such as larger-scale funding or partnerships,

may not align with typical accelerators.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 8

How can entrepreneurial support organizations benefit an

early-stage entrepreneur?

Contents

Accelerator participants:22

MISSION | Who

We Are

Who We

DATA | State of Capital Formation

Were 3.4% more

likely to raise

venture capital

Raised $1.8

million more

capital

Planned to raise

$2.6 million more

in additional

capital in the

next year

Generated

more revenue

Hired more

full-time

employees

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

University alumni networks can have an impact on access to VC financing.23

1 in 3

VC deals has a founder and

a VC partner with a

shared alma mater.

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

When an investor and founder share an alma mater:

Natural Disaster Areas

Rural Communities

POLICY | Rec

POLICY

Recommendations

ommendations

The likelihood of

investment increases25

The investment amount

is 18% larger26

The VC investment is

33% more likely to lead

to an IPO post-funding27

ADVOCACY | W

ADVOCACY

What

hat We Do

OMMITTEE | Highlights

COMMITTEE

“

University networks play an economically important role in reducing

information frictions and supporting the flow of capital to early-stage

ventures. The fact that these networks are particularly influential at

universities that have historically, and still do, consider family legacy in

the admissions process, highlights the importance of equitable access to

these universities and networks for equal opportunity in entrepreneurship.

JON A. GARFINKEL, ET AL.28

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 9

TES | All the Details

ENDNOTES

ENDNO

OFFICE | Meet the Team

Team

Angel investors play a key role in mentoring and

funding entrepreneurs.

Contents

54,735 businesses received

angel funding in 2023

(12% decrease from 2022)30

422,350 active angel

investors in 2023

MISSION

We Are

MISSION | Who We

(15% increase from 2022)29

DATA | State of Capital Formation

$339,390 average angel

funding round

Introduction

(5% decrease from 2022)32

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

1 in 4 chance of an

entrepreneur securing an

angel investment in 202331

Angel

Investors

When an

ang

the round el investor led

and prov

ided a

term she

et, the inv

estments

returned

an averag

in total va

lue to paid f 3.3X

in capital

(compare

d to the 1.

3X for

investme

nts where

the round

was com

pany-led

or had a

third-part

y term sh

eet).36

33% of angels prefer

investing within a

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Rec

POLICY

Recommendations

ommendations

ADVOCACY

VOCACY | What

What We Do

150-mile radius33

$18.6 billion in angel

investments in 2023

OMMITTEE | Highlights

COMMITTEE

(16% decrease from 2022)34

FOR

TES | All the Details

ENDNOTES

ENDNO

CON

diligence

s the due

id the

l groups d an

rned

, deals retu l value

diligence

f 2.5X

average o

mpared

cap

to paid in

ments

X for inv

to the 1.6

d on

arily

that prim

iligence).

-p

third

Women Founders and Investors

ON THE

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 10

OFFICE | Meet the Team

Team

What does the pool of accredited investors look like?

ITED INVE

Contents

MISSION | Who

We Are

Who We

FOR

19% OF U.S.

HOUSEHOLDS

For companies raising capital, the accredited investor definition may determine who is

in their pool of potential investors, and for investors whether they are eligible to invest

in many early-stage companies. Individuals may qualify based on wealth and income

thresholds, as well as other measures of financial sophistication.37

qualify as accredited38

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

$200,000 individual income

14% of U.S. households

$300,000 family income

8% of U.S. households

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

$1,000,000 net worth

13% of U.S. households

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

How does income vary by state?

The map below illustrates the minimum adjusted gross income needed to be in the top

10% by state.39

POLICY | Recommendations

Recommendations

ADVOCACY | What

ADVOCACY

What We Do

OMMITTEE | Highlights

COMMITTEE

s, you can

In 44 state 10% of

top

be in the

ross incom

adjusted

te and

in the sta

o e

gross inc

adjusted

00.

an $200

of less th

$120,000-$160,000

$160,001-$200,000

Greater than $200,000

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 11

TES | All the Details

ENDNOTES

ENDNO

OFFICE | Meet the Team

Team

What is happening with seed fundraising?

A pre-seed or seed round is typically a company’s first funding round.40 This round may

include funding from friends and family, angel investors, or early-stage funds. Capital at

this stage is often used for product development and market research.41

Seed activity continues to decrease in both deal value and count.42

3,660

3,554

Contents

We Are

MISSION | Who We

3,786

2,896

2,644

2,655

2,557

2,334

1,948

and seed

Pre-seed

resented

deals re

eals in 20

34% of d

(down fro

continue

)

ghly 10%

to be rou

l value.

of all dea

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

$6B

$9B

$10B

$15B

$10B

$8B

$6B

2020

2022

2021

Deal Value

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

2024

2023

Diverse Founders and Investors

Deal Count

Natural Disaster Areas

While seed activity has slowed, when seed rounds have closed, the

median deal values of those rounds have continued to rise.

Distribution of number of deals by size43

11%

14%

17%

18%

20%

Average and median seed deal values44

54%

49%

$25M+

$5M-$10M

51%

50%

Average

Deal Value

24%

2020

11%

10%

18%

17%

15%

16%

2022

2021

2023

2024*

$4.8M

$4.3M

$3.0M

$2.9M

$3.0M

$3.1M

$2.4M

$2.0M

COMMITTEE | Highlights

COMMITTEE

2020

2021

2022

2023

ENDNOTES | All the Details

ENDNOTES

Team

OFFICE | Meet the Team

Median

Deal Value

Under

$500K

*As of June 30, 2024

$4.5M

$3.5M

$1M-$5M

$500K-$1M

12%

Y | Recommendations

Recommendations

POLICY

POLIC

ACY | What

What We Do

ADVOCACY

ADVOC

$10M-$25M

51%

Rural Communities

2024*

*As of June 30, 2024

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 12

Many early-stage investors seek equity ownership; however, many startup

and early-stage founders continue to own a majority of the company.45

82%

of startup founders

hold a majority stake

in the company.

e an

estors tak

When inv

in a

inte

ownership dilutes or

, it

company

that

e portion

own

founders

oft

funding is

apital.

dilutive c

Contents

MISSION | Who

Are

MISSION

Who We Are

DATA | State of Capital Formation

Introduction

In the last 5 years, founder-led VC-backed companies created value

faster than companies where the company was not led by a founder.47

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

What is relative

velocity of value

creation?

In 2024, the relative velocity

of value creation was 22% for

founder-led companies as

compared to 5% for companies

not led by founders.

The annual percentage

change in valuation

between rounds.

Women Founders and Investors

Diverse Founders and Investors

Among companies that

raised financing in 2024, the

median valuation growth

was $3.6 million higher for

founder-led companies.

Natural Disaster Areas

Rural Communities

POLICY | Recommenda

POLICY

Recommendations

tions

Fewer seed businesses are transitioning to Series A within two years.48

For businesses that closed a seed round, the percent that closed a Series A round within

two years declined from:49

20-24% of seed businesses

(2018-2020)

to only 13% of seed businesses

(H1 2022-H1 2024)

ADVOC

ADVOCACY

ACY | What

What We

We Do

COMMITTEE

OMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

20-24%

13%

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 13

What regulatory pathways are companies (excluding pooled

funds) using to raise capital?50

Contents

Exempt Offerings

Rule 506(c)

MISSION

SION | Who

Who We Are

MIS

General Solicitation

Offerings

Crowdfunding

$12 billion

$249 million

DATA | State of Capital Formation

Introduction

Other Exempt

Offerings

Small and Emerging Businesses

and Exempt Offering Data

(Reg S and Rule 144A)

$949 billion

Mature and Later-Stage Businesses

Rule 506(b)

Regulation A

Rule 504

Private Placements

Mini-IPOs

Limited Offerings

$170 billion

$1.5 billion

$246 million

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Registered Offerings

Rural Communities

POLICY | Recommendations

ADVOCACY | What

ADVOCACY

What We Do

Other Registered

Offerings

COMMITTEE

OMMITTEE | Highlights

$1.2 trillion

ENDNO

ENDNOTES

TES | All the Details

FOR

$28 billion

Initial Public Offerings

ING

P AT H

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 14

OFFICE | Meet the Team

What is happening with pooled funds?

The regulatory pathways used by different types of pooled funds differ from those used

by companies. To place the pathways in context, of the $112 trillion in the U.S. capital

markets as of the end of 2023, assets were divided between:51

$35 trillion

$28 trillion

$49 trillion

assets invested in

Registered

Funds

Private

Funds

Separately

Managed Accounts

Contents

MISSION | Who We Are

unted for

VCs acco

n in assets

$1.7 trillio

e overall

1.5% of th

.52

al markets

U.S. capit

What regulatory pathways are pooled funds using to raise capital?53

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rule 506(b)

Private Placements

Rural Communities

$1.7 trillion

Other Exempt

Offerings

Rule 506(c)

General Solicitation

Offerings

(Reg S and Rule 144A)

$125 billion

$99 billion

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Registered Offerings

by pooled funds, including SPACs

Total Flows into

Registered Funds

(measuring the movement

of cash into funds)

$9.3 trillion

Initial P

Public

ublic

Off

Offerings

erings

Other Registered

Offerings

$4 billion

Net Cash Flows into

Registered Funds

$803 billion

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 15

ENDNOTES | All the Details

OFFICE | Meet the Team

How much did U.S. public and private companies (excluding

pooled funds) raise from investors?54

Contents

U.S. public

companies raised

U.S. private

companies raised

$1.2 trillion

$623 billion

66% of capital

34% of capital

raised by

U.S. Companies

raised by

U.S. Companies

U.S. public companies raised:

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

U.S. private companies raised:

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

82% of this capital

in over 2,200

17% of this capital

in about 300

74% of this capital

in about 600

23% of this capital

in about 12,800

registered

offerings and

other exempt

offerings.

other exempt

offerings and

Rule 506(b) private

placement offerings.

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

How are different industries using the top 3 offering pathways?

Banking and

Financial Services

$554B

Energy

$174B

Technology

$108B

$41B

$16M

Health Care

$116B

$28B

$33M

$11B$185M

ADVOCACY

ADVOCACY | What

What We Do

$6B $57M

COMMITTEE | Highlights

Hospitality, Retailing,

Restaurants

$4B $317M

N AV

$841M

$65B

FOR

ENDNOTES | All the Details

$3B $28M

$123B

Real Estate $40B $46B

Business Services

Manufacturing

POLICY | Recommendations

Recommendations

YO U R

$32B $2B $5M

Registered Offerings

Regulation D

Regulation A

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 16

OFFICE | Meet the Team

What is happening with Regulation Crowdfunding offerings?

19% of businesses doing

a crowdfunding offering

previously secured

equity funding.56

61% of businesses doing a

crowdfunding offering have

2-5 employees.58

53% of businesses doing

a crowdfunding offering

generated revenue.57

Contents

MISSION | Who

Are

MISSION

Who We Are

DATA | State of Capital Formation

48% of businesses doing

Introduction

a crowdfunding offering were

2 to 3 years old.59

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Businesses from

1,750 cities have done

a crowdfunding offering.60

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

$1,200 was the average

investor check size in a

crowdfunding offering.61

0.3% of businesses

Natural Disaster Areas

that completed a

crowdfunding offering

had an IPO exit.62

Rural Communities

POLICY | R

POLICY

Recommendations

ecommendations

ADVOCACY

VOCACY | What We

We Do

2.5 years

was the average period between

a crowdfunding investment and an

exit or failure.63

$106,000 was the

COMMITTEE | Highlights

median raise in 2023

(down from $136,000

in 2022).

ENDNOTES | All the Details

$368,000 was the

average raise in 2023

(down from $429,000

in 2022).64

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 17

OFFICE | Meet the Team

The number of new crowdfunding offerings remained relatively stable.65

879

841

778

755

707

388

344

In 2023, 2

ti s had

U.S. coun

ded

crowd n

(down

compa

in 2022

from 273

om 220

and up fr 66

in 20 1).

722

713

357

MISSION

We Are

MISSION | Who We

Are

DATA | State of Capital Formation

Introduction

281

269

262

Contents

175

Small and Emerging Businesses

and Exempt Offering Data

2021

2022

New Form C Filings

2024

2023

Mature and Later-Stage Businesses

New Form C Filings with Max Offering Between >$1.07M and $5M

Initial Public Offerings and Small

Public Companies

Where are companies using Regulation Crowdfunding to raise capital?

Women Founders and Investors

The shading of each state shows the estimated total capital raised, and the number

indicates the total number of offerings in that state.67

Diverse Founders and Investors

Natural Disaster Areas

Regulation

Crowdfunding

121

NONE

NJ 4

DC 20

ADVOCACY | What

ADVOCACY

What We Do

OMMITTEE | Highlights

COMMITTEE

ENDNOTES | All the Details

ENDNOTES

OFFICE | Meet the Team

$500,000-$1 MILLION

POLICY | Recommendations

Recommendations

LESS THAN $500,000

2 NH

Rural Communities

$1 MILLION-$5 MILLION

OVER $5 MILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 18

What is happening with Regulation D Offerings?

Pooled funds account for almost 90% of the amounts raised under Regulation

D, but only about 45% of offerings.68

13,393

12,055

10,972

11,351

11,624

11,946

MISSION | Who

MISSION

Who We Are

9,703

8,573

8,190

10,569

8,695

8,050

DATA | State of Capital Formation

8,689

7,640

7,195

7,557

Introduction

6,200

5,051

$681B

$86B

$649B

$1,074B

$1,060B

$1,013B

$1,069B

$1,527B

$970B

$890B

$107B

$181B

$182B

$149B

$134B

$165B

$89B

$93B

2020

2021

Contents

2022

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

2024

2023

Amounts Raised by Pooled Funds

Amounts Raised by Other Issuers

New Offerings by Pooled Funds

New Offerings by Other Issuers

Initial Public Offerings and Small

Public Companies

Where are companies using Regulation D to raise capital?

Women Founders and Investors

The shading of each state shows the estimated total capital raised, and the number

indicates the total number of offerings in that state.69

Diverse Founders and Investors

Natural Disaster Areas

3,214

227

260

Regulation D

286

180

121

516

790

4,154

391

186

NONE

347

NJ 489

432

DC 1,625

144

556

ADVOCACY | W

ADVOCACY

What

hat We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

149

Team

OFFICE | Meet the Team

$1 BILLION-$5 BILLION

POLICY | R

POLICY

Recommendations

ecommendations

534

284

114

450

634

1,239

1,729

LESS THAN $1 BILLION

477

110

2,635

247

158

118

3,922

222

932

167NH

Rural Communities

$5 BILLION-$20 BILLION

OVER $20 BILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 19

What is happening with Regulation A offerings?

The amounts and number of offerings have continued to decline.70

194

190

164

160

The number of offerings

raising more than

$50 million has remained

relatively stable.

174

MISSION | Who We Are

DATA | State of Capital Formation

165

166

142

Contents

149

145

$3.8B

$2.3B

$2.5B

$2.8B

$2.0B

$1.5B

$1.2B

2021

2022

2023

Amounts Sought in Qualified Offerings

New Initiated Offerings Seeking $50M or Less

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

2024

New Initiated Offerings

New Initiated Offerings Seeking Between >$50M and $75M

Women Founders and Investors

Where are companies using Regulation A to raise capital?

Diverse Founders and Investors

The shading of each state shows the estimated total capital raised, and the number

indicates the total number of offerings in that state.71

Regulation A

NONE

LESS THAN $5 MILLION

0 NH

Rural Communities

Natural Disaster Areas

NJ 3

DC 1

COMMITTEE | Highlights

OFFICE | Meet the Team

$5 MILLION-$20 MILLION

ADVOCACY | What We Do

ENDNOTES | All the Details

POLICY | Recommendations

Initial Public Offerings and Small

Public Companies

$20 MILLION-$75 MILLION

OVER $75 MILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 20

Mature and Later-Stage

Businesses

Contents

MISSION | Who We Are

ompanies within this segment of the market are generally growing and looking

for larger amounts of capital, for example, to fund operations of scale, to finance

new product lines, and to prepare to access public markets. Most often, their

investors are institutional in nature, whether VC funds, private equity funds, or

crossover investors from the public market.

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

While California, New York, and Massachusetts continue to

have well-established VC ecosystems, new VC ecosystems

are growing across the country.

Mature and Later-Stage Businesses

The below map illustrates the comparative scores of the top U.S. cities based on the

size, maturity, and growth rate of each city’s VC ecosystem. These scores consider the

growth of deal and fundraising activities as well as the ability of startups in an area to

secure capital, grow, and successfully exit.72

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Seattle

Natural Disaster Areas

Salt Lake City

Sacramento

Rural Communities

New York

San Francisco

Minneapolis

Chicago

Denver

Indianapolis

Los Angeles

Dallas

San Diego

Austin

Boston

POLICY | Recommendations

Washington

ADVOCACY | What We Do

Raleigh

Philadelphia

COMMITTEE | Highlights

Atlanta

ENDNOTES | All the Details

Houston

OFFICE | Meet the Team

Miami

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 21

How does venture capital work?

Contents

Fundraising

VCs typically raise

funds via capital

commitments.

The median size of a U.S. venture

fund in 2023 was $35.7 million

(down from $40 million in 2022).73

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Investment

VC Funds will often

reserve 3x or 4x

the initial round of funding

for follow-on financings.74

VCs tend to invest

in high-growth

companies.

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Company Growth

Many VCs actively engage

with their portfolio

companies and provide

strategic guidance.75

Diverse Founders and Investors

Over 62% of VCs have

contact at least once a week

with their portfolio companies.76

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Exit

The life span of a VC fund

is typically 5 to 8 years.77

ADVOCACY | What We Do

VCs generally exit

through an IPO, merger,

or acquisition of the

portfolio company.

COMMITTEE | Highlights

ENDNOTES | All the Details

Re-investment

After proceeds are

distributed to investors,

many investors invest

in new funds.

The average time between

fundraises was 2.5 years in Q2 2024

(up from 1.5 years in 2022).78

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 22

OFFICE | Meet the Team

What are the roles of private company boards?

A private company’s board, which is the company's decision-making

authority, transitions with the company’s growth.79

Control of the board starts with:

Contents

and transitions to:

MISSION | Who We Are

The shift happens

as independent

directors hold

tie-breaking votes

on the board.

entrepreneurs in

earlier life cycle stages

investors in

later stages.

20%

31%

Independent

24%

56%

23%

Executive

46%

Investor

Mature and Later-Stage Businesses

Renewed investor interest in

governance may reverse some of

these trends in 2024.81

“

Every major investor is

now asking for a board

seat, versus 2021 when

you had maybe 50%

[requesting a seat]….”

2023

How have independent directors impacted companies?

Companies with an independent

director raise 26% more funding

than those without.83

$251M

$316M

Women Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Benefits of an independent director:

introduces, among board members,

differences in the way people think;84

plays a “mediation” role, mediating and

resolving potential conflicts between

VCs and entrepreneurs;85 and

plays an advising role in later stages.86

No independent

director

Initial Public Offerings and Small

Public Companies

Diverse Founders and Investors

YASH PATEL,

TELSTRA VENTURES.82

2019

Introduction

Small and Emerging Businesses

and Exempt Offering Data

How are the boards of private companies changing?

Over the past few years, private company boards

increased their share of independent directors,

decreasing the share of investor directors.80

DATA | State of Capital Formation

One or more

independent

directors

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 23

ENDNOTES | All the Details

OFFICE | Meet the Team

How is VC investment activity changing?

Consistent with trends noted in seed rounds, deals remained relatively

steady and well below the historical peaks in 2021.87

3,105

2,979

2,981

2,349

2,916

MISSION | Who We Are

3,158

2,717

3,088

2,399

2,089

2,459

$127B

2,112

2,061

$118B

$26B

$19B

$49B

$38B

2020

2,316

2,258

2,388

2,247

2,305

$45B

$49B

$57B

$26B

$23B

2022

2021

Early-Stage (Series A and B) Deal Value

Early-Stage (Series A and B) Deal Count

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

$99B

$64B

$53B

Contents

$59B

Mature and Later-Stage Businesses

$19B

$28B

Initial Public Offerings and Small

Public Companies

2024

Women Founders and Investors

$52B

2023

Later-Stage (Series C and Up) Deal Value

Later-Stage (Series C and Up) Deal Count

Median and average deal sizes have generally increased from 2023 to

the first half of 2024.88

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

$37B

ADVOCACY | What We Do

$29B

Series C and D Average

Deal Size

Average Series A and B

Average Deal Size

$25B

$22B

$19B

Series A and B Median

Deal Size

$4B

2020

$9B

$5B

$7B

$6B

2021

2022

COMMITTEE | Highlights

ENDNOTES | All the Details

$15B

$10B

$6B

$23B

$19B

$13B

Series C and D

Median Deal Size

$24B

$7B

$5B

2023

2024*

*As of June 30, 2024

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 24

OFFICE | Meet the Team

Entrepreneurs continue to face a tough investment environment as

startups’ demands for later-stage capital outpaces available supply from

investors.89

Startups are seeking

more cash than VCs are

willing to invest.90

Contents

MISSION | Who We Are

Excess demand

DATA | State of Capital Formation

Series C and D

Introduction

Neutral demand

Increased available

funding led to historically

high investment values

and counts.91

Series A and B

Excess supply

2019

2020

2021

2022

2023

2024*

*As of June 30, 2024

Down rounds—where a company’s valuation dropped since a prior round

—remain elevated across stages as valuations readjust from the historic

highs of 2021.92

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

In the second quarter of 2024,

17% of deals were

down rounds

, roughly

Since 2015

of startup

60%-70%

d a do

that raise

nt on to

roun

ther equit

raise ano

round o

deal.

their next

(compared to 20% and 9% of deals in the second

quarter of 2023 and 2022, respectively).93

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Startups look for ways to stretch their cash as the median time between

rounds remains high.95

The median time between rounds:

23 months

28 months

27 months

between Seed and Series A

between Series A and

Series B

between Series B and

Series C

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 25

ENDNOTES | All the Details

OFFICE | Meet the Team

How is VC fundraising activity changing?

VC fundraising remains below 2020 levels.97

2.5 years

1,550

1,594

is the median time

Capital raised

between funds

Fund Count

(increase from 1.5 years

in 2022).98

725

942

255

13%

of venture GPs don’t plan

$92B

$177B

$191B

$82B

$37B

to raise another fund

2020

2021

2022

2023

2024*

(increase from 6% in the

first half of 2023).99

*As of June 30, 2024

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Large funds continue to dominate.100

63% of capital is concentrated in funds with

$500 million or more in assets

(up from 55% in 2023 and down from 64% in 2022).

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

While the vast majority of VC funds use the traditional private placement

capital-raising exemption, the VC fund managers that opt to use an exemption

allowing advertising are disproportionately underrepresented managers.101

Since 2013, only

8.4%

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

of VC funds have used the Rule 506(c)

offering exemption allowing advertising to

raise capital.102

These VC funds:

have a smaller median size,

a higher share of women, African American/Black,

Hispanic/Latino, first-time, and non-elite school

managers, and

anagers th

VC fund m

ore

506(c) are with

use Rule

nd start

likely to fu

and

, women,

first-tim

non-elite

103

entrep

are significantly more likely to be in the top-quartile

of financial returns for VC funds.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 26

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

First-time VC managers face obstacles in a challenging market.104

In 2023, the number of first-time

funds decreased by 49%,

making up about 26% of all

funds. So far, 2024 is on pace

to hit another record low.105

430

376

254

191

$24B

$15B

$9B

$4B

2020

2021

2022

2023

Introduction

2024*

Small and Emerging Businesses

and Exempt Offering Data

*As of June 30, 2024

Capital raised

MISSION | Who We Are

DATA | State of Capital Formation

$14B

Contents

Fund Count

Mature and Later-Stage Businesses

Institutional investors’ appetite for investing in first-time or new VC

managers is starting to decrease again.106

42%

of institutions do not invest

in first-time managers

(up from 28% in 2023, but

down from 51% in 2022).

Initial Public Offerings and Small

Public Companies

70%

Women Founders and Investors

of LPs have no plans to

add new VC managers

(up from 44% in 2023

and 34% in 2022).

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

“

POLICY | Recommendations

First-time managers looking to raise their sophomore VC fund face

a high hurdle to attract LP capital because they have minimal track

records, as they are not likely to have realized significant, if any, exits

within their portfolio. Not only that, but new managers that recently

raised their first fund invested through the valuation swell and are now

tasked with tackling the issues of portfolio company down rounds,

shrinking cash runways, and a lack of liquidity to maximize interim fund

returns and continue to capture LP commitments.

MAX NAVAS, PITCHBOOK

107

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 27

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Emerging fund managers continue to experience decreased market share.108

In the first half of 2024, emerging VC firms made up about half of the total firms but raised

less than a quarter of the total capital.109

906

t has com

apital tha

gly

Investor c

em has

ds le y

into the

d into fun

bee

ers, leavin110

d manag

erging m

behind em

819

688

567

731

386

375

$113B

339

2020

128

2021

$57B

2022

$29B

$26B

2023

$9B

Mature and Later-Stage Businesses

2024*

Initial Public Offerings and Small

Public Companies

*As of June 30, 2024

Experienced Firm Capital Raised

Experienced Firm Count

Emerging Firm Capital Raised

Emerging Firm Count

Women Founders and Investors

VC investors’—limited partners or LPs’—interest in emerging managers was

most frequently driven by attractive returns on potential niche strategies.111

More likely to

negotiate

better fees

17%

50%

Attractive

return on

potential

niche strategy

options

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

While returns are more volatile,

emerging managers

have outperformed their

established peers historically.112

DATA | State of Capital Formation

Small and Emerging Businesses

and Exempt Offering Data

127

$55B

$64B

$31B

MISSION | Who We Are

Introduction

$134B

$60B

Contents

Desire to

access

new talent

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

30%

Added

portfolio

diversification

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 28

OFFICE | Meet the Team

How have LP investors affected VC fundraising?

Newer or less experienced LPs had a positive influence on fund

performance through more effective monitoring of the investments.113

Contents

VC funds had improved performance when:

MISSION | Who We Are

Less experienced LPs—who

are likely to put more time and

effort into their investment—

participated in the fund

LPs had smaller

and more frequent

investments

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

“

Monitoring is a reciprocal process: the LP ensures their investment

yields returns, while the GP builds their reputation to sustain ongoing

fundraising efforts.

KHALED ABDOU AND PARAMITA GUPTA114

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

While nontraditional investor activity slowed, activity remained concentrated

in later-stage deals.115

Natural Disaster Areas

Rural Communities

In 2023, nontraditional investors participated in

stors

ional inve

Nontradit

utions

s and

116

inc

d as VCs.

not labele

31% of VC deals, but accounted for

73% of total VC deal value

POLICY | Recommendations

ADVOCACY | What We Do

(down from 37% of deals and 77% of deal value in 2022).

COMMITTEE | Highlights

Of the $69 billion

invested by

nontraditional investors

in VC deals, 66% went

to later-stage deals,

which accounted for

43% of the deals.117

23%

66%

Deal

Value

31%

43%

Deal

Count

34%

ENDNOTES | All the Details

Pre-seed

and seed

Early-stage

Later-stage

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 29

OFFICE | Meet the Team

Exits and exit value continued to decline from a decade

high in 2021.118

US VC exit value continued to decline

since a decade high in 2021, decreasing

91% between 2021 and 2023.119

In the first half of 2024:120

Contents

MISSION | Who We Are

FOR

2,006

DATA | State of Capital Formation

Acquisitions generated

40% of exit value and

accounted for

71% of exit volume.

1,417

Small and Emerging Businesses

and Exempt Offering Data

Introduction

S T R AT E G

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

1,339

1,268

IPOs generated

1,095

$589B

58% of exit value and

accounted for

7% of exit volume.

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

502

$210B

As exit activity continues to slow,

LPs may reduce reinvestments,

which contributes to the challenging

fundraising environment.

POLICY | Recommendations

ADVOCACY | What We Do

$23B

$11B

$76B

$62B

2020

$99B

2021

$41B

COMMITTEE | Highlights

$230M

$7B

$40B

$29B

$8B

$28B

2022

2023

2024*

ENDNOTES | All the Details

$19B

*As of June 30, 2024

Acquisitions

Buyouts

Public Listings

Deal Count

Cash distributions,

as a share of net assets,

decreased to the

lowest level since 2010.121

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 30

OFFICE | Meet the Team

Initial Public Offerings and

Small Public Companies

Contents

ompanies can access broad pools of investors when they conduct public offerings.

This allows them to potentially raise large amounts of capital to fund activities

such as research and development, capital expenditures, or debt service. Public

offerings also provide liquidity to earlier-stage investors and employees.

What is happening with IPO activity?

While the volume and number of initial public offerings, or IPOs, remains

significantly below the 2021 peak, the first half of 2024 saw a slight

uptick for IPOs.122

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

FOR

609

MISSION | Who We Are

471

Women Founders and Investors

$113B

131

$16B

$5B

2021

2022

101

$11B

$13B

$19B

2024

2023

Total IPO Proceeds

$189B

Diverse Founders and Investors

TO G O P U

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

Number of IPOs

What are the top industries raising capital in IPOs (excluding pooled funds)?123

COMMITTEE | Highlights

ENDNOTES | All the Details

Hospitality, Retailing,

Restaurants

$1.3B

Technology

Manufacturing

$10.0B

$4.1B

Business

Services

$3.7B

Banking and

Financial

Services

$3.1B

Health Care

$3.0B

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 31

OFFICE | Meet the Team

Since 2022, IPOs by small companies have accounted for 40% of the

number of IPOs, but only 4% of the deal value.124

IPOs by Small Companies

IPOs by Large Companies

Contents

SPAC Offerings

611

lly

IPOs usua

Micro-cap

and

niche, ne

operate in arkets… and

emerging

rally beyo

are g

s…”

their nasc

MISSION | Who We Are

DATA | State of Capital Formation

354

Introduction

125

RBES

EGOV, FO

IVAN LUN

$155B

115

$144B

$8B

$20B

$17B

2022

2023

2024*

$4B

$1B

$0.3B

2021

2022

2023

2024*

2021

Deal Value of IPOs

2021

Numbers of IPOs

Small and Emerging Businesses

and Exempt Offering Data

$12B

$3B

$2B 16

2022

2023

2024*

*As of June 30, 2024

In 2023, the number of exchange-listed IPOs and share of VC-backed IPOs

remained historically low.126

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

In 2023, there were

54 exchange-listed IPOs

(up from 38 in 2022, but the

4th lowest deal count since 1980).127

In 2023, the median age of

an IPO issuer was 10 years,

continuing the trend between

8 and 12 years.128

43% of IPOs in 2023

were VC-backed (up

from 37% in 2022 and

down from 56% in 2021).129

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

“

The reduction in the number of IPOs since 2001 has largely been driven by two

factors: the increase in the availability of VC money has allowed companies to

stay private longer, and the increasingly attractive business strategy of merging

to achieve scale faster... The second factor appears to be more important in

explaining the reduced IPO volume, in that if companies were merely staying

private a few years longer, there would be older... companies going public.

RONGBING HUANG, ET AL130

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 32

ENDNOTES | All the Details

OFFICE | Meet the Team

How are the dynamics changing for companies going public

and their investors?

While IPOs offer a partial exit to VCs, VC involvement post-IPO is linked to

higher valuations and returns.131

40%

of VCs remain invested in a portfolio company for

more on larger companies with

revenue-generating capacity and

some operational maturity.157

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

While small-cap companies saw some improvements, additional indicators

continue to reflect the impact of these pricing struggles.

22% of small-cap

42% of small-cap

companies are on an

companies executed

exchange non-compliance

reverse splits

list (down from 34% in 2022).158

(down from 51% in 2022).159

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

What happens to small public companies that get delisted from exchanges?

Of the stocks that were delisted from the exchanges in 2023:160

37%

57%

27%

33%

were on an

exchange for less

than 3 years.

are no longer

publicly quoted.

are now traded

over-the-counter.

have filed for

bankruptcy.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 37

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

How much capital are U.S. small public companies raising through

registered equity offerings?161

Average

proceeds

$63M

Average

proceeds

$29M

Average

proceeds

$13M

Contents

Average

proceeds

$13M

MISSION | Who We Are

272

249

221

30 small

Of the 2,6 anies

public co

rket, only

in the

capital

13% raised

gistered

through a

ering in

equity off

nths end

162

the 12-mo

June 30,

232

171

$17.8B

$14.9B

102

$4.8B

2021

$3.1B

$3.0B

2022

Total Proceeds

$2.7B

$2.9B

2024

2023

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Number of Offerings

Diverse Founders and Investors

What are the top industries of small public companies based on number

of companies and amounts raised in registered equity offerings?163

Rural Communities

POLICY | Recommendations

$1.4B

713

ADVOCACY | What We Do

$1.0B

COMMITTEE | Highlights

398

164

Health Care

Natural Disaster Areas

Business Services

$397M

Technology

337

257

$316M

Banking and

Financial Services

$233M

Manufacturing

Amount raised by small public companies in registered equity offerings

Number of small public companies

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 38

ENDNOTES | All the Details

OFFICE | Meet the Team

What are the costs of being a small public company?164

panies

ublic com

ligible to

may be e

sure

aled disclo

rely on sc

dati s

accommo

rting

ded repo

and exten

timelines

A smaller public

company incurs annual

costs of:

* Includes Emerging Growth

Company (EGC) benefits

$361,000

Disclosure and

governance*

FOR

$129,000

FILE

SOX 404

compliance

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

$36,000

Enhanced

disclosure

Contents

PORTING

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

The scaling of disclosure requirements can boost a company’s post-IPO

investment in its research and development—also called R&D.165

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

The effect is most pronounced in: 166

In the

3 to 4 years

post-IPO, scaling

disclosure can increase

a company’s investment

in its R&D.167

ADVOCACY | What We Do

small public companies,

COMMITTEE | Highlights

companies less than 5 years old, and

ENDNOTES | All the Details

companies with investors that are less

familiar with the company.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 39

OFFICE | Meet the Team

What are the top investor relations challenges for small public companies?168

Sharing the

company story

effectively

Reducing

stock

volatility

Finding and

engaging new

investors

Understanding

trends in the

shareholder

base

Finding or

building strong

analyst

relationships

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

The number of analysts covering a company often correlates with the

company’s market capitalization.169

16%

Mature and Later-Stage Businesses

44%

No Analysts

1-5 Analysts

73%

44%

of small-and mid-cap stocks have

no analyst coverage.170

Small and Emerging Businesses

and Exempt Offering Data

35%

6-10 Analysts

More than 10 Analysts

14%

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Large-cap

Small-and

mid-cap

Rural Communities

POLICY | Recommendations

“

When you're going to go public, it's not just getting the IPO done, but

your ability to stay eligible on Nasdaq or NYSE…. While you are now

a public company, you're still probably going to have some limited

liquidity just because it's a smaller shareholder base…. You'll see

volatility, you'll see less liquidity…. Limited research coverage on smallcap companies also exacerbates all of those things.

DAVINA K. KAILE, PILLSBURY WINTHROP SHAW PITTMAN LLP171

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 40

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Women Founders

and Investors

Contents

Women-Owned Business Formation and Ownership

MISSION | Who We Are

The portion of women-owned employer businesses has grown significantly

in the last five years.

DATA | State of Capital Formation

45%

38%

of non-employer businesses

are at least equally-owned

by women, representing

13.4 million businesses

(up from 44% in 2019).172

of all employer businesses

are at least equally-owned

by women, representing

2.2 million businesses

(up from 36% 2019).173

rs,

last 5 yea

Over the

wned

-o

of wom

the

s grew by

businesse

18% en-owned

d to 1% fo

s).17

(compare

bus esse

employer

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

African American/Black and Hispanic/Latino women are the most

underrepresented demographics among women-owned employer

businesses.175

Share of Women-Owned

Employer Businesses

African

American/Black

White

82%

Native American/

Alaska Native

Native Hawaiian and

Pacific Islanders

0.3%

POLICY | Recommendations

Asian American

Hispanic/Latino

19%

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

White

59%

African

American/Black

14%

Native Hawaiian and

Pacific Islanders

0.3%

Natural Disaster Areas

Rural Communities

Share of U.S. Population

of Women

Asian American

13%

Diverse Founders and Investors

Native American/

Alaska Native

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 41

OFFICE | Meet the Team

Women-owned businesses face distinct challenges but have demonstrated

they are growth-oriented.176

Capital to start a business

Women continue to earn less than men,

resulting in less household income, creating an

additional obstacle to female entrepreneurship.177

Contents

MISSION | Who We Are

White women earn 83%,

African American/Black women

earn 70%, and Hispanic/Latino

women earn 65% as much

as White men.178

Lack of affordable childcare

Introduction

More than ½ of women entrepreneurs

with young children found that lack of adequate

childcare negatively impacted their business.179

The childcare price ranges for:

ONE child = 8% to 19% of median family income

TWO children > the average mortgage in 45 states.180

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

½ of all women-owned businesses are

Growing businesses in

low-revenue industries

DATA | State of Capital Formation

concentrated in less capital-intensive

industries that have lower-revenues, such as

beauty, professional or administrative services, and

healthcare and social assistance.181

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Over the last 5 years, average revenue of men-owned businesses’

was nearly 4X that of women-owned businesses.182

Rural Communities

However, the average revenue of

women-owned businesses grew by 12%

(compared to 8% growth by men-owned businesses).183

POLICY | Recommendations

ADVOCACY | What We Do

Women often have smaller networks

and more significant obstacles to

accessing capital.184

Networks and

access to capital

COMMITTEE | Highlights

ENDNOTES | All the Details

“

Providing networking opportunities for women entrepreneurs can help

them connect with other entrepreneurs and mentors, learn from others’

experiences, and build relationships that lead to business opportunities. These

opportunities need to be tailored specifically to women-owned businesses.

WELLS FARGO 2024 IMPACT OF WOMEN-OWNED BUSINESSES REPORT185

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 42

OFFICE | Meet the Team

Female founder optimism about VC funding for women remains low,

particularly for women of color.186

70%

Contents

71%

Share of female founders

that feel their gender is

holding them back

60%

55%

MISSION | Who We Are

50%

19%

39%

30%

35%

31%

30%

Share of female founders that

are optimistic about the VC

environment for female founders

Only

of founders

that identify as women of

color were optimistic

about the environment

for racially and ethnically

diverse founders.187

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

2019

2020

2021

2022

2023

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

To overcome challenges, women entrepreneurs prioritize mentorship.

When evaluating accelerator participation, women tend

to prioritize mentorship from business experts.188

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

Mentors can provide:

• tailored technical assistance,

• networking opportunities, and

• increased awareness of and access

to financing opportunities.189

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 43

Capital-Raising Trends for Women-Owned Businesses

Women-owned businesses face greater challenges accessing capital.

In applying for loans, lines of credit, or cash advances, women-owned businesses

were least likely to receive all of the requested funding.190

Contents

MISSION | Who We Are

Women-owned

All

44%

Equally-owned

All

48%

Most/Some

37%

All

54%

Most/Some

26%

Men-owned

Most/Some

29%

None

27%

DATA | State of Capital Formation

None

15%

None

21%

Introduction

More than 50% of

women-owned businesses

applied for less than $50,000

(compared to 39% of

men-owned businesses).191

2023 was another strong year for women entrepreneurs seeking angel capital.192

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Women constituted

Angel investors invested in

of entrepreneurs seeking angel capital

(up from 37% in 2022 and 29% in 2021).193

of those investment opportunities

(up from 26% in 2022 and 20% in 2021).194

46%

29%

While the proportion of women entrepreneurs using Regulation Crowdfunding

has increased, women-only teams still raise less than men-only teams.

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

The proportion of women entrepreneurs

using Reg CF has increased from

17% in 2016 to 23% in 2022.195

During this same time, the average

funding amount for men-only teams was

1.5 to 2.0X that of women-only teams.196

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 44

OFFICE | Meet the Team

Local ecosystems and states play an important role in entrepreneurial

success.

Contents

When more women founders in a state achieve economic success, the state also sees

an increased number of women VC-ready founders.197

NH MA

orting

tes Supp

Top 10 Sta

eurs

ntre

Women E

ington D.C

5 Wash

rado

5 Colo

5 Hawa

ington

5 Wash

5 Oreg

ming

5 Wyo

5 Arizo

rnia

5 Califo

York

5 New

Mexico

5 New

TOP 1-10 STATES (INCLUDING WASHINGTON D.C.)

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

TOP 11-20 STATES

Diverse Founders and Investors

As VC funding continued to contract in 2023, wide gaps remained

between deals with all-women, women and men, and all-men founders.198

Natural Disaster Areas

Rural Communities

Deals with

Women-Only Founders

Deals with

Women and Men Founders

Deals with

Men-Only Founders

POLICY | Recommendations

14,132

ADVOCACY | What We Do

13,265

11,049

10,361

$288B

$7B

3,854

$5B

$4B

1,218

814

2020

2021

Deal Value

2,650

$3B

1,118

944

2022

$2B

372

2023 2024*

$22B

2020

$55B

2021

3,414

5,092

$197B

$147B

2,616

$41B

2022

2023 2024*

$78B

$14B

2020

2021

2022

ENDNOTES | All the Details

OFFICE | Meet the Team

$122B

1,113

$41B

COMMITTEE | Highlights

2023 2024*

Deal Count

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 45

For women founders on teams with men, their share of VC funding

dollars reached a new peak, but their share of the VC deal count

continued to decline.199

27%

had

4% of dnefoalsunder

In 2023, 2

ne woma

at least o

2022),

m 26% in

(down fro

and

ls went to

6.5% onf-odenaly teams

201

wome

6.3%).

(up from

of VC funding in 2023 was invested in

companies with at least one woman founder

(an increase from 19% in 2022).200

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

However, investments in women-only teams

remained at only 2% of VC dollars.

Mature and Later-Stage Businesses

In 2023, while women-only founder teams received a declining

percentage of overall deal value in each progressive funding round,

mixed founder teams saw an increase.202

Angel and Seed 5%

18%

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

77%

Natural Disaster Areas

Early Stage 2%

Later-stage 2%

19%

79%

POLICY | Recommendations

70%

28%

Women-only founders

Rural Communities

Women and men founders

Men-only founders

ADVOCACY | What We Do

COMMITTEE | Highlights

“

[Women founders] are hitting—or fear hitting—a funding wall, an obstacle

they say has been heightened by a rollback in diversity, equity and inclusion

efforts and a general downturn in start-up investing.

NELL GALLOGLY, THE NEW YORK TIMES203

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 46

ENDNOTES | All the Details

OFFICE | Meet the Team

The 2023 fundraising climate was more challenging than 2022, and

all-women teams faced the strongest headwinds.204

Contents

MISSION | Who We Are

While fundraising time

increased for nearly all teams,

all-women teams experienced

the largest increase.205

All-women teams had 24%

fewer investor meetings

and raised 36% less.206

Diverse all-women teams

raised the least and held the

fewest meetings of any

demographic.207

In 2023, when reviewing funding pitch slide decks from companies with all-women founders vs.

companies with all-men founders, VC investors:

more heavily scrutinized the team and business model slides, and

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

spent less time on the company’s product slides.208

Women Founders and Investors

Women founders face an uphill battle in funding successive ventures.209

Diverse Founders and Investors

Natural Disaster Areas

Compared to their men co-founders:

Rural Communities

women are

women raise

28% less likely to be VC-backed

53% less VC funding

for their next startup.

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Women founders comprise:

16%

of first-time VC-backed

entrepreneurs.

of two-time VC-backed

entrepreneurs.

of three-time VC-backed

entrepreneurs.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 47

ENDNOTES | All the Details

OFFICE | Meet the Team

Companies with a woman founder stretched investor dollars further.210

The median burn rate for VC-backed companies

with a woman founder is consistently lower than all

U.S. VC-backed companies.

($260,000/mo., as compared to $290,000/mo. for

all US VC-backed companies).

urn rate?

What is b

is the rate

Burn rate

a compan

at which

me,

s cash ov

spends it

y quo

frequentl

monthly

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Women-founded companies consistently exited faster than other companies.211

Years to Exit

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

7.8

7.4

Women-founded

companies comprised

7.2

8.0

All VC-backed

companies

7.5

7.4

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

7.0

6.7

23%

6.7

Women-founded

companies

of exits in 2023

(up from 21% in 2022).

2019

2020

2021

2022

2023

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Companies with more women on their executive teams were more likely to

outperform companies with fewer women.212

Companies in the top-quartile of women executive representation had a

39%

greater likelihood of financial outperformance

(as compared to the companies in the bottom-quartile of women representation).

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 48

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Women in Leadership Roles

Women remain underrepresented as founders in VC-backed companies

and are losing traction.213

Women

13%

Contents

MISSION | Who We Are

The percentage of new founders

that were women reached a

6-year low

DATA | State of Capital Formation

Introduction

(falling from 15% in 2018).

214

Men

87%

Gains at the director level have slowed for women, who remain

underrepresented in board roles at VC-backed companies.215

68%

17%

25%

of boards have

at least one woman

(unchanged from 2022, but up

from 51% in 2020).

of board seats

are held by women

(up from 16% in 2022 and 11%

in 2020).

of boards include

a woman of color

(up from 24% in 2022 and 19%

in 2020).

70%

29%

of woman directors

have another woman

on that board

(up from 67% in 2022 and 56%

in 2020).

of independent board

seats are held by women

(up from 28% in 2022 and 20%

in 2020).

of all directors are

women of color

(up from 4% in 2022 and 3%

in 2020).

Gender-diverse boards are associated with higher levels of VC funding

and better financial performance.216

Private companies with at least one

woman director raised 29% more than

those without a woman director.217

None

$253M

One or More

$329M

Companies in the top-quartile of women

representation on boards had a

27%

greater likelihood of financial

outperformance

(as compared to the companies in the bottomquartile of women board representation).218

Woman on board

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 49

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

In public companies, women are holding a greater share of executive positions

in the Russell 3000 over the last decade, however, they remain drastically

underrepresented as CEOs and CFOs.219

64%

41%

32%

Chief Executive

Officer

11%

17%

16%

Introduction

Chief Operating

Officer

2014

MISSION | Who We Are

DATA | State of Capital Formation

17%

Chief Financial

Officer

Contents

General Counsel

Chief Human

Resources Officer

2024

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Increases in the percentage of women in the boardrooms of Russell

3000 companies nearly stalled in 2023, and fewer new women directors

were appointed.220

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

30%

31%

46%

Natural Disaster Areas

Rural Communities

of board seats are held

by women (less than a 1%

increase from 2023).

of new board positions were

filled by women (the lowest

percentage since 2017).

of companies have 3+ women

on their board, but only 12%

are gender balanced.

POLICY | Recommendations

ADVOCACY | What We Do

“

COMMITTEE | Highlights

Companies and their boards have once again been given permission to

ignore the systemic issues that have always held women back: the glass

cliff, the glass ceiling, the motherhood penalty, unconscious bias, etc. It’s

not simply enough to hire women into high-powered jobs and expect

them to be successful if corporate boards and company executives fail

to acknowledge and address the forces undermining them.

BETH KOWITT, BLOOMBERG221

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 50

ENDNOTES | All the Details

OFFICE | Meet the Team

Trends in Women Investors in Small Businesses

As a percentage of active investors, women angel investors continue

to increase, surpassing last year’s record high.

46.7% of angel investors in

2023 were women (an increase from

39.5% in 2022 and 29% in 2019).222

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

VC decision-making remains dominated by men.223

Small and Emerging Businesses

and Exempt Offering Data

“

About 18% of VC

decision makers

are women.

Mature and Later-Stage Businesses

The lack of representation directly affects

funding for startups with female-only

founders, which remains abysmal at around

2%. Couple this with a significant reduction

in VC funding, and the road to gender

parity in VC remains a steep uphill climb.

PAIGE HENDRIX BUCKNER, ALL RAISE224

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

Access to capital is a top challenge for women-led VC firms, and some

have found success through offering pathways that allow advertising.

of VC fund managers in

2022-2023 that fundraised

under rules that allowed

advertising were women

(an increase from 9% in 2009).226

ADVOCACY | What We Do

COMMITTEE | Highlights

19%

Access to limited partners

—or LPs—was the #1

challenge facing VC funds,

particularly for women

launching new funds.225

POLICY | Recommendations

ENDNOTES | All the Details

VC funds that use a

fundraising pathway allowing

advertising are more likely to

invest in women, diverse, and

first-time founders.227

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 51

OFFICE | Meet the Team

VC funds with women decision makers tend to be smaller by dollar-size, often

focusing investments in early funding rounds.228

Contents

46%

of firms who have women decision makers have assets

under management of $100M or less.229 As fund size increases,

the number of women decision-makers drops precipitously.230

Women of color face additional hurdles raising a fund, which is reflected in the lower median fund

sizes across funds owned by women of color.231

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

$100 million

$93 million

$50 million

White women-owned

Asian American

women-owned

African-American/

Black women-owned

$35 million

Hispanic/Latina

women-owned

Despite challenges, women-owned VC firms are growing.

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

3% of global investments

in VC funds in 2023 went

to women-led VC firms

(up from 2% in 2022).232

The number of women-led

VC firms grew to 167 in 2023

(up from 150 in 2022).233

Women-led VC firms

raised $3.5B in 2023,

(up from $3.0B in 2022).234

ADVOCACY | What We Do

COMMITTEE | Highlights

“

The positive spin—LPs are realizing the real outperformance women-led

funds deliver and are doubling down on their investments into these

GPs. The negative spin—we are going through a cycle where we are

seeing many women in the legacy firms realize that there is a ceiling for

them, and they’re today betting on themselves instead.

SARAH CHEN-SPELLINGS, BEYOND THE BILLION235

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 52

ENDNOTES | All the Details

OFFICE | Meet the Team

Progress on gender equity and inclusion in the VC industry requires an

all-hands approach.

Contents

Allyship can support, amplify, and promote.

98% of women in VC roles report that men allies

provided support by:236

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Advocating for the hiring,

promoting, and funding of

women investors

Partnering on

investments

Making introductions

to top founders

Providing

mentorship

Allyship comes in many forms and can help close the gender gap by:237

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

BUILDING

networks/support

systems, fostering

mentorship, and

sharing women’s

success stories

SHA

progr RING

chang ming to

prom iring,

otion,

reten

invest tion, and

ing pr

actice

LOPIN

DEVE

strateg nique

te u

nges

challe

sional ying

plif

and am oices

div

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

“

It shouldn’t just be up to women investors to even the playing field.

KAISA SNELLMAN, PROFESSOR AT INSEAD238

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 53

Diverse Founders

and Investors

239

Contents

Business Formation and Ownership Trends

MISSION | Who We Are

Diverse business owners make up about 34% of all business owners.240

DATA | State of Capital Formation

Introduction

15%

11%

0.3%

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Hispanic/Latino

African American/

Black

Asian American

Native American

and Alaska Native

Native Hawaiian

and Pacific Islander

(Underrepresented

compared to 20% of

population)

(Underrepresented

compared to 14% of

population)

(Overrepresented

compared to 6% of

population)

(Underrepresented

compared to 1.3% of

population)

(Equal to their

share of 0.3% of

population)

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Diverse businesses fuel sales and jobs across the country.241

Rural Communities

Asian American-and

Pacific Islander-owned

businesses:

Hispanic/

Latino-owned

businesses:

African American/

Black-owned

businesses:

Native American/

Alaska Native-owned

businesses:

• had $1 trillion

in sales

• had $767 billion

in sales

• had $293 billion

in sales

• had $13 billion

in sales

• employed

5 million people

• employed

3 million people

• employed

1.4 million people

• employed

52 thousand people

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 54

Precursors to Accessing Capital

Disparities in wealth, income, and home ownership contribute to the wealth

gap, adding additional burdens for potential entrepreneurs.242

The racial and ethnic wealth gap has changed very little over the past few decades.243 The

large wealth gap can limit the ability of underrepresented entrepreneurs to start businesses.244

1 in 5 White households have

a net worth over $1 million

1 in 20 African American/Black

households.245

84%

66%

13%

White

10%

Other and Multiracial

Share of U.S. Households

11%

10%

African American/Black

Introduction

Small and Emerging Businesses

and Exempt Offering Data

16%

Share of U.S. Net Worth

27%

24%

21%

19%

Women Founders and Investors

Natural Disaster Areas

Rural Communities

29%

Over $200,000

All

Initial Public Offerings and Small

Public Companies

Diverse Founders and Investors

29%

59%

Mature and Later-Stage Businesses

Hispanic/Latino

Household Income Distribution by Race and Ethnicity246

27%

MISSION | Who We Are

DATA | State of Capital Formation

Income disparities may affect whether diverse founders are able to grow personal

wealth and savings and self-fund a business.

14%

Contents

55%

44%

Asian

American

White

68%

73%

POLICY | Recommendations

$100,000–$199,999

74%

Under $99,999

ADVOCACY | What We Do

COMMITTEE | Highlights

Hispanic/

Native

African

Latino

American and American/

Alaska Native

Black

ENDNOTES | All the Details

Median Household Income by Race and Ethnicity

247

OFFICE | Meet the Team

$80,610

All

$112,800

$89,050

$65,540

$57,270

$56,490

Asian

American

White

Hispanic/

Latino

Native

American and

Alaska Native

African

American/

Black

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 55

Home ownership, a source of wealth and generational wealth creation, can provide

opportunities for entrepreneurs to borrow against the equity in their home to access capital.248

Share of homeowners,

by race250

parities in

Large dis

nership

home ow

bility of

limit the

resented

underrep

to tap

founders

a ets to 249

personal

a business

self-fund

Contents

Share of renters,

by race251

White

50.2%

Hispanic/Latino

African American/Black

73.1%

Asian American

Multiracial

Native American/Alaska Native

19.7%

10.5%

0.1%

5.7%

4.0%

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

18.8%

7.9%

4.7%

2.8%

0.5%

Native Hawaiian/Pacific Islander

MISSION | Who We Are

0.7%

0.2%

Initial Public Offerings and Small

Public Companies

Challenges in Accessing Capital

Women Founders and Investors

Limited access to traditional financial services affects some diverse founders’

abilities to secure capital investments.252

Diverse Founders and Investors

African American/Black and

Hispanic/Latino adults were

2.5 to 3.5X more likely

6% of adults were

than White or Asian American

adults to be unbanked.

unbanked in 2023.

Entrepreneurs of color are less likely to receive requested funding from small

business loans

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Share of Small Business Loan Funding Received by Race and Ethnicity253

ENDNOTES | All the Details

Hispanic/Latino

13%

31%

African American/

Black

25%

Asian American

29%

White

56%

21%

44%

All

7% of small business owners that

needed capital did not apply because they

expected to be denied.254

54%

30%

41%

26%

29%

Most/Some

None

African American/Black and Hispanic/

Latino owners are more likely

to be discouraged and not apply.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 56

OFFICE | Meet the Team

Access to capital remains a challenge for entrepreneurs of color.

44% of African American/Black business owners,

43% of Hispanic/Latino business owners, and

31% of Asian American/Pacific Islander business owners

Entrepreneurs of color found

lack of capital/cash flow

experienced challenges accessing capital.256

to be their biggest challenge.255

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Diverse entrepreneurs use personal funds for business expenses in the

face of financial challenges at a higher rate than White entrepreneurs.257

Native American/

Alaska Native

African

American/Black

Asian

American

Hispanic/

Latino

White

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

78%

74%

67%

62%

50%

African American/Black small business owners

report that the use of personal funds for business

expenses has delayed building personal wealth,

starting another business, or buying a home.258

Many diverse business owners need capital, but many of them are

seeking relatively small amounts.

68%

of diverse small business owners sought

financing and credit products

compared to 59% of all small

business owners.259

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Roughly 50% of African American/

Black and Hispanic/Latino

small businesses that

applied for funding sought

$50,000 or less.260

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 57

OFFICE | Meet the Team

Mentorship and networking are critical to entrepreneurs’ success, but

some diverse founders do not have access to entrepreneurship networks.261

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

The percentage of

African American/Black

and Hispanic/Latino adults

Initial Public Offerings and Small

Public Companies

who know an entrepreneur decreased

Women Founders and Investors

to 56% in 2023 (from 77% in 2021) and

48% in 2023 (from 70% in 2021), respectively.262

Diverse Founders and Investors

These connections are important as they provide inspiration,

guidance, and advice to prospective entrepreneurs.

Natural Disaster Areas

Well-developed alumni networks provide significant advantages for founders

seeking venture funding.263

Disparities in access to key alumni networks, like those at schools with a legacy admissions

process that can consider the applicant’s familial relationship to alumni, in turn limit who has

access to critical pathways to capital.264

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

are less diverse with 19% of African American/Black or

Hispanic/Latino students vs 22% at non-legacy schools.265

Legacy

Admissions

Schools

Rural Communities

see their alumni co-investing at higher rates with the

percentage of deals involving investors from the same

ENDNOTES | All the Details

OFFICE | Meet the Team

alma mater over 2x as high vs non-legacy schools.

266

have education networks that are information-rich

and valuable to aspiring entrepreneurs.267

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 58

Capital-Raising Trends

The diversity of entrepreneurs participating in Regulation Crowdfunding has

increased over time.268

Contents

2022 4% 10%

MISSION | Who We Are

2019 2% 8%

2016

73%

13%

12%

using

epreneurs

27% oftieonntrCrowdfunding

Regula

red to

e, compa

are divers

ll busines

34% ofastmaare diverse.269

owners th

77%

10%

83%

African American/Black

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Hispanic/Latino

DATA | State of Capital Formation

Asian American

White

Mature and Later-Stage Businesses

While founder diversity has increased, African American/Black and Hispanic/

Latino founders received less funding under Regulation Crowdfunding than

other founders.270

In 2019, the average amount raised by African American/Black or

Hispanic/Latino founders using Regulation Crowdfunding was

4% less than

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

teams with White or Asian American founders.

Rural Communities

By 2022, there were substantial gaps in the average amounts raised by different

founding teams using Regulation Crowdfunding:

POLICY | Recommendations

ADVOCACY | What We Do

$417,000

Asian American and

White founders

(6% more than

all White teams)

$392,000

All White founders

$288,000

COMMITTEE | Highlights

$163,000

African American/

Black or Hispanic/

Latino founder on team

All African American/

Black or Hispanic/Latino

founders

(27% less than

all White teams)

(58% less than

all White teams)

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 59

ENDNOTES | All the Details

OFFICE | Meet the Team

The number of founders of color seeking angel capital decreased as

the rate of founders of color receiving angel capital remained above the

overall market rate.

Founders of color constituted

Contents

Angel investors invested in

MISSION | Who We Are

32%

10%

DATA | State of Capital Formation

Introduction

of entrepreneurs seeking angel

capital in 2023 (decrease from 15%

in 2022 and 13% in 2021).271

of those investment opportunities brought

to their attention (decrease from 33% in 2022

and increase from 31% in 2021, but higher than

the overall market rate of 24% in 2023, 27% in

2022, and 24% in 2021).272

Cutbacks in funding and a decrease in overall VC engagements for earlystage startups disproportionately affected diverse founders.273

Diverse teams raised 26% less

on average than all-white teams.274

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

VC investors continue to prioritize different sections of pitch decks depending

on the demographic make-up of the team.275

When pitching to early-stage VC investors, diverse teams experienced:276

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

20% more time spent

on the team section than

for all-white teams.

45% less time spent on the

product section. For all-white

teams, investors spent the

most time here.

29% less time spent on the

business model section.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 60

OFFICE | Meet the Team

Local ecosystems and states play an important role in entrepreneurial success.277

When more diverse founders in a state achieve economic success, the state also sees an

increased number of diverse VC-ready founders.

Seattle WA

NH MA

San Fransisco

Atlanta

Mature and Later-Stage Businesses

Austin

Miami

Ranking of U.S. states for African American/Black

and Hispanic/Latino entrepreneurial success

Top 1-10 States

Top 21-29 States

Top metropolitan statistical areas for

founders of color by share of VC funding278

Top 11-20 States

Data not available

2% 3% 6% 39% 53%

of founders were

African American/

Black (up from

1% in 2018)

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

The percentage of diverse founders in the startup ecosystem has increased in

recent years.279

of founders were

Middle Eastern

(up from

1% in 2018)

Introduction

Small and Emerging Businesses

and Exempt Offering Data

DATA | State of Capital Formation

Los Angeles

MISSION | Who We Are

Chicago

Denver

New York

City

Boston

Contents

of founders were

Hispanic/Latino

(up from

3% in 2018)

of founders were

Asian American

(up from

24% in 2018)

of founders were

White

(down from

62% in 2018)

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Despite that increase, African American/Black and Hispanic/Latino founders

receive a disproportionately small and declining share of venture capital funding.280

ENDNOTES | All the Details

Founders received the following percentages of equity venture funding in 2023:

OFFICE | Meet the Team

2% 0.6% 1% 39% 57%

went to Middle

Eastern founders

(up from 1% in

2021)

went to African

American/Black

founders (down

from 1.2% in 2021)

went to

Hispanic/Latino

founders (down

from 5% in 2021)

went to Asian

American

founders (up

from 37% in 2021)

went to

White founders

(up from

56% in 2021)

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 61

Diverse Founders in Leadership Roles

Directors of color occupy roughly one in four seats on private company

boards, the majority of which are held by men of color.281

Women of

color (5%)

Men of

color (19%)

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

When a private company has a diverse board, that diversity persists strongly

after the company goes public.282

Mature and Later-Stage Businesses

Private companies that have at least

Initial Public Offerings and Small

Public Companies

at the time of their IPO have a

Women Founders and Investors

underrepresented directors on their board

in the 5 years following their IPO.283

Diverse Founders and Investors

one underrepresented director

5 to 7X higher share of

Natural Disaster Areas

Diversity on Russell 3000 public company boards remained relatively

unchanged from 2018 to 2023.284

About 21%

of small public company boards that disclosed director diversity

were diverse, compared to 22% in 2018.

Directors were Hispanic/Latino (4%), African American/Black (8%),

or Asian American and Pacific Islander/Native Hawaiian (9%).

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

The Russell 3000 Index is

comprised of the largest

3,000 public companies,

representing 98% of the

U.S. equity market.285

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 62

OFFICE | Meet the Team

Companies with more diverse executive teams and boards were more

likely to outperform those with less diversity.286

Companies in the top-quartile of:

diverse executive teams had a

39%

Contents

diverse boards had a

13%

greater likelihood of financial outperformance

(as compared to the companies in the respective bottom-quartiles).287

Diverse Investors and Allies

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

In 2023, diversity among angel investors decreased from a peak in 2022,

but remains above the share of diverse angels in 2020 and 2021.288

2022

8.6%

2020

5.5%

2021

4.1%

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

2023

5.7%

5.7% of angel investors in 2023

were racially or ethnically diverse

(decrease from 8.6% in 2022).

The number and value of VC and private equity deals led by diverseowned firms has continued to grow in recent years.289

Annually, from 2018 to 2022:

the number of deals led by

diverse firms grew by

the value of deals led by diverse

firms grew by

14%

25%

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 63

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Despite growth, diverse-owned investment firms control a tiny slice of

assets under management, also called AUM.290

Contents

$4.8

trillion

AUM

Diverse owned firms manage about

2% of total AUM

($95 billion).

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Despite an uptick in fund size for African American/Black-owned firms

in 2023, diverse-owned firms continue to raise smaller funds than the

industry as a whole.291

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

$229 million

Diverse Founders and Investors

$100 million

$75 million

Natural Disaster Areas

Rural Communities

Industry-wide median

fund raised

Asian American target

median fund size

Hispanic/Latino target

median fund size

African American/Black

target median fund size

(up from $145 million

in 2022)

(down from $115 miilion

in 2022)

(unchanged from $100

million in 2022)

(up from $65 million

in 2022)

POLICY | Recommendations

ADVOCACY | What We Do

A higher share of underrepresented VC fund managers relied on a

fundraising exemption that allows advertising rather than the traditional

Rule 506(b) private placement exemption, but the share remains low.292

African American/Black and Hispanic/

Latino managers account for

VC funds that use Rule 506(c)

9% of VC fund managers using the

to fundraise are

Rule 506(c) exemption allowing

36% more likely

advertising to fundraise

to be a VC’s first fund.294

(compared to 6% using the

Rule 506(b) exemption).293

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 64

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Diverse-owned firms are continuing to raise successor funds.295

Successor funds were being raised by:

31%

44%

53%

of African American/

Black-owned firms

(up from 25% in 2022).296

of Hispanic/Latinoowned firms

(down from 49% in 2022).297

of Asian Americanowned firms

(up from 52% in 2022).298

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Diverse-owned firms are more likely to invest in early-stage and diverse

founders, including deals overlooked by nondiverse firms.299

About 30% of deals by diverse-owned

firms are done exclusively with other

diverse-owned asset management firms.

nounced

cially pro

can/Blac

This tren

an Ameri

amo

-owne

ic/Latino

s of their

-t

ondiv e

where tw

l pool of n

outside

nagers.

asset ma

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Diverse-owned firms outperform benchmarks.300

72%

of the time, diverse-owned firms

generated an internal rate of return (IRR)

in the first or second quartile.301

Emerging manager programs are more common among larger

institutional investors.302

35%

of total AUM is managed by investors

with emerging manager initiatives.

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Much of this is driven by

public pension plans.

While 30% have an emerging manager program,

they account for over half of the public pension

fund AUM total.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 65

OFFICE | Meet the Team

LGBTQ+ Entrepreneurs

LGBTQ+ business owners are more likely to use personal funds and seek

bank financing for their businesses, but are less likely to receive all

requested funding.303

of small businesses are

owned by members of the

LGBTQ+ community.304

42%

45%

of LBGTQ+ owners received

all of the requested funding (vs

52% of non-LBGTQ+ owners).306

53%

62%

of LGBTQ+ business owners

used personal funds (vs 54%

of non-LGBTQ+ owners).308

69%

of LGBTQ+ business owners

Contents

MISSION | Who We Are

applied for bank financing

(vs 36% of non-LGBTQ+ owners).305

DATA | State of Capital Formation

Introduction

of LGBTQ+ adults own a home

(vs 72% of non-LGBTQ+ adults).307

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

of LGBTQ+ entrepreneurs feel it’s

important their businesses have a

positive impact in communities

(vs 56% of all founders).309

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Since 2000, LGBTQ+ entrepreneurs:310

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

received

created

had

$16.1 billion

110,000 jobs

274 exits

ADVOCACY | What We Do

COMMITTEE | Highlights

“

ENDNOTES | All the Details

The potential is great…. ‘The problem is getting the support. Being a founder

can be a very lonely place, and having access to a community of founders

who can relate is invaluable. It’s the sauce that holds it all together.

TARIK PERKINS, STARTOUT311

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 66

OFFICE | Meet the Team

Entrepreneurs with Disabilities312

More than

1 in 4

MISSION | Who We Are

adults in the U.S.

of businesses are owned by

a person with a disability.314

have a disability

(over 70 million people).313

Persons with a disability are more likely to start a business than

non-disabled persons, and those disabled entrepreneurs earn more

than disabled non-entrepreneurs.315

Entrepreneurs with

disabilities earn

14% more

of workers with a disability are

self-employed compared to

6% of those with no disability.316

Contents

than disabled

non-entrepreneurs.317

disabled

, however,

Over time

gs grow

rs’ earn

entr

n all othe

r rate tha

cluding d

groups, in reneurs and

318

non-entre

uals.

led individ

-d

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Limited access to financial services affects the starting line for many

founders with disabilities.319

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

11% of adults with a disability are

unbanked, compared to 5% of people who

do not have a disability.

320

55% of adults with a disability are doing

“at least okay” financially, compared to

ADVOCACY | What We Do

76% of non-disabled adults.321

COMMITTEE | Highlights

“

Entrepreneurs with disabilities also face unique challenges that extend beyond

financing. The lack of mentorship opportunities and entrepreneurship programs

specifically tailored to meet their needs is a significant hurdle. Furthermore,

specific requirements for accommodations—such as language assistance or the

provision of assistive technology—add another layer of complexity for these

entrepreneurs in navigating the entrepreneurial landscape.

AARTI SAHGAL, SYNERGIES WORK & SYNERGIES SEED FUND322

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 67

ENDNOTES | All the Details

OFFICE | Meet the Team

Veteran Entrepreneurs

of businesses are

owned by veterans

(1.8 million businesses).323

65%

of veterans considered

starting a small

business when leaving

military service.324

As veterans grow their businesses, they need support to help fuel their growth.325

Top challenges for veteran-owned businesses by lifecycle stage

Less than $250,000 in revenues:

• applying for loans and

• effective resource management.326

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

$250,000 to less than $1 million in revenues:

• finding a local business incubator or nonprofit and

• maintaining funding rounds to fuel growth.327

$1 million to $5 million in revenues:

• finding a local business incubator or nonprofit,

• finding time to network, and

• exploring strategic partnerships.328

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

Veteran investors bring a unique skillset, but many face obstacles

transitioning to civilian life.329

POLICY | Recommendations

Veteran investors face challenges such as:

accessing pipeline programs designed for underrepresented groups and

ADVOCACY | What We Do

networking with and fundraising from traditional/institutional investors unfamiliar

with their military experience.

COMMITTEE | Highlights

“

ENDNOTES | All the Details

Veterans bring a wealth of skills and expertise to the VC ecosystem. Their

distinct training, abilities and experiences are invaluable in evaluating many

startups seeking capital. Often, veterans gain firsthand exposure to cuttingedge technologies during their service, arming them with unique insights

into emerging trends.

IKRAM MANSORI, VETSINTECH330

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 68

OFFICE | Meet the Team

Natural Disaster Areas

Contents

MISSION | Who We Are

How do natural disasters affect small businesses?

Small employer businesses

are 42% more likely to be

struck by a natural disaster

than large businesses.331

of small businesses suffered

natural disaster related losses

(down from 14% in 2022 and

12% in 2021).332

may be

sinesses

Small bu

natural

ulnerab

333

acutely v

due to:

disasters

ption

flow disru

5 Cash

to capital

d ac

5 Limite

amage

ructure d

5 Infrast

l demand

ished loc

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Natural disasters affect communities and their small businesses across

the country.

Diverse Founders and Investors

Between October 1, 2023 and September 30, 2024, there were 24 natural disaster

events with losses exceeding $1 billion.334

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Central and

Southern

Severe

Weather

ADVOCACY | What We Do

$6.1B

Central, Southern,

Southeastern Tornado

Outbreak

$6.6B

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Hurricane Beryl

$7.2B

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 69

How do capital-raising trends differ for small businesses affected by

natural disasters?

Contents

Small businesses in areas affected by natural disasters often seek access to capital

through bank financing and capital from investors.

43%

75%

38%

of the U.S. population335 lives

in an area that was affected

by a natural disaster over the

last 3 years.336

of small businesses affected by

natural disasters applied for

bank financing (compared to

57% of those not affected).337

of offerings where capital was

raised from investors over the

last 3 years supported small

businesses in affected areas.338

Small businesses in areas affected by natural disasters accounted for 27% to

51% of the offerings where capital was raised from investors, by offering type.339

Share of offerings by small businesses in affected areas over 3 years

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Registered Offerings by

Small Public Companies

51%

Regulation

Crowdfunding

MISSION | Who We Are

39%

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

38%

Regulation D

Natural Disaster Areas

Rural Communities

27%

Regulation A

While small businesses in affected areas used various pathways, the vast

majority of capital was raised under Regulation D.340

Capital raised from investors by small businesses in affected areas over the last 3 years:

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Regulation D accounted

97%

for about

of the total capital raised

by small businesses

in areas affected by

natural disasters.

Registered Offerings

by Small Public

Companies

Regulation

Crowdfunding

$6 billion

$352 million

ENDNOTES | All the Details

OFFICE | Meet the Team

Regulation D

$248 billion

Regulation A

$894 million

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 70

Rural Communities

Contents

Small businesses are a vital part of rural economies and

communities across the country.341

Small businesses are the economic engines for rural economies.

17%

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

of the U.S. population lives in a rural area.342

Mature and Later-Stage Businesses

Small businesses account for:

57%

96%

of employment

outside of metropolitan areas

(compared to 47% of employment

in metropolitan areas).344

of businesses

located outside of metropolitan

areas (4.1 million small

businesses).343

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural small businesses often play a key role in their local community.345

89% of rural small businesses support and volunteer in their local community.

70% of rural small businesses believe they are having a positive impact on the social

well-being of their local community.

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

clinic

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 71

While many rural small businesses have plans to grow their business,

access to capital remains a paramount concern.

Contents

68%

86%

MISSION | Who We Are

DATA | State of Capital Formation

of rural small businesses

have current

plans to grow their business.346

of rural small businesses are

concerned about their

ability to access capital.347

Introduction

Small and Emerging Businesses

and Exempt Offering Data

How do capital-raising trends differ for rural small businesses?

Mature and Later-Stage Businesses

Many rural small businesses seek access to capital through bank financing,

while a smaller share seek capital from investors.

Initial Public Offerings and Small

Public Companies

15%

13%

of small employer businesses

are located in

rural areas.348

of the small businesses that

applied for bank financing

were located in rural areas.349

of offerings where capital was

raised from investors over the

last 3 years supported

rural small businesses.350

Many rural businesses rely on small banks for financial services.351

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

Rural Small

Business

Urban Small

Business

Small Bank

61%

COMMITTEE | Highlights

Large Bank

35%

Since 2019, the number of

banks has decreased by 15%,

however, the number of

Small Bank

39%

small banks

Large Bank

60%

has

decreased by 34%.352

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 72

ENDNOTES | All the Details

OFFICE | Meet the Team

Rural small businesses are raising a smaller share of capital relative to their

population and share of small businesses, across all offering types.353

Share of offerings by rural small businesses over 3 years

Contents

Regulation Crowdfunding 5%

MISSION | Who We Are

Regulation D 4%

Regulation A 2%

DATA | State of Capital Formation

Registered Offerings by

Small Public Companies 1%

Introduction

While rural small businesses used various pathways to raise capital, the

vast majority of capital from investors was raised under Regulation D.354

Capital raised from investors by rural small businesses over the last 3 years:

Registered Offerings by

Small Public Companies

$273 million

Over the last three years,

Regulation D accounted for

about

Regulation

Crowdfunding

$42 million

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

97%

of the total capital raised by

rural small businesses.

Small and Emerging Businesses

and Exempt Offering Data

Diverse Founders and Investors

Regulation D

$11 billion

Regulation A

$54 million

Access to VC funding is expanding in rural areas.

Natural Disaster Areas

Rural Communities

Rural companies increased their VC funding by

POLICY | Recommendations

338%

ADVOCACY | What We Do

from $891 million in 2018 to $3.9 billion in 2022,

an increase that more than doubled their share of VC funding.355

“

Some investors have already begun to see rural areas as an emerging market

with untapped potential in many innovative rural startups. Rural communities

offer a diverse array of experiences and viewpoints that can be critical in

driving advances in innovation. This diversity can lead to more creative

problem-solving and novel ideas, enhancing the quality of work and output

across various industries including tech.

MAY EROUART, THE CENTER ON RURAL INNOVATION356

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 73

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

POLICY

Recommendations

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

ased on feedback we have received through our engagement with small businesses,

their investors, and allies who support them, the Office has developed the following

policy recommendations for Congress and the Commission. We have distilled this

feedback into six key areas for action to address the issues we hear most frequently

about small business capital formation.

We recognize that for any complex issue, including challenges surrounding capital

formation, there are a multitude of potential approaches, and indeed we may need to

combine multiple approaches to arrive at effective solutions that support both small

businesses and their investors. For each recommendation, we include background context,

impacts on particular demographic groups, and proposed general solutions.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

We welcome further engagement by Congress and the Commission regarding these

recommendations so that entrepreneurs and their investors can continue to work together,

through transparent relationships, to bring growth and innovation to the market.

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

our

t the year

ack

ard feedb

Office he

stors,

ders, inve

and mento

advisors,

lifecycle

different

inv

et.

the mark

stages of

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 75

ENDNOTES | All the Details

OFFICE | Meet the Team

Entrepreneurs and their investors need user-friendly,

accessible tools and educational resources to help them

understand and navigate securities laws.

Contents

Background Context

Throughout the year, we met with entrepreneurs and investors from

across the country with a broad range of capital-raising experience,

as well as third parties who assist and support them. Many of the

entrepreneurs we met—no matter how business savvy or technologically

sophisticated—noted that the capital-raising rules are often complex

and expressed the need for user-friendly, accessible resources to help

them understand capital formation terminology and the capital-raising

pathways that may be available to them. Others conveyed that they were

in early stages and unaware of all available capital-raising options or were

unsure how to begin the funding journey. We also heard requests for

resources in multiple languages.

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Our Offic

e shared

education

al resourc

es at

a StartOu

t gatherin

g with

LGBTQ+

entrepren

eurs

and allies

in May 20

24.

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Our Office has continued to partner with other SEC offices and divisions

to expand and enhance our Resources for Small Businesses, a centralized

portal of educational resources for small businesses and their investors

on the capital-raising journey. Since we launched the SEC portal in

2021, these resources have received over 1.5 million views. This year

we continued to add content based on feedback received through our

outreach efforts. We are also in the process of translating many of our

resources into multiple languages.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 76

OFFICE | Meet the Team

Demographic Impacts

The federal securities laws and regulations provide an important legal

framework for businesses and investors alike. Yet that framework is complex,

and navigating it often requires experienced mentors and advisors. Women

and diverse founders often lack access to the same networks and support as

their counterparts and therefore face an uneven playing field.357

Contents

MISSION | Who We Are

Proposed Solution

We will continue to engage with diverse audiences of small businesses,

investors, federal and state agencies, entrepreneurial support organizations,

and other thought leaders in the market. Through this engagement, we will

aim to expand and improve the SEC’s small business educational resources,

including their accessibility, and to promote awareness of those resources and

the role of the Office. We will also continue to seek feedback and welcome

suggestions on topics and formats for future resources and programming.

We continue to receive requests for more accessible tools and additional

topics, formats, and languages. To respond to these calls for action, we

will need the Commission’s support of, and dedication of resources to, our

Office’s efforts in this area as well as those of our colleagues throughout

the agency, including the Office of Public Affairs digital media and desktop

publishing teams, the Office of the General Counsel, and the expert teams in

the agency’s rulemaking divisions, whose contributions have been invaluable.

This support is critical to ensuring that entrepreneurs and their investors at

every stage, as well as those advisors and organizations who support them,

have access to tools and educational resources to understand and comply

with the securities laws and to access the U.S. capital markets in an effective

and compliant manner.

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

back on

eard feed

onal

Our

of educati

the imp

ber 2023

t an Octo

ea to

res

n “From Id

panel d

ategies fo

apital Str

Inves

eurs.”

Entrepren

Vermont

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 77

OFFICE | Meet the Team

Connecting small business founders and investors with

mentorship opportunities is vital to their success.

Background Context

Mentoring is an integral part of the startup ecosystem, particularly during the

early stages of entrepreneurship and fundraising, as founders face numerous

challenges and obstacles to growing and sustaining their businesses.358 Both

founders and investors require a network of support to thrive. During the

fiscal year, many of the entrepreneurs and emerging fund managers our Office

met—no matter where they were on their business journey—lauded the value of

mentorship and the importance of building community.

Mentors play a crucial role in guiding and supporting founders and can offer

unbiased feedback and impart relevant industry specific knowledge and

expertise,359 all of which can have a significant and positive impact on a small

business’s trajectory. Seasoned mentors can leverage their experience to help

founders avoid common challenges by implementing advice at the right time

and limiting mistakes as the business scales.360 Yet many founders lack personal

connections to these sorts of mentors or do not know where to look for support.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

We frequ

ently hea

rd about

importan

the

ce of men

rship, inclu

when the

ding

Office ho

sted “Incu

Accelerate

te.

. Ignite.” a

virtual pa

discussio

n in Febru

ary featu

leaders fr

om entre

preneuria

support o

rganizatio

ns.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 78

OFFICE | Meet the Team

Demographic Impacts

Startups are innately risky, but having a deep pool of mentors for their

founders and investors plays a pivotal role in supporting growth and

increases the likelihood that those startups succeed. Mentorship is

especially useful for women, rural, and underrepresented founders who

navigate more and higher barriers to entrepreneurship and who often

lack access to the same networks, experienced mentors and advisors,

or supportive entrepreneurial communities as their counterparts, and

face additional challenges raising capital.361 Emerging fund managers

and early-stage investors, especially women and racially and ethnically

diverse funders, face similar challenges. Yet, women and diverse investors

are more likely to invest in underrepresented founders,362 so connecting

both investors and founders with mentors can play an important role in

diversifying access to capital.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

e heard fr

The Offic

vestors

urs and in

orks,

le of netw

on the ro

preneuria

and entre

men

ns includ

rganizatio

support o

tral

isit to Cen

during a v

reneur

al Entrep

’s

Florida

April.

Center in

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 79

Proposed Solution

Data shows that local ecosystems and states play an important role in

entrepreneurial success.363 Throughout the year we have heard calls of

support for public/private collaborations and how those can play an

important role in fostering mentorship.364 We are supportive of this type

of collaboration and enhanced dedication of resources to build bridges

within entrepreneurial ecosystems.

Further, our Office supports intra- and inter-agency collaborations with

the aim of providing clear communication about available government

resources to support early-stage entrepreneurs, investors, and support

organizations, including a focus on accessible and prominent placement

of this information on SEC.gov and other government websites. We also

support continued development of expanded resources,365 mentorship

opportunities, and other support for startups, underrepresented founders,

and emerging fund managers. This support is critical to ensuring that

small businesses and their investors, particularly at the early stages,

know how to access mentors and resources to grow their businesses and

understand and comply with the securities laws.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

“

Support diverse capital allocators

Always find a way to give more than you take.

DONALD HAWKINS, KINLY366

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 80

Support for small businesses that rely on Regulation

Crowdfunding to raise capital is essential.

Background Context

Operating companies need capital to build, grow, and scale. When that

capital does not come from retained earnings of the business, personal

savings, loans, or grants, companies may look to raise capital from

investors. Regulation Crowdfunding serves as one pathway to raise

capital from investors and can provide an alternative source of capital

where the presence of community banks has decreased or for founders

who struggle to secure necessary funds through other capital-raising

pathways, like Regulation D offerings to sophisticated or accredited

investors. Regulation Crowdfunding can help to bridge the gap for

founders who may not have extensive personal investor networks.367

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

The Offic

e joined N

ational

Entrepren

eurship W

eek

in Februa

ry to talk

out

various fu

nding path

ays,

including

Regulatio

Crowdfun

ding, and

share our

education

al resourc

es.

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

In previous years, the Office has recommended that the Commission make

targeted regulatory changes to exempt offering pathways to improve

their utility, including through amendments to Regulation Crowdfunding.

In the past year, the Commission has not taken action, and rulemaking

related to Regulation Crowdfunding is not on the Commission’s current

regulatory agenda.368

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 81

ENDNOTES | All the Details

OFFICE | Meet the Team

Demographic Impacts

Data highlights that women, rural, and racially and ethnically diverse

founders struggle to raise capital during not just early-stage, but

all lifecycle stages, of the company.369 The wealth gap also places

constraints on underrepresented founders’ abilities to fund their ventures

through personal wealth or friends and family.370 Yet, many women and

diverse founders have found funding opportunities through Regulation

Crowdfunding, which often enables them to raise capital from their local

community and other non-accredited investors.371 This pathway has also

been attractive to small businesses located outside of the traditional

capital hubs.372

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

mber of

ined a nu

onal

The

ur educati

events to

raising

n capitalo

res

d rules,

and relate

pathways

ty Busine

.S. Minori

includin

cy’s Acce

ent Agen

ummit in

Capital S

Proposed Solution

We encourage Congress and the Commission to explore initiatives to

make Regulation Crowdfunding a more attractive capital-raising pathway

for small businesses and their founders. This could include considering

ways to minimize costs associated with Regulation Crowdfunding

offerings. We also encourage Congress and the Commission to explore

various solutions to support underrepresented founders, including

women, rural, and racially and ethnically diverse founders, who rely on

Regulation Crowdfunding to fund their business endeavors.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 82

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Small businesses need a defined pathway to

establish networks with sophisticated investors for

raising capital.

Contents

Background Context

Many small businesses and their founders struggle to connect with

sophisticated investors who have the appropriate risk tolerance, industry

experience, business connections, and investing objectives for their

business’s model and stage of maturity. Connecting with sophisticated

investors, who often bring relevant experience and know-how, can

positively impact a company’s growth and success through mentorship,

business relationships, strategic guidance, and future support.373

Businesses seeking to raise smaller dollar amounts are seldom able to

attract attention from registered broker-dealers,374 who have connections

to sophisticated investors, and there is significant uncertainty in the

marketplace about unregistered “finders” who offer to fill the void with

their connections.

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

We have previously recommended that Congress or the Commission

provide additional regulatory clarity for these “finders.”375 In the past year,

the Commission has not taken action and providing regulatory clarity in

this area is not on the Commission’s current regulatory agenda.376

Demographic Impacts

Many entrepreneurs do not have potential sophisticated investors in

their personal networks, which can create additional barriers to entry.377

Women, racially and ethnically diverse, and rural founders often start with

a smaller network of accredited, angel, and VC investors.378 In addition,

women and diverse founders often report challenges accessing mentors,

role models, and professional support.379 These challenges can limit the

ability of small businesses to raise capital and potentially impede the

company’s survival and growth.380

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 83

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

d with

e engage

The Offic

estors

rs and inv

entr

r on the

ut the yea

througho

orks,

ce of netw

pital

Angel Ca

includin

Investor

Women’s

’s

ber.

Asso

in Septem

Forum in

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

Proposed Solution

The feedback received from small businesses, investors, entrepreneurial

support organizations, and other market participants demonstrates

a desire for a defined pathway for small business founders and

sophisticated investors to connect. Market participants have consistently

asked for clarity about the legal obligations of unregistered “finders”

who offer their connections. We continue to encourage Congress and

the Commission to consider clarifying ways for small business founders

and sophisticated investors to connect, while also protecting businesses

and investors from unscrupulous actors by empowering them to identify

actors with hidden conflicts of interest.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 84

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

We enga

ged in dis

cussions

with sma

ll busines

ses and

their inve

stors abo

making

capital m

ore acces

sible to

startups a

t events li

ke our

June web

inar with

Small

Business

Majority.

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

“

Nobody builds companies alone. You're going to need investors.

You're going to need employees. You're going to need customers...

Networks can give you access to potential investors, to capital

allocators, community banks, and customers' pilot opportunities. But

not everybody has access to those, especially if you come from a

completely different background.

ERIKA LUCAS, STITCHCREW381

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 85

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Diversifying access to capital is essential for robust markets

and requires supporting diverse capital allocators.

Background Context

Operating companies require capital to grow, build, and potentially scale.

For companies that may consider going public, early-stage capital provides

a foundation for the business to reach the size and maturity needed to go

public. For the millions of small businesses that are not looking to be public

companies, capital is essential for their development and job creation.

Many early-stage companies start with internal funding, such as personal

savings or retained earnings from the business, or traditional bank loans.382

For those that decide to seek investments, which is an important piece of the

capital-raising journey, the most commonly used pathway is to seek funding

from business owners, friends and family, or angel investors.383 Startups may

also seek capital from private funds of sophisticated pooled capital.384

Emerging fund managers and smaller funds play a key role in capital formation

for startups, particularly for women- and diverse-led startups.385 Yet the

increasing concentration of capital in large private funds386 poses challenges

for entrepreneurs looking for seed and early-stage capital.387 The percentage

of capital invested in emerging fund managers continues to decline, resulting

in smaller funds and potentially limiting the number of companies in which

these funds can invest and the size of the check they are able to write.388

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

r joined

ur Directo

In June, o

the

iscussing

a panel d

ed by

enges fac

uniq

esses at

ned busin

-o

tion.

gs Institu

the

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 86

We previously recommended that the Commission make targeted

regulatory changes to improve the utility of the exempt offering

pathways and support emerging fund managers and their important

role in funding startups.389 In the past year, the SEC staff issued a report

on the accredited investor definition.390 In addition, the Commission’s

most recent rulemaking agenda continues to indicate that it will consider

amendments to Regulation D, including updates to the accredited investor

definition and Form D.391 Further, in September 2024, the Commission

inflation adjusted the dollar threshold to meet the definition of a qualifying

venture capital fund from $10 million to $12 million.392

Demographic Impacts

Data highlighted in this report shows the limited amount of capital raised

by companies founded by women and racially and ethnically diverse

entrepreneurs.393 Diversifying capital allocators and decision-makers

facilitates greater funding of diverse founders, as women and investors

of color are more likely to invest in women and diverse founders.394

An example of demographic impacts can be seen with the definition

of accredited investor, which largely determines the pool of potential

investors for small businesses, and whether an investor is eligible to

invest in many early-stage companies.395 African American/Black and

Hispanic/Latino investors are excluded from the accredited investor

definition at higher rates than other ethnicities as a result of the historic

wealth gap.396 In addition, many women and diverse founders do not have

pre-existing accredited investor networks, which may impede their ability

to raise capital.397 Racial and ethnic diversity among angel investors also

decreased in 2023,398 resulting in diverse capital allocators remaining

underrepresented.

Beyond individual investors, many women and diverse fund managers

report added challenges raising capital from institutional investors, often

resulting in smaller funds and smaller investments.399 Data highlights that

women and diverse fund managers are more likely to invest in women

and diverse founders.400 As a result, challenges faced by women and

diverse fund managers can create additional capital-raising challenges

for these founders.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 87

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

In Septem

ber, we m

et with

founders

, investors

, and

advisors

in El Paso

vents like

these pro

vide oppo

unities

to hear h

ow policie

s affect

diverse b

usinesses

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Proposed Solution

We encourage Congress and the Commission to explore initiatives to

increase diversity among investment decision-makers and emerging

and small fund managers to continue to facilitate early-stage capital

investments for small businesses, including those with women and diverse

founders. We also encourage Congress and the Commission to explore

various solutions to support emerging fund managers given the critical

role these managers play in supporting small businesses. We further

encourage Congress and the Commission to explore the definition of

accredited investor and consider whether additions or changes may

be made to the definition to diversify access to capital and promote

inclusivity and equity in the entrepreneurial ecosystem.

“

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

What I found over and over again is that these huge markets were

going untapped with solutions, because the people that were impacted

by the problem were never at the table to make investments.

TRISH COSTELLO, PORTFOLIA401

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 88

Support existing small public companies and foster

an environment that makes the public markets an

attractive goal.

Contents

Background Context

The public markets are a core component of the overall capital-raising

ecosystem. The U.S. securities laws allow companies to access the public

markets in exchange for certain required disclosures to investors about

relevant financial and operating information. While IPO activity had a

slight uptick during the first half of 2024, activity remains significantly

below the 2021 peak, and the number of exchange-listed IPOs remains

historically low.402 Despite the slow IPO environment, market capitalization

for large exchange-listed public companies continued to thrive.403

However, the aggregate market capitalization of small exchange-listed

companies has continued to decline.404

To maintain robust U.S. public markets, it is essential that companies

view participating in those markets as a desirable goal. In assessing the

attractiveness of our public markets, companies generally consider not

only the process of going public, but also what it takes to remain a public

company. We continue to engage in conversations with small businesses

in or considering the public markets, as well as their investors and

advisors. When deciding whether to embark on an IPO, companies weigh

the benefits of accessing public capital against the regulatory compliance

costs associated with the offering.405 We often hear that many of those

costs can be burdensome on smaller public companies.406 Small public

companies also report that, once public, they often struggle with stock

prices trading down, attracting institutional investors, liquidity challenges,

and limited research coverage.407 Fostering a regulatory environment that

encourages small companies to remain public is as important as helping

them go public.

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 89

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

e 2024 SE

During th

iness Foru

Small Bus

discusse

panelists

come

kes to be

what it ta

a public

and stay

company

reporting

In our 2023 Annual Report, we recommended that the Commission

scale disclosures, delay compliance, and harmonize requirements for

small public companies to help them stay public. In the past year, the

Commission has adopted two rules that impose—or would impose—new

disclosure requirements on public companies. In each of these rules, the

Commission has scaled the new obligations or delayed compliance for

small public companies, in some cases providing accommodations that

were not initially proposed.408

Demographic Impacts

While racially and ethnically diverse businesses continue to grow,

diverse owners still face additional challenges when trying to access

capital.409 Similarly, while women founders had another relatively strong

year in some capital-raising respects, they continue facing headwinds

raising capital generally and remain underrepresented among founders

and leaders in VC-backed companies, which are the most likely to go

public.410 This underrepresentation trend continues on public company

management teams and on public company boards, where people of

color and women remain underrepresented.411

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 90

Expand educational resources

Support efforts to foster mentorship

Support small businesses using crowdfunding

Clarify pathways to connect founders

and investors

Support diverse capital allocators

Support small public companies

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Througho

ut the yea

the Office

engaged

with

entrepren

eurs and

scientists

seeking c

apital to fu

innovatio

ns, includ

uring

a visit to

Mancheste

r, New

Hampshir

e in Octo

ber 2023

Proposed Solution

We encourage Congress and the Commission to regularly evaluate the rules

that encourage private companies to become public, as well as the rules

that support the many existing small public companies who face challenges

associated with remaining public. We encourage the Commission, when

considering new disclosure obligations for public companies, to continue

to consider scaling those obligations and phasing in compliance for small

public companies. Scaling disclosures may better balance the costs and

benefits of being a small public company, particularly the costs that are not

necessarily scalable. Additionally, phasing in compliance obligations helps

to promote better init

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