# Based on feedback from users of prior annual reports, we are pleased > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A04707d66b4ba14c6 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Annual Report 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 print version, but the clickable Contents menu throughout allows users 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 1 76 DATA: State of Capital Formation 4 21 Mature and Later-Stage Businesses Small and Emerging Businesses and Exempt Offering Data 31 Initial Public Offerings and Small Public Companies Expand educational resources 78 Support efforts to foster mentorship Support small businesses using crowdfunding 86 89 Support diverse capital allocators Support small public companies 83 Clarify pathways to connect founders and investors 81 ADVOCACY: What We Do 41 Women Founders and Investors 69 Natural Disaster Areas 54 93 Diverse Founders and Investors 71 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 T 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 T 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% 4 30% transitioned to jobs at large businesses (7.8M jobs) remained at small businesses (3.4M jobs) ADVOCACY What AD 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 C 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 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 A N MORE FOR IN FO SC Personal funds 53% Cash reserves 51% P A FU DI N G R OA D M Of the businesses that sought Grants or donations (with no repayment) 9% Rural Communities POLICY | Recommendations Recommendations N 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 C 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. 8% of small businesses received a loan from friends and family 15 2% of small businesses received an equity investment 16 Friends and family Angel investors 17% Equity crowdfunding RS ES P 60% 30% Business owners N O TY 71% A OF INVES MISSION | Who We Are DATA | State of Capital Formation Introduction Small and Emerging Businesses and Exempt Offering Data MORE FOR IN FO SC Investments from business owners and friends and family are the most common types of equity received.17 Contents Contents T Mature and Later-Stage Businesses Initial Public Offerings and Small Public Companies Women Founders and Investors Diverse Founders and Investors 8% 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 Previous network employment 7% 5% 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 S ON RT TI O P Awareness and credibility MORE FOR IN FO A N SUP Like-minded entrepreneurs SC 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 A 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 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. 24 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 C “ 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 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 eo 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 AD ADVOCACY VOCACY | What What We Do 150-mile radius33 $18.6 billion in angel investments in 2023 OMMITTEE | Highlights COMMITTEE C (16% decrease from 2022)34 N MORE FOR IN N? A FO SC TES | All the Details ENDNOTES ENDNO SE R FU GO CON ? diligence s the due e o d o h W id the l groups d an e g n a re e Wh rned , deals retu l value diligence ta to in f 2.5X average o mpared o (c l a it cap to paid in ments st e X for inv to the 1.6 d on e li re arily 35 that prim iligence). d y rt a -p third Women Founders and Investors D ON THE JA 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? RS ED O C R ITED INVE Contents Contents MISSION | Who We Are Who We MORE FOR IN AC 19% OF U.S. HOUSEHOLDS A N FO SC 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 ST 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 C s, you can In 44 state 10% of top be in the e ross incom g n adjusted a e v a h te and in the sta m o e gross inc adjusted 00. ,0 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 p deals re 23 eals in 20 34% of d in % 8 3 m (down fro continue d n a ) 2 2 20 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 $6B $9B $10B $15B $10B $8B $8B $6B H1 H2 H1 H2 H1 H2 H1 H2 H1 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 0% 2% 11% 1% 3% 14% 1% 1% 1% 5% 6% 5% 17% 18% 20% Average and median seed deal values44 54% 49% $25M+ $5M-$10M 51% 50% Average Deal Value 24% 2020 11% 10% 9% 8% 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 st re inte ownership dilutes or , it company that e portion th s e c u d re is th o s , own founders d e ll a c n e oft 46 funding is apital. dilutive c Contents 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 C 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 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 C COMMITTEE OMMITTEE | Highlights $1.2 trillion ENDNO ENDNOTES TES | All the Details OF F ER MORE FOR IN A YS A N FO $28 billion SC Initial Public Offerings ING P AT H W 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 assets invested in assets invested in Registered Funds Private Funds Separately Managed Accounts Contents MISSION | Who We Are unted for VCs acco or 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 $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 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? 55 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 SC COMMITTEE | Highlights A IG Hospitality, Retailing, Restaurants $4B $317M TI TI ON S N AV $841M A $65B MORE FOR IN ENDNOTES | All the Details $3B $28M $123B Real Estate $40B $46B Business Services N FO Manufacturing POLICY | Recommendations Recommendations NG YO U R O P $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 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 AD 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 35 In 2023, 2 e ti s had U.S. coun ded fu crowd n (down s ie n compa in 2022 from 273 om 220 and up fr 66 2 in 20 1). 722 713 357 MISSION We Are MISSION | Who We Are DATA | State of Capital Formation Introduction 281 269 262 Contents Contents 175 Small and Emerging Businesses and Exempt Offering Data H1 H2 H1 H2 2021 H1 H2 2022 New Form C Filings H1 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 WA 13 MT 1 OR 7 ID 4 NV 9 ND 0 WY 4 MN 7 SD 0 UT 4 CO 20 CA 121 AZ 18 OK 0 TX 38 AK 0 GU 0 NONE IL 19 PA 57 WV 0 MS 0 MD 12 RI 2 CT NJ 4 6 DE DC 20 7 GA 22 ADVOCACY | What ADVOCACY What We Do OMMITTEE | Highlights COMMITTEE C ENDNOTES | All the Details ENDNOTES SC 5 OFFICE | Meet the Team PR 2 $500,000-$1 MILLION POLICY | Recommendations Recommendations NC 18 TN 4 AL 3 VA 11 MA 25 FL 49 HI 4 LESS THAN $500,000 IN 4 OH 16 KY 3 AR 0 LA 2 51 MI 10 MO 8 KS 3 NM 6 WI 1 IA 0 NE 0 VT 2 NH 3 NY Rural Communities ME 3 $1 MILLION-$5 MILLION VI 0 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 H1 $649B $1,074B $1,060B $1,013B $1,069B $1,527B $970B $890B $107B $181B $182B $149B $134B $165B $89B $93B H2 H1 H2 H1 H2 H1 H2 H1 2020 2021 Contents 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 WA 3,214 MT 40 OR 227 ID 92 NV 260 Regulation D ND 57 MN 286 SD 48 WY 180 IA 121 NE 61 UT 516 CO 790 CA 4,154 AZ 391 WI 186 OK 98 NM 37 GU 0 NONE MS 36 MD 347 NJ 489 432 DE DC 1,625 144 GA 556 ADVOCACY | W ADVOCACY What hat We Do COMMITTEE | Highlights ENDNOTES | All the Details SC 149 Team OFFICE | Meet the Team PR 82 $1 BILLION-$5 BILLION POLICY | R POLICY Recommendations ecommendations NC 534 TN 284 AL 114 VA 450 RI 38 CT PA 634 WV 2 MA 1,239 FL 1,729 HI 21 LESS THAN $1 BILLION LA 50 OH 477 KY 110 AR 82 TX 2,635 AK 4 IN 247 MO 158 KS 118 NY 3,922 MI 222 IL 932 VT 167NH 35 Rural Communities ME 41 $5 BILLION-$20 BILLION VI 1 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 88 $2.8B 66 $2.0B 57 $1.5B $1.2B 18 28 19 25 25 22 20 H1 H2 H1 H2 H1 H2 H1 2021 2022 2023 Amounts Sought in Qualified Offerings New Initiated Offerings Seeking $50M or Less Introduction 77 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 WA 6 MT 0 OR 0 ID 1 NV 11 Regulation A ND 1 WY 1 MN 0 SD 0 IA 0 NE 0 UT 1 CO 2 CA 21 AZ 1 WI 0 OK 1 NM 0 TX 6 GU 0 NONE AK 0 LESS THAN $5 MILLION IN 0 MO 0 KS 1 OH 0 KY 0 MS 0 AL 0 VT 0 NH 0 VA 1 Rural Communities ME 0 PA 1 WV 1 Natural Disaster Areas MD 0 MA RI 0 0 CT NJ 3 0 DE DC 1 1 GA 2 COMMITTEE | Highlights OFFICE | Meet the Team PR 0 $5 MILLION-$20 MILLION ADVOCACY | What We Do ENDNOTES | All the Details SC 0 FL 13 HI 0 POLICY | Recommendations NC 1 TN 2 AR 0 LA 0 NY 9 MI 1 IL 0 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 C 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 44 Natural Disaster Areas Salt Lake City Sacramento Rural Communities 36 New York 70 San Francisco 80 Minneapolis 35 33 Chicago 45 33 Denver 49 Indianapolis Los Angeles 62 Dallas 38 San Diego 44 Austin 47 Boston 61 POLICY | Recommendations Washington DC 50 49 ADVOCACY | What We Do Raleigh Philadelphia 38 COMMITTEE | Highlights Atlanta 38 ENDNOTES | All the Details Houston 38 OFFICE | Meet the Team Miami 47 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 H1 $49B $38B H2 2020 2,316 2,258 2,388 2,247 2,305 H1 $45B H2 H1 $49B $57B $26B $23B H2 H1 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 H2 H1 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 $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 s of startup 60%-70% n w d a do that raise nt on to e w d roun y ther equit raise ano in it x e r round o 94 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: 96 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 at anagers th VC fund m ore m 506(c) are with use Rule s p u nd start likely to fu and , women, e first-tim l o o h c s non-elite 103 . rs u e n re 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 56 $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 e t has com apital tha gly in s a re c Investor c in em has st sy o b c e d ds le y into the d into fun le e n g n fu n bee ers, leavin110 d manag e h s . li rs b e a g st a e an 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 3% 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 it st in s and rm fi 116 e d lu 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 3% 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 A MORE FOR IN N FO SC 2,006 DATA | State of Capital Formation Acquisitions generated 40% of exit value and accounted for 71% of exit volume. IT 1,417 IE Small and Emerging Businesses and Exempt Offering Data S E X 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 $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 C 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 A N 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 MORE FOR IN FO SC 609 MISSION | Who We Are 471 Women Founders and Investors A D $113B 131 74 H1 H2 $16B $5B H1 H2 2021 2022 83 87 101 $11B $13B $19B H1 H2 H1 2024 2023 Total IPO Proceeds Y LI RE $189B C? Diverse Founders and Investors TO G O P U B 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 w niche, ne operate in arkets… and m emerging nd rally beyo e n e are g s…” e g a st t en their nasc MISSION | Who We Are DATA | State of Capital Formation 354 Introduction 125 RBES EGOV, FO IVAN LUN $155B 115 68 88 $144B 37 51 51 48 $8B $20B $17B 2022 2023 2024* $4B $1B $1B $0.3B 2021 2022 2023 2024* 2021 Deal Value of IPOs 2021 Numbers of IPOs Small and Emerging Businesses and Exempt Offering Data 86 $12B 31 $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 than 3 years post-IPO. Contents MISSION | Who We Are 132 DATA | State of Capital Formation When a lead VC remains invested in and continues to actively monitor a portfolio company post-IPO, it increases the VC’s returns and creates value through advisory and supportive roles. 133 Introduction Small and Emerging Businesses and Exempt Offering Data Mature and Later-Stage Businesses The underwriting structure affects small v. large IPOs differently.134 What is an underwriting syndicate? A group of investment banks and brokerdealers that sell a pool of securities in an IPO or other public offering.135 How does the structure affect the IPO? The number of underwriters and the distribution of shares, also called the syndicate structure, affects the IPO process and outcomes, but the effects vary by IPO size. Initial Public Offerings and Small Public Companies Women Founders and Investors Diverse Founders and Investors Natural Disaster Areas Rural Communities When there is more competition within the syndicate structure among underwriters, the IPO tends to have the following characteristics.136 For small IPOs: Lower underwriting more negative price spreads—meaning the company pays a lower adjustments.137 For large IPOs: More underwriter competition fee to the underwriters.138 for future equity offerings post-IPO.139 For large IPOs: more analysts following the company after the IPO.140 The average price adjustments during bookbuilding for small IPOs is -12.8%, but for large IPOs is 3.1%.141 SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 33 POLICY | Recommendations ADVOCACY | What We Do COMMITTEE | Highlights ENDNOTES | All the Details OFFICE | Meet the Team How has the U.S. public market changed over time? Small exchange-listed companies continue to account for the majority of the decline in the number of exchange-listed companies.142 Contents Total Exchange-Listed Companies MISSION | Who We Are 6,342 5,677 4,756 DATA | State of Capital Formation 2,317 1,036 3,914 824 2,318 4,641 Small Exchange-Listed Companies 1980 1,596 1990 3,636 2,570 Large Exchange-Listed Companies 4,025 3,932 Introduction 2000 2010 1,066 2020 While the aggregate market value of large exchange-listed companies has grown exponentially since 1980, the aggregate market value of small exchange-listed companies has continued its gradual decline.143 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 Large Exchange-Listed Companies as a percentage of U.S. GDP 183% 183% 138% 95% Small Exchange-Listed Companies as a percentage of U.S. GDP 40% 43% 6% 3% 2% 1% 1% 0.4% 1980 1990 2020 2010 2020 2024* et cap gate mark The aggre hange-listed xc of large e nued to has conti s ie n compa trillion, ver $52.5 grow to o arket m ggregate a e th t u b ge-listed all exchan m s f o p a c tinued s has con companie n.144 li 104 bil o $ to ll fa to POLICY | Recommendations ADVOCACY | What We Do COMMITTEE | Highlights ENDNOTES | All the Details *As of June 28, 2024 OFFICE | Meet the Team SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 34 What is driving the overall decline in the number of U.S. exchange-listed companies—sometimes called the U.S. listing gap?145 While mergers and acquisitions (also called M&A), regulatory costs, and private equity are commonly cited as factors driving the growth of the U.S. listing gap, M&A and regulatory costs seem to be the largest contributors. Conversely, private equity might have the opposite effect and aid companies in reaching a stage in which they are ready to go public.146 Contents MISSION | Who We Are DATA | State of Capital Formation Mergers and Acquisitions M&A activity is a main driver of the U.S. listing gap and provides a viable and cost-effective exit strategy to entrepreneurs and early-stage investors.147 The M&A activity that increases the listing gap primarily relates to private companies that get acquired prior to reaching a stage in which they are ready to go public, rather than transactions where public companies delist.148 Regulatory Costs 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 Regulation can increase the operating costs of a public company and potentially disincentivize private companies from listing and may increase the listing gap.149 Diverse Founders and Investors Natural Disaster Areas Rural Communities POLICY | Recommendations Private Equity In the short term, private equity can reduce the financing costs for private companies, thereby decreasing their incentives to go public at that time.150 ADVOCACY | What We Do In the long term, private equity activity may increase the number of listings by nurturing startups until their IPOs.151 Private equity COMMITTEE | Highlights activity may spur entrepreneurship and provides financing to private companies that later go public, essentially delaying a company's decision to go public rather than replacing it entirely.152 ENDNOTES | All the Details OFFICE | Meet the Team SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 35 Where are registered offerings—often called public offerings—being used to raise capital? Contents The shading of each state shows the estimated total capital raised and the number indicates the total number of offerings in that state.153 Registered Offerings WA 36 MT 1 OR 20 ID 7 NV 32 ND 1 MN 38 SD 11 WY 1 IA 9 NE 14 UT 11 CO 25 CA 450 AZ 17 OK 19 TX 191 GU 0 AK 0 IL 82 IN 31 OH 43 KY 7 PA 49 WV 0 MS 1 AL 2 VA 66 MD 28 MA 125 RI 11 CT NJ 29 85 DE DC 11 6 NC 55 TN 29 AR 6 LA 3 NY 387 MI 171 MO 18 KS 5 NM 0 WI 14 VT 0 NH 2 MISSION | Who We Are ME 0 GA 61 Introduction Small and Emerging Businesses and Exempt Offering Data Mature and Later-Stage Businesses SC 2 Initial Public Offerings and Small Public Companies Women Founders and Investors FL 105 HI 0 DATA | State of Capital Formation PR 1 Diverse Founders and Investors VI 0 Natural Disaster Areas LESS THAN $1 BILLION $1 BILLION-$5 BILLION $5 BILLION-$20 BILLION OVER $20 BILLION Rural Communities Small Public Companies POLICY | Recommendations Small public companies represent almost half of all public companies, but a third of them are not exchange-listed.154 ADVOCACY | What We Do N MORE FOR IN S LI I E B C C O M PA N of small public companies are not listed on an exchange Large Public Companies 2,861 COMMITTEE | Highlights ENDNOTES | All the Details PU 33% A FO Small Public Companies 2,630 SC NONE (compared to 2% of large public companies that are not listed on an exchange). SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2024 ANNUAL REPORT | 36 OFFICE | Meet the Team Small public companies continue to struggle following their IPOs.155 Market Cap: <$500M Annual Revenue: <$50M Market Cap: $500M-$1B Annual Revenue: $50-$200M Market Cap: >$1B Annual Revenue: >$300M Contents MISSION | Who We Are Trading Up DATA | State of Capital Formation Trading Down Public companies that had a market cap below $500M or annual revenues below $50M traded down at much higher levels than larger public companies.156 Introduction Public market investors focused 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 272 249 221 221 30 small Of the 2,6 anies mp public co rket, only a m in the capital 13% raised gistered re through a ering in equity off ed nths end 162 the 12-mo . 4 2 0 2 June 30, 232 171 $17.8B $14.9B 102 $4.8B H1 H2 H1 2021 $3.1B $3.0B H2 H1 2022 Total Proceeds $2.7B $2.9B H2 H1 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 p r e ll a m S ligible to may be e sure aled disclo rely on sc n o dati s accommo rting ded repo and exten . timelines A smaller public company incurs annual costs of: S & R * Includes Emerging Growth Company (EGC) benefits TU $361,000 TA Disclosure and governance* A MORE FOR IN FO $129,000 N FILE SOX 404 compliance MISSION | Who We Are DATA | State of Capital Formation Introduction $36,000 SC Enhanced disclosure Contents RE PORTING S 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 3% 8% 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 7% 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 n e of wom r e b m u n the s grew by businesse r e y lo p em 18% en-owned rm 4 d to 1% fo s).17 (compare in 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 4% White 82% Native American/ Alaska Native 1% Native Hawaiian and Pacific Islanders 0.3% POLICY | Recommendations Asian American 6% Hispanic/Latino 9% 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 1% 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 WA MT ME ND MN OR ID WI SD NY IA NE IL CO KS CA AZ DC WV VA KY DE MD NC TN SC AR MS AL GA LA TX AK OH IN MO OK NM NJ PA UT FL HI GU RI CT MI WY NV VT NH MA orting tes Supp Top 10 Sta eurs n re p ntre Women E . ington D.C 5 Wash rado 5 Colo ii 5 Hawa ington 5 Wash on 5 Oreg ming 5 Wyo na 5 Arizo rnia 5 Califo York 5 New Mexico 5 New VI PR 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. for their next startup. POLICY | Recommendations ADVOCACY | What We Do COMMITTEE | Highlights Women founders comprise: 16% of first-time VC-backed entrepreneurs. 9% of two-time VC-backed entrepreneurs. 4% 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 y a compan at which me, ti r e s cash ov a s spends it a d te y quo frequentl . te ra 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 7.8 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% 5% 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% 7% 4% Chief Executive Officer 11% 17% 16% Introduction Chief Operating Officer 2014 MISSION | Who We Are DATA | State of Capital Formation 17% 7% 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 am chang ming to eh prom iring, otion, reten invest tion, and ing pr actice s G LOPIN DEVE o t s ie strateg nique te u a ig v a nges n challe sional ying s fe o r p plif and am oices v e s r e 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% 9% 0.3% 1% 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 vs 1 in 20 African American/Black households.245 84% 66% 13% White 10% Other and Multiracial Share of U.S. Households 11% 3% 10% African American/Black Introduction Small and Emerging Businesses and Exempt Offering Data 2% 16% Share of U.S. Net Worth 27% 8% 6% 7% 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 a limit the resented underrep to tap founders ss 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 6% 73% 13% 12% using epreneurs 27% oftieonntrCrowdfunding Regula red to e, compa are divers s ll busines 34% ofastmaare diverse.269 owners th 77% 10% 83% African American/Black Introduction Small and Emerging Businesses and Exempt Offering Data 1% 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 MT ME ND VT NH MA NY MN OR ID WI SD San Fransisco NV IA NE UT CO IL KS IN MO OK NM SC AR AK Atlanta GA Mature and Later-Stage Businesses LA Austin FL HI Miami GU PR Ranking of U.S. states for African American/Black and Hispanic/Latino entrepreneurial success Top 1-10 States Top 21-29 States AL VI 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 NC TN MS TX DC DATA | State of Capital Formation DE MD VA KY Los Angeles AZ CT OH WV MISSION | Who We Are RI NJ PA Chicago Denver CA New York City MI WY 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 $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 e p s e is kd can/Blac This tren an Ameri ic s fr A rm fi g n d amo -owne ic/Latino e n li a ls p a is e H d d an s of their d ir h -t rs o e ondiv e where tw l pool of n a e d e th 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 5% 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 3% 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 8% 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 in rs’ earn u e n r re p e entr n all othe r rate tha e w lo d s le a b t a a is cluding d groups, in reneurs and p 318 non-entre uals. led individ b a is -d n o n 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 5% 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? 7% 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 to le ulnerab 333 acutely v due to: disasters ption flow disru 5 Cash to capital ss e c d ac 5 Limite amage ructure d 5 Infrast l demand a ished loc in im D 5 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 ADVO [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A04707d66b4ba14c6. Public record. Not legal advice.