ABOUT THIS REPORT + ACKNOWLEDGEMENTS

Annual

Report

FISCAL YEAR 2022

ABOUT THIS REPORT + ACKNOWLEDGEMENTS

This annual report of the Office of the Advocate for Small Business Capital Formation

for Fiscal Year 2022 is being delivered to the Committee on Banking, Housing, and

Urban Affairs of the U.S. Senate and the Committee on Financial Services of the U.S.

House of Representatives in accordance with Section 4(j) of the Securities Exchange Act

of 1934 (the Exchange Act), as amended by the SEC Small Business Advocate Act of

2016, 15 U.S.C. § 78d(j)(6).

Pursuant to Section 4(j)(6)(D) of the Exchange Act, this Report is provided directly to

the committees of Congress without any prior review or comment from the Commission,

any Commissioner, any other officer or employee of the Commission, or the Office of

Management and Budget. It does not necessarily reflect the views of the Commission, the

Commissioners, or staff of the Commission.

The work of the Office is possible only through the support of our talented and

passionate colleagues across the agency. The Office owes special thanks to our colleagues

who provided resources for this Report, including the Division of Economic and Risk

Analysis for providing data to quantify the state of small business capital formation and

contextualize issues, and the Office of Public Affairs for making our written product for

this report visually engaging. We particularly thank the following individuals: [Names to

be provided].

Message from the

Small Business Advocacy Team

I

t has been another challenging year for small businesses. While the most significant hardships

brought by COVID-19 appeared to lessen, many small businesses were simultaneously forced to

confront a host of new issues. This year has brought an acute awareness of disruptions to supply

chains, rising interest rates, inflationary pressures, a constrained labor market, and heightened

geopolitical conflicts.

For small businesses looking to raise capital, the “banner year” we discussed in our 2021 annual report

quickly faded away. Raising investment capital became harder at every stage of the capital raising cycle.

The challenges for underrepresented founders were even further magnified.

Now, more than ever, it is important to focus on the need for strong connections between founders and

the investors looking to support them, as reflected in the visual theme of this year’s annual report: building

bridges. We call on Congress, the Commission, and our partners to support small businesses and their

investors, with a particular focus on underrepresented founders and their investors.

On a more personal note, this year brought the departure from the SEC of Martha Legg Miller, the

inaugural Director of the Office. Martha brought wisdom, vision, and creativity, all of which have come

to define the work of the Office. Each of our annual reports has endeavored to embody those qualities.

Martha’s legacy is extensive and wide ranging—from our novel and interactive educational resources

that break down the securities laws and empower entrepreneurs and their investors, to behind-the-scenes

advocacy for policy changes that gave a voice within the Commission to entrepreneurs and investors

alike. Thank you, Martha, for your public service. We hope this year’s report shows that we are proud to

continue passionate advocacy for small businesses and their investors!

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Breaking Down Our Long Title

An independent office housed

within the U.S. Securities

and Exchange Commission,

created by Congress

One called to use your

voice for others, derived

from Medieval Latin

Office of the Advocate for

Small Business Capital Formation

From startups to small cap,

“small” is relative for the Office,

which supports emerging,

privately-held companies up to

small public companies

The deployment of

productive capital by

informed investors to

create economic growth

Contents

ABOUT THE OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

HIGHLIGHTS FROM FISCAL YEAR 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . .114

STATE OF SMALL BUSINESS CAPITAL FORMATION . . . . . . . . . . . . . . . . . . . . 13

Small and Emerging Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Mature and Later-Stage Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Small Public Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Women Business Owners and Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Minority Business Owners and Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Natural Disaster Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Rural Communities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

POLICY RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

Entrepreneurs and their investors need accessible tools and educational

resources to navigate complex securities laws. . . . . . . . . . . . . . . . . . . . . . . . .70

Targeted regulatory changes can improve access to capital . . . . . . . . . . . . . . . . 72

Connecting founders with savvy investors is essential to capital raising. . . . . . . . . . 76

Emerging fund managers play a key role in small business capital formation and

need support.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Scaled disclosures for small public companies help them stay public.. . . . . . . . . . . 81

SMALL BUSINESS CAPITAL FORMATION ADVISORY COMMITTEE

FY2022 SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

ENDNOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

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About the Office

T

he Office advocates for solutions to address challenges faced by small businesses and their

investors raising and deploying capital. “Small business” for the Office spans from early-stage

startups raising seed capital, to later-stage private companies whose founders and investors

are seeking liquidity in the public markets, all the way to smaller public companies. Congress

established the Office via the bipartisan SEC Small Business Advocate Act of 2016 as an independent

office within the U.S. Securities and Exchange Commission (SEC) that reports to the entire

Commission as well as to multiple committees of Congress.

The Office approaches its advocacy mission by:

§ Engaging with small businesses and their investors to understand their most pressing capital

raising issues;

§ Identifying unique capital raising challenges faced by minority-owned, women-owned, rural, and

natural disaster-affected small businesses and their investors;

§ Analyzing the potential impact of policy changes likely to significantly affect small businesses and

their investors; and

§ Advocating to Congress and the Commission for policy changes.

Mission

We champion pragmatic solutions so that small businesses—from startups to smaller public

companies—and their investors can build great companies together using our capital markets.

Core Values

§ ACCESSIBILITY — We engage with both small businesses and their investors, as well as with

the SEC, SROs, Congress, and other agencies on a regular basis through a variety of channels.

§ INCLUSIVITY — We encourage people to speak openly and contribute authentically to

facilitate greater trust and collaboration.

§ PRAGMATISM — We approach problems with a solution-oriented mindset to make

practical recommendations.

§ EFFICIENCY — We operate like a lean startup, maximizing resources and focusing activities

where the Office can have a meaningful impact.

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Our Advocacy Team

SEBASTIAN GOMEZ

ABERO

Deputy Director

JENNY J. CHOI

Special Counsel

KIM DINWOODIE

Engagement Specialist

SARAH R. KENYON

Capital Formation Analyst

VIKKI PORTER

JOHN CAVANAGH

Special Counsel

JULIE ZELMAN

DAVIS

Senior Special Counsel

COURTNEY

HASELEY

Special Counsel

JEPHTE LANTHIA

Special Counsel

AMY REISCHAUER

Visual Design Strategist

Strategic Engagement

Advisor

JENNY RIEGEL

MALIKA SULLIVAN

Policy Manager

Executive Assistant

TODD VANLAERE

Law Clerk

2

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S E C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

FY2022 at a Glance

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.

Our reach extends coast to coast, across media platforms, and to a range of partners and organizations.

32

68

36

SPEAKERS

85+

EVENTS

1/3 in person

HOURS

of content

@SECGov TWEETS

and 2MM+ IMPRESSIONS

across our social media platforms

2K+

24+

ATTENDEES

PARTNERS

collaborated

on events

52

U.S. STATES and territories,

10 TRIBAL NATIONS, and

25 COUNTRIES represented

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3

Our educational resources cover a range of topics, are easily accessible, and are expanding.

24K+

VISITS

to the

CAPITAL RAISING HUB

1

CAPITAL

RAISING HUB

for all SEC

small business

resources

1

119K+

views of our

EDUCATIONAL TOOLS and

SMALL BUSINESS RESOURCES

NAVIGATOR TOOL

to explore many pathways to capital

10

BUILDING

BLOCKS

3

YEARS

OF DATA

in our interactive

CAPITAL TRENDS MAPS

4

|

68

TERMS

in our expanded

CUTTING THROUGH

THE JARGON glossary

8 new

EDUCATIONAL

VIDEOS

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Outreach and Engagement

This year, we had opportunities to connect in person at outreach events and in small group gatherings.

We also continued to leverage the benefits of remote engagement by reaching diverse audiences across

the small business ecosystem and across the country through virtual events and speaking engagements.

We found opportunities to share information about our Office’s resources, programs, and services and

to hear from small businesses, their investors, and other thought leaders in the market.

Entrepreneurs shared their challenges and successes building and funding their businesses.

[Starting a business] is very tough. You have to have a passion for it. You have to

believe in yourself and never accept no for an answer.

— DOKMAI WEBSTER, Founder and CEO,

Pivotal Point LLC

We heard from women and minority entrepreneurs about the unique challenges they face and

how obstacles to capital raising are heightened for underrepresented groups.

One struggle for a lot of underrepresented founders is that many don’t have

mentors. If only two percent of venture dollars are going to Black and minority

founders, then there aren’t that many to get advice from. Without that network and

the advice of people who have been there before, [new founders] can’t get there.

— DAVE LU, Founder and Managing Partner,

Hyphen Capital

Founders and investors across the country shared insights about the challenges and opportunities

of raising capital outside of the traditional hubs.

As [local entrepreneurial ecosystems] develop and the number of firms increase over

time in an area, you develop a critical mass that then makes it easier to attract

subsequent investment.

— MARYANN FELDMAN, Watts Endowed Professor,

Arizona State University

We engaged with fund managers, investors, and entrepreneurs on how to increase diversity among

capital allocators and the impact it could have on underrepresented founders.

As a woman who has had success and came from very humble beginnings, it’s

my responsibility to recruit more women and people of color to invest. Because

research shows that if you have more women and people of color investing,

more women and people of color get funded.

— CAROLINE CUMMINGS, CEO,

Regional Accelerator & Innovation Network (RAIN)

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Highlights from FY2022

Some of the events in which we have engaged this year include:

Joined Wyoming

founders, investors,

and small business

leaders for an engaging

conversation hosted by

gBETA about capital

raising for early-stage

Wyoming companies.

Joined UNC’s Black

Technology Ecosystem

Investors Certificate

Program to discuss

rules on early-stage

investing, focusing on

building ecosystem

capacity through the

equitable inclusion of

Black investors.

Showcased our

Office’s Capital

Raising Navigator

tool and other

educational resources

on a podcast with Dave

Lynn of TheCorporate

Counsel.net.

Discussed the SEC’s

role in expanding DE&I

in capital formation

and equity ownership

with investors and

entrepreneurs at the

Carta Equity Summit.

Q1 FY2022

6

|

Hosted our third annual

Capital Call, styled

after public companies’

earnings release calls

and giving the public

opportunities to ask

live questions.

Joined the U.S. Small

Business Administration

and the Department

of Treasury for

#NatlEshipWeek’s

Funding & Financing

Friday event highlighting

the wide array of

government programs

and resources available

to entrepreneurs

seeking to launch and

grow a business.

Discussed diversity

among capital allocators

and entrepreneurs and

bridging the divides at

Kenan’s Frontiers of

Entrepreneurship Series.

Engaged in discussion

on challenges women

face when raising

capital, especially

women of color, at

Phoenix, AZ event

hosted by Prestamos

CDFI Women’s

Business Center.

Q2 FY2022

S E C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Shared challenges

and insights on how

historically underfinanced entrepreneurs

may seek to build

investor networks and

access capital raising

resources at event

hosted by William

Factory Small Business

Incubator.

Shared an overview

of the SEC and capital

raising pathways

with cohort of

Florida International

University MBA

students interested

in entrepreneurial

ventures.

Hosted the SEC’s 41st

annual Small Business

Forum.

Engaged with

students from

University of

Missouri-Kansas

City’s executive MBA

program on the

SEC’s rulemaking and

regulatory processes.

Delivered the keynote

presentation at the

Michigan Celebrates

Angels annual event

celebrating the success

of angel investors in

Michigan startups and

early-stage technologybased companies.

Joined the Department

of Treasury and

state and tribal

representatives for

an overview of how

federal securities laws

apply to investment

capital raising—

specifically for State

Small Business Credit

Initiative equity

program investments.

Q3 FY2022

Featured in the

National Diversity

Coalition’s town

hall panel discussion

highlighting the need

to bridge access

to educational and

legal resources for

minority-owned small

businesses—with

specific focus on

empowering the AAPI

community.

Participated in a

roundtable hosted

by Engine during

#StartupAdvocacyWeek

on innovative endeavors

by entrepreneurs across

the country.

Joined the Capital

Region Minority

Supplier Development

Council for a panel

discussion on the

challenges facing

minority business

owners.

Led a webinar on equity

capital raising hosted by

Small Business Majority

on challenges facing

women and minority

business owners and

demonstrated SEC

tools to empower

entrepreneurs.

Joined the University

of Houston C.T. Bauer

College of Business for

a series of discussions

on entrepreneurship,

capital raising, and the

importance of diversity,

equity, and inclusion.

Shared SEC tools

and resources for

empowering business

owners to learn more

about capital raising at

a workshop hosted by

KiwiTech.

Q4 FY2022

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41st Small Business Forum

The SEC’s annual Small Business Forum is a unique event where members of the public and private sectors

gather to provide feedback to improve capital raising policy.11 The Forum covers a broad range of issues

affecting small businesses and their investors, from early-stage entrepreneurial ventures to smaller public

companies.

This year marked the 41st Forum, which the Office hosted virtually over four days from April 4-7, 2022.

Each day featured speakers with in-depth knowledge of the issues facing small businesses across the

country, spotlighting the following topics:

A G E N DA

l4

Monday, Apri

preneurs

e

r

t

n

E

g

in

r

e

Empow

g

capital raisin

ate

Tools to navig

ril 5

Tuesday, Ap

eneurship

r

p

e

r

t

n

E

n

w

Hometo

tside of

can thrive ou

neurs

How entrepre hubs

g

capital raisin

April 6

Wednesday,

r Voices

o

t

s

e

v

In

w

e

N

rs are

fund manage

g

How emergin pital

a

c

g

diversifyin

ril 7

Thursday, Ap

orld

Small Cap W

ink ahead

nd how to th

wa

What to kno

At the end of each day’s session, participants prioritized policy recommendations on that topic to be submitted

to the SEC and to Congress. Video archives of each day’s events are available in the Forum video gallery.

On July 28, 2022, the Commission delivered the 2022 Forum Report to Congress, which summarizes the

Forum proceedings, including the recommendations developed by participants for changes to the capital raising

framework and the Commission’s responses to those recommendations.

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SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Educational Tools and Resources

In the fall of 2021, in partnership with other SEC offices and divisions, we

launched our Capital Raising Hub,2 a centralized portal for educational

tools and resources for entrepreneurs and their investors. We have continued

to expand and update the Capital Raising Hub in response to feedback

from small businesses and investors to make it easier to find all of our small

business resources. In addition, the Capital Raising Hub is now directly

accessible under the “Education” tab on the SEC’s homepage. Visitors to the

Hub will find resources to support each phase of the capital raising journey.

CAPITAL

RAISING

HUB

Getting Started:

Understanding the Fundamentals

Navigate Your Options

We have continued to improve our interactive tool that

explores regulatory pathways to raise capital, identifying

the most relevant options based on the user's answers

to a series of questions about their business.

Cutting Through the Jargon

We also have expanded our curated glossary of key

terminology that makes the language of capital raising

more accessible to small businesses and their investors.

Building Blocks

This year, we launched the first of several installments of our suite of educational

materials that break down fundamental securities law concepts into plain language.

We have continued to expand this collection of resources based on feedback

received directly from prospective users through our outreach efforts.

Capital Raising Video Gallery

As part of the expansion of our Capital Raising Hub,

we launched our new Capital Raising Video Gallery,

where users can find a number of educational videos,

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including our A

Capital

101 FI

series

other

videos

highlighting pertinent capital raising topics and data.

Continuing the Journey:

Exploring Pathways to Raise Capital

Exempt Offerings

Through the more comprehensive Capital Raising

Hub, users can find our resources on common capital

raising pathways—like how to raise capital from

investors without registering the offer and sale of

those securities with the SEC.

Going Public

The expanded Capital Raising Hub also directs

users to resources on how to prepare for and raise

capital through a registered public offering.

Rulemaking Video Gallery

In our efforts to monitor the potential impact of policy

changes on small businesses and their investors, we

launched several videos that provide a high-level

summary of relevant policies or rulemaking initiatives

that the Commission is considering.

10

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SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

The Landscape:

Data, Research, and Other Resources

Capital Trends Maps

We regularly update the data available through our

interactive maps to allow users to stay informed about

how and where capital is being raised across the country.

Research Reports

Reports and studies on capital raising issues and

trends from around the country are also available.

Small Business Compliance Guides

Our comprehensive Capital Raising Hub affords

easy access to the SEC's small business compliance

guides, which provide valuable information on SEC

rules on offering and selling securities and financial

and other reporting by public companies and how

they may affect smaller businesses.

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12

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SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

State of Small Business

Capital Formation

T

he 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 figures and

findings from third parties. We hope this approach provides a comprehensive snapshot of the

state of U.S. small business capital formation, amalgamating 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. The data supplements anecdotal evidence and helps quantify the successes and

challenges in small business capital formation nationwide. Unless otherwise indicated, the data period

for DERA data is July 1, 2021 to June 30, 2022. Using data, we can better identify what tools, strategies,

and approaches would be most helpful in crafting policy solutions.

What regulatory pathways are companies using to raise capital?3

Rule 506(c)

$148B

($800,000 median)

Rule 506(b)

Regulation A

$1.8B

Private Placements

$2.3T

($1.3M median)

Rule 504

$624M

($250,000 median)

Initial Public

Offerings

$126B

($150M median)

($2.2M median)

Crowdfunding

$368M

($100,000 median)

Other Exempt

Offerings4

$2.0T

Other Registered

Offerings

$1.1T

($450M median)

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What pathways are available to raise capital from investors?

EXEMPT OFFERINGS

Offerings conducted pursuant to an exemption from registration are often referred to as exempt offerings.

There are multiple exemptions available for small businesses looking to raise capital from investors.

Rule 506(b) Private Placements allow companies to raise

unlimited capital from investors with whom the company has a

relationship and who meet certain wealth thresholds or have certain

professional credentials. A company cannot use general solicitation

in a 506(b) private placement.5

Rule 506(c) General Solicitation Offerings allow companies to

raise unlimited capital by broadly soliciting investors who meet

certain wealth thresholds or have certain professional credentials.6

Rule 504 Limited Offerings allow companies to raise up to $10

million in a 12-month period, in many cases from investors with

whom the company has a relationship.7

Regulation Crowdfunding Offerings allow eligible companies

to raise up to $5 million in investment capital in a 12-month period

from investors online via a registered funding portal.8

Intrastate Offerings allow companies to raise capital within a

single state according to state law. Many states limit the offering

to between $1 million to $5 million in a 12-month period.9

Regulation A Offerings (sometimes called a “mini-IPO”) allow

eligible companies to raise up to $20 million in a 12-month period in

a Tier 1 offering and up to $75 million in a 12-month period in a Tier

2 offering through a process similar to, but less extensive than, a

registered offering.10

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SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

REGISTERED PUBLIC OFFERINGS

A registered public offering is commonly used to describe an offer and sale of securities that has

been registered under the Securities Act. Companies must file a registration statement with the SEC

and may not sell the securities until the SEC declares the registration statement effective.

Initial Public Offerings (IPOs) provide an initial pathway for

companies to raise unlimited capital from the general public

through a registered offering. After its IPO, the company will be a

public company with ongoing public reporting requirements.11

Secondary Registered Offerings allow companies to raise

unlimited capital through secondary offerings using a registration

statement filed with the SEC.12

How are different industries using the top 3 offering pathways

to raise capital (excluding pooled funds)?13

Banking and

Financial Services

$576B

Technology

$155B

Real Estate

$64B

Energy

$108B

Health Care

$67B

$34B

$89M

Manufacturing

$99B

$143M

$42B

$84B

$76B

$89M

$755M

$10B

$33M

$2B

Hospitality, Retailing,

Restaurants

$3B

$40B

$2B

Business Services

$33M

$233M

$39B

REGISTERED OFFERINGS

REGULATION D

REGULATION A

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15

$375M

Where are companies raising capital?14

The following maps illustrate the concentration of estimated total capital raised under various offering

types by issuers that report a primary location in the U.S., with the number of offerings conducted

indicated on each state.

WA

7,490

Regulation D

MT

67

OR

310

ID

125

NV

341

ND

46

MN

377

SD

46

WY

207

IA

123

NE

84

UT

1,947

CO

1,057

CA

6,340

AZ

516

WI

180

OK

138

NM

59

GU

0

NONE

MS

34

LA

78

MT

1

MN

9

SD

0

AZ

13

OK

2

TX

59

GU

0

NONE

AK

0

OH

13

KY

4

MS

0

AL

4

OVER $20 BILLION

VT

3 NH

10

ME

3

PA

33

WV

0

VA

20

MD

12

MA

50

RI

1

CT

NJ 16

10

DE

DC 11

4

NC

12

TN

11

AR

1

GA

24

SC

10

FL

61

HI

2

LESS THAN $500,000

IN

2

IL

14

LA

2

NY

71

MI

10

MO

10

KS

1

NM

4

WI

6

IA

3

NE

0

CO

19

VI

1

Regulation

Crowdfunding

ND

1

WY

1

CA

194

SC

187

$5 BILLION - $20 BILLION

$1 BILLION - $5 BILLION

UT

15

MD

426

PR

79

WA

14

NV

8

CT

NC

601

GA

676

AL

208

VA

617

RI

51

FL

2,028

LESS THAN $1 BILLION

ID

11

WV

8

MA

1,695

NJ 615

587

DE

DC 1,215

285

PA

803

TN

365

HI

36

OR

10

OH

497

KY

118

AR

137

TX

3,434

AK

9

IN

249

MO

206

KS

152

NY

5,688

MI

357

IL

1,129

ME

61

VT

300

NH

67

PR

1

$500,000 - $1 MILLION

$1 MILLION - $5 MILLION

VI

0

OVER $5 MILLION

Regulation A

WA

7

MT

0

OR

2

ID

1

NV

15

ME

1

ND

1

WY

1

SD

0

CO

4

CA

53

AZ

8

WI

0

IA

0

NE

0

UT

4

VT

0 NH

MN

3

OK

2

GU

0

NONE

MS

0

LA

0

MT

0

NV

25

CO

31

AZ

28

SD

2

GU

0

NONE

LESS THAN $1 BILLION

WI

9

IA

4

OK

5

NM

2

IL

74

IN

20

OH

59

KY

9

MS

3

AL

5

OVER $75 MILLION

VT

0 NH

2

ME

12

PA

55

WV

0

VA

60

MD

22

MA

127

RI

4

CT

NJ 35

50

DE

DC 14

10

NC

54

TN

20

AR

9

LA

2

NY

442

MI

107

MO

22

KS

2

TX

173

AK

4

VI

0

$20 MILLION - $75 MILLION

MN

34

NE

18

CA

349

SC

1

Registered

Offerings

ND

1

WY

1

UT

19

MD

3

CT

NJ 1

6

DE

DC 2

6

NC

5

GA

11

AL

0

VA

3

PR

1

$5 MILLION - $20 MILLION

ID

5

WV

0

RI

0

FL

38

WA

35

OR

9

OH

2

PA

2

TN

0

HI

0

LESS THAN $5 MILLION

IN

2

KY

1

AR

0

TX

6

AK

0

IL

4

MO

0

KS

0

NM

0

MI

0

MA

3

0

NY

101

GA

42

SC

6

FL

89

HI

2

PR

0

$1 BILLION - $5 BILLION

$5 BILLION - $20 BILLION

VI

0

OVER $20 BILLION

What is happening with Regulation Crowdfunding offerings?

The number and amount of crowdfunding offerings continue to

increase, supporting more women-founded, minority-founded, and

geographically diverse companies across the U.S.15

160,000

41%

of crowdfunded

issuers that raised

$1 million or more

had minority

founders

employees were

supported by

crowdfunded

businesses

46%

of crowdfunded

issuers that raised

$1 million or more

had women

founders

70%

66%

of capital

is distributed

outside the top 10

traditional

capital hubs

of investments

supported traditional

smaller businesses

vs. tech startups

$1,057

1,488

offerings in

2021, up 29%

from 2020

is the average

investor check size,

regardless of the

size of the raise

$442.6M

in 2021 capital

commitments, up

41% from 2020

U.S. Counties with Crowdfunded

Companies16

Quarterly New Crowdfunding

Offerings17

433 446

2020

2019

121

Counties

333

137

Counties

227

367

350

238

357

132

169

175

Q3

Q4

128

134

Q1

Q2

41

Q1

Q2

Q3

2020

Q4

Q1

Q2

2021

New Form C Filings

New Form C Filings with Max Offering

from $1.07M to $5M

|

382

2021

216 Counties

18

396

S E C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

2022

What is happening with Regulation D offerings?

Pooled funds continue to account for over 85 percent of the funds

raised under Regulation D.18

8,060

5,420

4,585

3,912

3,465

5,263

5,333

6,361

6,233

5,777

6,178

5,713

5,173

5,149

5,195

$699B

$406B

$648B

$411B

$619B

$394B

$92B

$85B

$97B

$76B

$73B

Q2

Q3

Q4

Q1

Q2

4,783

3,371

2,829

2,595

2,456

$418B

$263B

$344B

$305B

$47B

$39B

$46B

$61B

$89B

Q1

Q2

Q3

Q4

Q1

2020

2021

2022

Amounts Raised by Other Issuers

Amounts Raised by Pooled Funds

New Offerings by Other Issuers

New Offerings by Pooled Funds

What are the top industries raising capital through Regulation D

(excluding pooled funds)?19

$84B

$49B

Banking and Financial Services

$42B

$41B

Health Care

$34B

$1.2B $38B

Real Estate

Energy

$92B

$2.6B

Technology

$76B

$6B

$10B

July 2020 - June 2021

July 2021 - June 2022

A N N UA L R EPORT: FI SCA L YEA R 2022

|

19

What is happening with Regulation A offerings?

The amounts sought have declined following the peak in the third

quarter of 2021.20

Following the Commission’s increase

of the maximum amount from $50M to

$75M, over 80% of offerings continue to

seek to raise $50M or less.

98

92

96

86

82

86

72

80

66

63

82

74

68

71

56

46

$2.4B

$1.4B

$1.3B

$901M

$690M

$394M

Q1

Q2

Q3

$1.4B

$1.1B

Q4

6

Q1

12

12

Q2

Q3

2020

$1.5B

$816M

16

Q4

8

11

Q1

Q2

2021

Amounts Sought in Qualified Offerings

New Offerings

2022

New Offerings Seeking $50M or Less

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

What are the top industries seeking capital through Regulation A?21

$2.6B

Real Estate

$755M

$183M

Banking and Financial Services

Business Services

Manufacturing

Technology

Health Care

$375M

$155M

$233M

$82M

$143M

$325M

$89M

$109M

$89M

July 2020 – June 2021

20

|

$755M

July 2021 – June 2022

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

What is happening with IPO activity?

While 2020 and 2021 were busy years for the IPO market, there has

been a downward trend in the first half of 2022 in terms of both volume

and amount of initial public offerings and other public offerings.22

417

$133B

209

261

193

195

175

$66B

45

$13B

Q1

66

$64B

$56B

$63B

88

$46B

44

$23B

Q2

Q3

Q4

Q1

2020

Q2

Q3

Q4

$13B

$4B

Q1

Q2

2021

2022

Number of IPOs

Total IPO Proceeds

What are the top industries raising capital in IPOs (excluding pooled funds)?23

$62B

Technology

$22B

$12B

Manufacturing

Banking and Financial Services

Business Services

Health Care

Hospitality, Retailing, Restaurant

$18B

$11B

$7B

$23B

$7B

$15B

$3B

$5B

$2B

July 2020 – June 2021

July 2021 – June 2022

A N N UA L R EPORT: FI SCA L YEA R 2022

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21

Small and Emerging Businesses

T

his segment of companies includes both high-growth startups that raise capital to get off the

ground and launch early prototypes, as well as small businesses that create local jobs but may

not fit the high-growth model that is the typical target of venture capital (VC) investments.24

Why is access to capital for small and emerging businesses

so important?

Small businesses have an outsized impact on job creation.

66%

Small businesses

have accounted for 66% of employment

growth over the past 25 years.25

61.7 million Americans

are employed by a small business

(46.4% of U.S. employees).26

Small businesses remain central to our society and the American dream.

For the third year in a row, the public has the most confidence

in small businesses out of 16 categories of major institutions in

American society.27

“

Capital remains among the most impactful ways to strengthen access

to entrepreneurship … When business owners do not have access to

personal funds or quality capital, they are less able to take the risks

necessary to grow their businesses, artificially stifling the marketplace.

22

|

EWING MARION KAUFFMAN FOUNDATION28

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Early-stage entrepreneurs report struggles and need support as

they build new companies

Access to capital remains a persistent barrier to growth for all entrepreneurs.

Access to capital was the number one barrier

to company survival.29

75% of entrepreneurs have experienced

challenges in obtaining capital.30

Access

to Capital

89% of entrepreneurs say access to capital is

limiting their business growth potential.31

78% of entrepreneurs say access to capital is limiting

their day-to-day operations.32

Entrepreneurs need support in accessing capital.

73%

of owners are looking for support in preparing

to apply for and using business financing.33

Bridging gaps between entrepreneurs and investors remains the

biggest challenge for early-stage startups when raising capital.34

Finding a lead investor 40%

Landing a warm intro 38%

Creating a pitch deck 10%

Pitching via Zoom 7%

Negotiating terms 4%

A N N UA L R EPORT: FI SCA L YEA R 2022

|

23

Robust ecosystems add to the success of early-stage startups.

Individuals with a

mentor are 5X more

likely to plan to start a

business than those who

do not have a mentor.35

The introduction of

accelerators to a

region has a significant

impact on the number

of early-stage deals for

new businesses.36

Several metrics of entrepreneurship have improved, but many

small businesses have not recovered to prepandemic levels

In 2021, 5.4 million new

business applications

were filed—more than

20% higher than any

previous year on record.37

74% of all counties

had more business

establishments in Q3

2021 than they did prior

to the pandemic.38

82% of new startups

survived one year after

founding (up from 78% in

2020 and 79% in 2019).39

An increasing percentage of small businesses are experiencing

financial challenges.40

85%

of small businesses experienced financial challenges

in 2021 (up from 81% in 2020 and 66% in 2019).

“

Many small businesses have not recovered to prepandemic levels,

in terms of both revenue and employment, with the effects of the

pandemic hitting disproportionately hard among firms in the leisure and

hospitality sector, smaller firms, and firms owned by people of color.

24 |

FEDERAL RESERVE BANKS41

S E C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

What are common sources of capital for small and emerging

businesses when facing financial challenges?42

Grants or donations (no repayment) 71%

Personal funds 61%

Cash reserves 56%

For those small businesses

that sought external

financing, only 6% sought

equity investments.43

External financing (with repayment) 52%

Loan or line of credit 76%

Credit card 29%

Trade credit 9%

Merchant cash advance 8%

Lease 8%

Equity investment 6%

Factoring receivables 4%

In 2021, fewer small businesses than in prior years received all of their

requested funding or met their financing needs.44

66% did not apply

34% of firms sought financing

Received

None

12%

Received Received

Received All

Some

Most

11%

7%

5%

24%

shortfall

Sufficient Financing

31%

42%

needs

met

Debt Averse

17%

Discouraged

9%

Other

9%

35%

unmet

needs

Zooming in on the 34% of businesses that sought financing,

only 31% of these applicants received all of the funding

they sought (down from 36% in 2020 and 51% in 2019).45

A N N UA L R EPORT: FI SCA L YEA R 2022

|

25

Angel investors continue to be a significant source of

early-stage capital

Angel investors are generally high-net-worth individuals who invest their own money directly in

emerging businesses, typically in early funding rounds. Most angel investors are accredited investors,

and many are current or former entrepreneurs themselves.

363,460 active angel investors46

(8.6% increase from 2020)

69,060 entrepreneurial ventures received angel funding47

(7.1% increase from 2020)

$29.1 billion in total angel investments48

(15.2% increase from 2020)

$421,675 average angel funding round49

(7.6% increase from 2020)

17.7 deals on average per angel group50

Angel

investment

in 2021

(down from 19.5 deals in 2020)

32% of seed capital came from angel investments

(compared to 19% in 2020)51

4.4 jobs are created per angel investment

(up from 3.9 jobs per deal in 2020)52

1 in 4 chance of an entrepreneur securing an angel investment

(in 2021 the yield rate declined to 24.1% from 30.8% in 2020)53

26% of angel deals included an angel seat on the board

of the portfolio company54

Over 80% of angel deals and investments are in seed

and Series A rounds, where angels have the greatest impact55

26

|

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

What is happening with seed fundraising?

A pre-seed or seed round is typically a company’s first funding round. 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.56 Given the early stage, businesses in an angel or seed round are the furthest

from the public market, insulating those companies from challenges arising in later stages of financing.57

In recent years, the number of seed rounds and seed firms have increased.

The number of seed rounds

in 2015-2019 reflected a

The number of seed firms

in the U.S. in 2022 is estimated to exceed

10X increase

2,000

compared to the

five-year period a decade earlier.58

(in 2012, there were 112 active U.S. seed firms).59

Seed activity remained strong, despite a slight drop in deal counts.60

5,436

4,086

3,666

4,152

2,512

$9.3B

2018

$10.0B

$10.5B

$17.2B

$10.0B

2019

2020

2021

2022*

*As of June 30, 2022

Deal Value ($B)

Deal Count

Early-stage businesses seeking pre-seed and seed funding are at

different stages of product readiness.61

Pre-Seed

Seed

Alpha

Prototype

15%

No Product

38.5%

Beta

Prototype

17%

Beta

Prototype

15%

Launched

Product

31.5%

No Product

25%

Alpha

Prototype

15%

Launched

Product

43%

30%

of pre-seed companies raised funding in 2021 and 2022

before launching a product (up from 8% in 2020).62

A N N UA L R EPORT: FI SCA L YEA R 2022

|

27

In 2021, how long did it take to fund pre-seed and seed rounds?63

Pre-Seed

Seed

1-6 weeks

36%

1-6 weeks

26%

13-18

weeks

15%

7-12 weeks

26%

7-12 weeks

25%

13-18 weeks

17%

25+

weeks

13%

19-24

weeks

10%

19-24

weeks

15%

25+

weeks

17%

The average pre-seed fundraising time increased to 15 weeks

in the first half of 2022 (compared to 13.5 weeks in 2021).64

Since early 2022, pre-seed fundraising is becoming more competitive for

founders in an investor-friendly market.65

Investors

Founders

23%

30%

Less time engaging

with pitch decks

More pitch decks

sent per week

What are the average costs of seed fundraising?66

28

19.7%

10.1%

$28,800

Average percent of

equity sold to investors

Average amount of the equity

allocated to the employee

options pool

Average closing costs

|

S E C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

While the average angel deal size in 2021 was $421,675,67 the vast

majority of seed deals exceeded $1 million.68

100%

90%

80%

$25M+

70%

$10M-$25M

60%

$5M-$10M

50%

$1M-$5M

40%

$500K-$1M

30%

Under $500K

20%

2022*

2021

2020

2019

2018

2017

2016

2015

2014

2013

0%

2012

10%

*As of June 30, 2022

Micro funds – funds raising $50 million or less – continue to strengthen

seed activity.69

Over 1,600 micro funds have closed since the beginning of 2018, including nearly

200 in the first half of 2022.70

From 2018 to 2021, micro funds raised between $4 and $5 billion annually

(representing 4% of the deal value but 40% of the deal count).71

60+%

of micro funds are raised by emerging managers.72

“

[T]he investment power of these small funds is multiplied by the

networks they bring into new ecosystems. As more companies receive

local investment, the growing cohort of companies will be able to draw

capital from larger funds located in other areas. This itself is a major

reason for needing local capital, as those firms will have a larger network

and reach than many of the founders needing to raise capital.

KYLE STANFORD, PITCHBOOK73

A N N UA L R EPORT: FI SCA L YEA R 2022

|

29

Many early-stage investors continue to fund companies within

their region74

The percentage of angel investments remaining within their region

continues to increase.75

Northeast

89.5%

New York

59.8%

Northwest

95.0%

Great Lakes

81.0%

California

75.7%

Mid-Atlantic

79.6%

Great Plains

86.8%

Southwest

91.3%

Southeast

87.3%

Texas

75.6%

Seed funding has expanded into smaller ecosystems, but remains localized.76

The median distance between a company and

a seed lead investor is

94 miles.

77

“

Access to capital is still fairly localized . . . Entrepreneurs and fundraisers

outside of top-tier funding hubs often still face high capital-raising hurdles,

and it becomes increasingly difficult to raise capital the farther you are

from a city hub. Despite their smaller share of total investment dollars,

however, regions outside these top 10 funding hubs accounted for more

than a third of the number of angel and seed deals, representing a broad

base of startup environments and untapped potential.

30

|

KENAN INSTITUTE OF PRIVATE ENTERPRISE78

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Mature and Later-Stage

Businesses

C

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

of capital that can fund operations of scale, ventures into new product lines, and preparation for

public markets. Most often, their investors are institutional in nature, whether VC funds, private

equity funds, or crossover investors from the public market.

VCs fund growth startups across the country but untapped

markets remain

The below map illustrates the concentration of estimated VC deal value in 2021, with the number of

VC deals indicated on each state.79

WA

578

OR

168

MT

35

ID

42

NV

116

WY

31

MN

198

SD

11

CO

487

CA

5,846

AZ

174

OK

27

TX

891

GU

AK

12

IN

156

WV

9

MS

4

AL

62

CT

MD

209

NC

352

TN

138

AR

33

VA

284

RI

30

NJ 188

249

DE

DC 365

113

PA

385

OH

197

KY

59

MA

1,156

NH

40

GA

273

SC

63

FL

576

HI

16

Less than $100 MILLION

IL

457

LA

30

NY

2,348

MI

166

MO

113

KS

35

NM

42

WI

94

IA

46

NE

51

UT

225

ME

29

VT

34

ND

5

PR

16

$100 MILLION - $500 MILLION

$1.5 BILLION - $20 BILLION

OVER $20 BILLION

VI

3

$500 MILLION - $1.5 BILLION

No data available

A N N UA L R EPORT: FI SCA L YEA R 2022

|

31

While 73% of VC funding remains concentrated in the top three

states,80 VC-backed jobs are more broadly distributed across the US81

63% VC-backed jobs

of

are outside the states of California,

New York, and Massachusetts.

Less than 0.5%

4% - 10%

0.5% - 1.5%

Over 10%

1.5% - 4%

No data available

What is the typical VC cycle?82

Fundraising

Investment

VCs typically raise capital via

capital commitments from their

investors. The median size of a

U.S. venture fund closed in 2021

was $50 million.83 A fund’s closing

is the time when investors commit

to an investment in the fund.

VCs tend to invest in early-stage,

high-growth companies. VC

funds will often reserve three or

four times the initial round of

funding for follow-on financing.84

How Venture

Capital Works

Re-investment

Company Growth

The fund ends when proceeds

from all investments have been

distributed to fund investors.

Many investors reinvest in new

funds. New fundraises for US VC

managers occur on average less

than two and a half years apart.88

VCs are often engaged advisors,

receiving a board seat 44% of the

time. The probability of receiving a

board seat is higher in earlier rounds.85

Exit

The life span of a VC fund is

typically 10 years.86 VCs generally

exit their positions through an

IPO or a merger or acquisition.

From 2014-2020, there were

approximately 1,100 exits per year.87

32

|

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

How do VCs fund businesses across their lifecycle?

one in a thousand

Only

businesses receives VC funding.89

For any business that receives VC funding, the business’s development will generally progress with its

funding rounds.90

Company

Development

Average Deal

Size ($M)

Idea/Start up

Angel

$1.43

Seed

$4.36

Product

Concept,

business development

planning

Development

Growth

Mature

Early-Stage VC

$24.84

Later-Stage VC

$43.40

Exit

$77.10

Operational

rollout

Growth

Expansion

Time

Cash Flow

How is VC investment activity changing?

VC funding reached record highs in 2021. 2022 has brought a variety of changes and challenges

affecting companies and investors in the U.S. VC ecosystem, including concerns about inflation,

rising interest rates, and a slowdown in the U.S. public markets.91

2022 VC deal value and deal count are historically high, even as they

may fall short of record-breaking highs reached in 2021.92

17,322

9,932

10,866

11,543

10,389

11,303

11,900

12,899

12,578

8,061

$341B

$42B

$50B

2012

2013

$73B

$86B

$83B

$89B

2014

2015

2016

2017

Deal Value ($B)

$145B

$146B

$167B

2018

2019

2020

Deal Count

7,841

$144B

2021

2022*

*As of June 30, 2022

A N N UA L R EPORT: FI SCA L YEA R 2022

|

33

Later-stage investment volume peaked in 2021 but remains at

heightened levels through the first half of 2022.93

VC investments in later-stage businesses over the first half of 2022 are approximately equal to

investments made over the course of the full year in each of 2018 and 2019.

$236B

Angel & Seed

Early-Stage (Series A and B)

Later-Stage (Series C and Up)

$113B

$93B

$11B

$93B

$94B

$87B

$41B

$11B $42B

$11B $43B

2018

2019

2020

$19B

$10B $40B

2021

2022*

*As of June 30, 2022

Later-stage pre-money valuations may have plateaued after a

rapid rise in 2021.94

Median Deal Value in Millions

$16

$14

$12

$10

Early-Stage

$8

2020

$6

2021

2021

2022*

2022*

2019

2020

Later-Stage

2019

$4

$2

$0

$0

$20

$40

$60

$80

Median Pre-Money Valuation in Millions

$100

$120

*As of June 30, 2022

“

[M]any companies are buying time with bridge rounds, allowing them to extend

their runways without a down round (a primary round at a lower valuation).

These companies are waiting until their fundamentals or wider market

conditions improve enough to have their valuation expectations met in an IPO

or primary financing round.

34

|

LIAN CHANG, CARTA95

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

How is VC fundraising activity changing?

Billion dollar funds account for almost two-thirds of capital raised so far

in 2022—already the second highest year on record for VC fundraising.96

The below graph illustrates the amounts raised by VC funds of various sizes.

$12B

$20B

$25B

$47B

$11B

$12B

$14B

$77B

$21B

$500M-$1B Funds

$30B

$250M-$500M Funds

$12B

$100M-$250M Funds

$14B

$13B

$1B (or larger) Funds

$50M-$100M Funds

$25B

$16B

$15B

Under $50M Funds

$15B

$23B

$12B

$10B

$3B $2B

2022*

$5B

$6B

$5B

$5B

$5B

$5B

$7B

$6B

2018

2019

2020

2021

*As of June 30, 2022

“

We expect emerging managers to have a more difficult time raising new funds

over the near term as LPs rebalance their portfolio and allocate to known, or

more established, investors and managers.

PITCHBOOK97

The percentage of capital going to emerging managers has declined to

a new decade low.98

100%

80%

$12B

60%

$16B

$27B

$32B

$23B

$36B

$40B

$58B

$27B

$91B

$95B

Through the first

six months of 2022,

there has been nearly

an 80/20 split in

the capital going to

established versus

emerging managers.99

40%

$7B

0%

$21B

$10B

20%

2012

$11B

2013

2014

$16B

$20B

Emerging Firm

Fund Value ($B)

$24B

$31B

$27B

Experienced Firm

Fund Value ($B)

$48B

$27B

2015

2016

2017

2018

2019

2020

2021 2022*

*As of June 30, 2022

A N N UA L R EPORT: FI SCA L YEA R 2022

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35

How are LPs considering, meeting, and evaluating new fund managers?

83%

of LPs are open to or actively seeking new manager relationships.100

While many LPs are seeking new manager relationships, network connections

remain the dominant pathway LPs use to meet new fund managers.101

Peers in network 79%

Self-generated 67%

Placement agents 52%

Cold outreach 27%

Consultants 17%

Emerging managers by nature tend to have less

extensive networks and often come from more diverse

backgrounds than established managers. This can make

it difficult for LPs to find new emerging managers when

many rely on their networks.102

What are the top factors LPs consider in evaluating new fund managers?103

Strategy and process 83%

Background and reputation 77%

Prior fund performance 60%

Fund size 23%

References from peers 21%

Attributes such as

background, reputation

and prior fund performance

typically benefit established

managers, as compared to

emerging managers.104

GP and fund economics 15%

Emerging managers often differentiate themselves through in-demand strategies or a particular

focus on a region or demographic. As more managers enter the ecosystem, finding out-of-network

connections may become increasingly challenging.105

36

|

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

What is the impact of nontraditional investors on mature and

later-stage fundraising?

Over the last few years, nontraditional investors—generally firms and institutions not labeled as

VCs—have increasingly crossed over from the public markets to invest in VC-backed companies.106

In recent years, the VC landscape has seen growth in deal sizes,

valuations, and the number of mega-deals in which nontraditional

investors participated.107

11,165

8,863

8,170

8,447

6,157

4,036

3,730

5,288

4,131

2,553

$273B

$107B

$110B

$110B

$129B

$34B

$37B

$38B

$69B

$37B

2018

2019

2020

2021

2022*

*As of June 30, 2022

Traditional VC Investor Deal Value ($B)

Nontraditional VC Investor Deal Value ($B)

Traditional VC Investor Deal Count

Nontraditional VC Investor Deal Count

Nontraditional investor participation in later-stage VC deals remains high.108

2,762

Deal Count with Nontraditional Investor Participation

2,073

1,702

842

1,511

1,377 1,396 1,357

1,322

938 923

1,851

1,183

In 2021, later-stage deals

with nontraditional

investor participation

reached a median

valuation of $200

million, representing a

2x growth over 2020.109

801

569

Angel & Seed

Early-Stage VC

2018

2019

2020

Later-Stage VC

2021

2022*

*As of June 30, 2022

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37

Portfolio company exits fuel reinvestments by LPs into new VC funds

Reduced distributions to LPs as a result of the slowdown in the IPO market may disproportionately affect

emerging fund managers, as LPs may be more inclined to allocate a now smaller pool of available capital

to established managers.110 Likewise, lower public market valuations could lead to an overweighting in the

portfolios of LPs to private market investments.111

Venture-backed exit activity in the first half of 2022 has seen a significant

decline in valuations as well as deal counts from 2021—reverting to 2017 and

2018 levels—with public listings leading the downturn.112

In the first half of 2022,

there were

22 VC-backed IPOs

1,806

1,215

In 2021, there were

183 VC-backed IPOs

1,250

1,200

1,049

In 2021, Series B and earlier

companies accounted for

84%

633

of acquisition targets.113

A

29%

$667B

$14B

$54B

$8B

$198B

$7B

$244B

$12B

$41B

$62B

$64B

$69B

$96B

2017

2018

2019

2020

2021

$51B

$10B

$28B

$68B

|

C

9%

$20B

2022*

*As of June 30, 2022

38

B

16%

$500M

Acquisitions

Buyouts

Public Listings

Deal Count

Seed

38%

D+

7%

Angel

1%

S E C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Small Public Companies

C

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

them to raise large amounts of capital to fund activities, such as research and development,

capital expenditures, or debt service. Public offerings also provide liquidity to early-stage

investors and employees.

How have U.S. exchange-listed companies changed over time?

The number of small exchange-listed companies114 has drastically declined over the

last several decades, while the number of large exchange-listed companies continues to increase.115

897

Companies

1,520

Companies

2,034

Companies

2,209

Companies

2,647

Companies

Large Exchange-Listed

Companies

Small Exchange-Listed

Companies

4,144

Companies

4,313

Companies

3,140

Companies

1,415

Companies

1,587

Companies

1982

1992

2002

2012

2022*

*As of June 30, 2022

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39

The aggregate market capitalization of small exchange-listed companies has faced an even

steeper decline as a proportion of the overall market—with the percentage falling by half or more

each decade.116

100%

$1,228B

$3,876B

$9,647B

$15,594B

$37,572B

2.1%

0.8%

0.4%

$211B

2002

2012

2022*

95%

20%

13%

15%

10%

5.9%

5%

$184B

1982

0%

$243B

1992

$127B

$149B

*As of June 30, 2022

Large Exchange-Listed Companies

Small Exchange-Listed Companies

How are the dynamics changing for companies going public?

Much of the IPO market growth in 2020-2021 and decline in 2022 related to IPOs by large

companies and SPAC offerings. The proceeds raised in an IPO by U.S. small companies consistently

remain a very small fraction of the IPO market.117

$86B

$45B

$43B

$34B

$31B

$31B

$29B

$34B

$31B

$29B

$16B

$12B

$190M

$6B

$3B

$512M

Q3

Q4

$3B

2019

$10B

$3B

$115M

Q1

$170M

|

$220M $596M

Q2

Q3

Q4

$638M

$355M

Q1

Q2

2020

IPOs by Small Companies

40

$16B

$12B

$7B

$9B

$683M

$732M

Q3

Q4

2021

SPAC Offerings

$4B

$238M

Q1

$2B

$2B

$217M

2022

IPOs by Large Companies

S EC O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Q2

The significant decline in the number of IPOs by large companies and

SPAC offerings has increased how much U.S. small companies account

for in the overall IPO market.118

610

33%

456

384

32%

59%

35%

11%

7%

11%

121

58%

55%

5%

14%

132

56%

111

27%

56%

26%

33%

H2

2019

H1

53%

11%

H2

H1

2020

IPOs by Small Companies

H2

2021

SPAC Offerings

H1

2022

IPOs by Large Companies

How has venture capital affected the public markets?119

50%

93% of patent value/

81% of the number of

of IPOs

patents

On average, public

companies that received VC

funding are more research

and development (R&D)

intensive and grow faster—

by 4.9 percentage points in

employment—than public

companies that were not

VC-backed.120

92%

of R&D

spending

Among public

companies that had

an IPO after 1978,

VC-backed

companies

account for:

85%income

of net

77%

by market cap

50%

of revenues

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41

Deeper Dive into Small Public Companies

While it is easy to group all public companies together, their experiences and challenges in the public

markets differ considerably. The unique challenges that small public companies face tend to receive

less coverage than those faced by larger companies.

How has the number of smaller reporting companies changed since 2011?

Despite the SEC’s 2018 expanded definition of smaller reporting companies (SRCs),121 the number

of SRCs has declined, although that number as a percentage of all reporting companies has risen

slightly.122

2011

In

,

SRCs filed

2021

In

,

SRCs filed

42%

of all

annual filers

3,750

46%

of all

annual filers

3,289

annual reports

annual reports

How are mergers and acquisitions affecting the number of small public

companies?123

Small-cap and

micro-cap companies

are often easy targets

for large companies

to acquire.

of public company

acquisitions involved

small-cap and

micro-cap companies.

68%

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

equity offerings?124

348 offering

average proceeds $28M

507 offering

average proceeds $51M

333 offering

average proceeds $65M

181

116

86

113

134

130

102

85

83

61

62

35

$1.9B

$3.1B

$1.8B

$2.9B

$4.3B

$7.1B

$10.2B

$4.2B

$6.4B

$10.6B

$3.2B

$1.4B

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2019

2020

Total Proceeds

42

|

2021

Number of Offerings

S E C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

2022

Several industries had significant changes among equity offerings by

U.S. small public companies.125

$3.0B

Health Care

$1.5B

$2.4B

Business Services

$1.2B

$1.3B

Technology

$0.5B

$0.3B

Real Estate

$0.4B

$0.1B

Banking and Financial Services

$0.3B

$0.5B

Manufacturing

$0.2B

July 2021–June 2022

July 2020–June 2021

How are compliance costs affecting small public companies?

Compliance with regulatory requirements often include fixed costs that are not scalable for small

public companies.126 Some of those costs have disproportionally increased for smaller reporting

companies. 127

Average Internal Annual Sarbanes-Oxley Act Compliance Costs128

Year-over-year

trend

Percent

change

2021

2022

Large accelerated filer

$1,328,300

$1,450,800

9%

Accelerated filer (excluding SRCs)

$1,221,900

$1,232,400

1%

Emerging growth company

$1,408,300

$1,370,200

-3%

Smaller reporting company

$1,126,000

$1,433,600

27%

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43

The amount of research coverage and the number of analysts covering

a company often correlate with a company’s market capitalization.129

60%

of small public

companies received

research coverage.

Small public companies are only covered by

an average of two analyst firms.

90%

of large public

companies received

research coverage.

Large public companies are covered by an

average of nine analyst firms.130

Less research coverage equates to additional liquidity challenges for smaller companies.

Small public companies and companies that are not able to obtain

research coverage have lower levels of institutional ownership.131

47%

44

|

of small public

companies are held by

institutional investors

(up from 45% in 2020).

66%

of large public

companies are held by

institutional investors

(consistent with 2020).132

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Women Businesses Owners

and Their Investors

Women-Owned Business Formation and Ownership

The portion of businesses owned by women decreases as the businesses move through the life cycle stages.

43.2%

36.4%

26.4%

14%

of small businesses

are women-owned,

representing 13.5 million

businesses.133

of employer small

businesses are womenowned, representing

2 million businesses.134

of VC deals in 2021 were

with women-founded

companies, representing

4,430 deals.135

of new founders that

created businesses and

received VC funding in

2021 were women.136

By share of employer firms, women owners are underrepresented in

every demographic group.137

64.7%

56.6%

8.2%

63.6%

57.5%

2.8%

13.7%

14.7%

35.2%

33.6%

African American/

Black

Women-owned

11.6%

28.8%

25.9%

Native American and

Alaska Native

Asian American/

Pacific Islander

Hispanic/Latino

Equally-owned

Men-owned

20.5%

White

62.5%

The gender gap in new entrepreneurs has been persistent over the past

25 years and continued in 2021.138

28

out of 10,000 women became

new entrepreneurs, compared

to 45 out of 10,000 men.

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45

Women founders remain resilient but feel less supported than ever.

The percentage of women founders that feel supported by the entrepreneurial community has

drastically declined.139

50%

in 2020

48%

in 2019

36%

in 2021

60% of female founders

feel held back by their gender.

4% of male founders feel

held back by their gender.140

“

During the pandemic there were a number of women who left the

workforce to start their own businesses—some out of necessity, some

for the need of flexibility, being able to do remote work from home…

what’s going to be important are the resources that support that

continued growth.

TENE DOLPHIN, EXECUTIVE DIRECTOR OF THE NATIONAL WOMEN’S BUSINESS COUNCIL141

46

|

S E C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Capital Raising Trends for Women-Owned Businesses

Both the number of women entrepreneurs seeking angel capital and

their investment yield rate declined year over year.

Women constituted

Angel investors invested in

of entrepreneurs seeking angel capital in 2021

(down from 33.6% in 2020).142

of those investment opportunities brought to

their attention (notably down from 28.1% in

2020, but mirroring the overall market decline

from 30.8% in 2020 to 24.1% in 2021).143

28.6%

19.7%

While the amount of VC investment has risen significantly, the share of

funding to women founders continues to lag.

In 2021, women founders and co-founders raised a record.

$64.6 billion in venture funding.

144

Funding in the first half of 2022 remained historically high at $26.3 billion.145

VC deal values and deal counts have trended up in recent years—peaking in 2021.146

Deal Value

Deal Count

$276.9B

632

713

764

500

1,077

12,030

$121.5B

$117.9B

9,152

8,588

$140.4B

8,803

$117.9B

5,518

$56.8B

$20.0B

$24.4B

$3.2B

$3.8B

$3.4B

2018

2019

2020

$23.3B

4,215

$23.5B

$7.8B

$2.8B

2021

2022*

2,680

3,034

2018

3,011

1,823

2019

2020

2021

2022*

*As of June 30, 2022

Deals with women-only founders

Deals with men and women

co-founders

Deals with men-only founders

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47

Despite the record amount raised in 2021, women founders’ share of VC funding remains a fraction

of the overall capital raised.147

1.7%

2.6%

18.5%

2017

2.1%

17.4%

14.3%

13.3%

2016

2.7%

2.3%

2018

2.4%

17.2%

14.6%

2019

2020

2.0%

16.9%

2021

2022*

*As of June 30, 2022

Deals with women-only founders

Deals with women and men founders

In 2021, women-only led teams received a declining percentage of overall invested capital in each

progressive funding round.148

11%

5%

10%

Seed

84%

4%

Series

A

8%

5%

86%

Deals with women-only founders

Series

B

5%

4%

Series

C

87%

91%

Deals with women and men founders

4%

6%

Series

D

90%

Deals with men-only founders

Some major metro areas have seen significant surges in capital raising

for women founders.

Amounts raised since 2020 as a percentage of aggregate amounts raised 2008–2019.149

Minneapolis

125%

San

Francisco

102%

Denver

100%

St. Louis

187%

Santa

Barbara

129%

Ann Arbor

118%

Washington,

DC

133%

DallasFort Worth

158%

Phoenix

164%

Austin

161%

48

|

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Despite more investor meetings for all-women teams, all-men and

mixed teams continue to get more funding.150

However, all-women teams

raised less per meeting

($32,600) than all-men

($46,500) or mixed ($39,500)

teams.

All-women teams had the

most investor meetings in

2021 after averaging the

fewest in 2020.

All-women teams with minority members had 57% more

meetings with VC investors in 2021 than in 2020, but

raised less money than any other demographic.151

VC investors more heavily scrutinized the team, traction, and business

model in pitch decks by all-women teams, compared to all-men teams.

All-women teams experienced:152

130% more time spent

on the team slide. For

all-men teams, this

was one of the least

important slides.

76% more time

spent on the business

traction section.

43% more time spent

on the business model.

Less time spent

on the product slide.

For all-men teams, the

most time was spent on

this slide.

“

I hope a statistic like this prompts investors to examine their own

biases more closely. For many investors, this extra scrutiny on the

team slide is coming from a place of skepticism. They’re wondering if a

particular all-female team can really build a product and whether they

have the right experience to do so. Female founders face a higher bar

for questions like these, especially in male-dominated sectors.

ADRIANNA SAMANIEGO, FEMALE FOUNDERS FUND153

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49

Executive teams with women produce better financial returns, exhibit

more innovation, and outperform on time to exit.154

Executive teams with women:

correlated with increased

innovation. Diverse women-led

teams are more likely to capture

new market share.

are 21% more likely to be

profitable than all-men

teams, and

For example, women-led technology companies were

more capital-efficient, achieving 35% higher ROI and,

when venture-backed, achieved 12% higher revenues than

startups run by men.155

2022 is on pace to be the 12th straight year that women-founded companies are exiting and

returning capital to investors faster than the overall market:156

YEARS

7.2

YEARS

for women-founded

companies

VS.

8.1

for all VC-backed

companies.

“

Firms that retain female managers by introducing policies that balance

work and family, and that actively hire more female executives have

superior performances than those firms that do not.

CHENGWEI LIU, ET AL157

50

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S E C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Women in Leadership Roles

Women remain underrepresented in leadership roles among VC-backed

companies.158

Percent of women employees, 2016-2021

Entry-level

Mid-level

Senior

VP

C-suite

60%

40%

37%

39%

24%

While underrepresented, the share of women in board roles at

VC-backed companies continues to increase.159

Women-held board seats

2020

2019

7%

2021

11%

14%

40%

51%

At least one woman on board

61%

19%

Independent seats held by women

20%

27%

Women-led IPOs increased in 2021, but remain a small share of the

overall market.160

IPOs with a woman founder or co-founder

more than doubled to 48 in 2021 (up from 22 in 2020),

but represented only 16% of all public listings last year.

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51

Board gender diversity among small public companies continues to

improve, but progress is slowing.161

Women held

28%

of the Russell 3000

board seats

(up from 18% in

2018).

40%

of new directors

in the first half of

2022 were women.

The number

of women-held

seats increased

2.4%

from 2021

(down from 3%

in 2020).

In the first half

of 2022, the share

of new seats going

to women declined

17%.

Trends in Women Investors in Small Businesses

2021 was a record high for active women angel investors.162

33.6% of angel investors in 2021 were

women (an increase from 29.5% in 2020).163

of women angel investors were active investors, compared to

just 43.7% of angels in the overall market.164

61.4%

Fundraising by women-founded VC and micro funds in 2021 outpaced

prior years.165

92

67

63

42

46

38

37

46

28

12

$0.4B

$1.3B

$2.5B

$3.8B

$3.3B

$4.8B

$4.7B

$6.1B

$4.4B

$7.0B

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021*

Total Funds Raised

52 |

Number of Firms

*As of Sept. 30, 2021

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

Women remain underrepresented among VC and micro fund

checkwriters.166

Breakdown of Checkwriters at VC Firms

All women 3.8%

Majority women 7.5%

Majority men 29.1%

40% of VC firms

have a woman

checkwriter

All men

59.6%

Women Checkwriters

12%

13%

New Checkwriters

9%

2018

2019

2020

Women

15%

2021

Men

51%

57%

66%

70%

49%

43%

34%

30%

2018

2019

2020

2021

Women-led funds facilitate greater funding of diverse founders.

Women VC partners were

3x more likely to invest

in startups with women

CEOs and often yielded

superior returns.167

Promoting and recruiting

women checkwriters

can open doors for more

women founders and

diversify portfolios.168

“

When women and minorities are underrepresented as investment

partners, our economy reaps just a fraction of the full potential that

could be gained from companies founded by these communities.

IMANI AUGUSTUS, DIRECTOR OF THE ALLIANCE FOR ENTREPRENEURIAL EQUITY169

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53

Minority-Owned Businesses

and Their Investors

Precursors to Accessing Capital

Inequalities across demographic groups impact the starting line for

many entrepreneurs.170

Entrepreneurs who are African American/Black or Hispanic/Latino face additional barriers to entry

because the increasing wealth gap affects their ability to tap personal assets as a funding source.171

Average Household Net Worth (in thousands)

$1,039

$961

$953

$835

$705

$532

$463

$743

$747

$752

$638

$608

$505

$424

$371

$345

$81

$99

$104

$82

$89

$73

1989

1992

1995

White

$710

$551

$424

$404

$361

$756

$138

$135

$100

$110

1998

2001

Other (including multi-race, Asian

American/Pacific Islander, and

Native American /Alaska Native)

$231

$171

$166

$149

2004

2007

$129

$123

$114

$104

2010

$194

$192

$149

$141

2013

2016

2019

African American/Black

Hispanic/Latino

Disparities in income distribution add additional hurdles to overcome.172

19%

5%

5%

19%

15%

11%

25%

30%

$50,000–$100,000

Under $50,000

25%

25%

Asian American

54

|

27%

29%

Over $200,000

$100,000–$200,000

32%

35%

White

44%

Hispanic/Latino

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

54%

African American/

Black

Minority entrepreneurs are less likely to have access to credit.

Hispanic/Latino and African American/Black households are more likely to be unbanked, meaning

that no one in the household has a checking or savings account at a bank or credit union.173

2%

Asian American/Pacific Islander

92%

6%

3%

White

10%

87%

18%

Hispanic/Latino

11%

African American/Black

13%

71%

27%

Unbanked

59%

Underbanked

Fully Banked

Less access to traditional financial institutions means greater reliance on alternative financial

services, like check cashing counters and payday lenders, which can adversely affect financial health

and ability to build a credit history.174 A person with limited credit history or a lower credit score is

less likely to qualify for personal and business loans.

Average credit score in the U.S.175

Average Credit Score by Race and Ethnicity176

714

734

745

Good

Fair

(580-669)

(670-739)

Very Good

Asian American/Pacific Islander

White

701

677

Hispanic/Latino

African American/Black

(740-799)

Poor

Exceptional

(<580)

(800+)

Minority entrepreneurs are less likely than White entrepreneurs to receive all the financing they seek,

even when comparing applicants with similarly low-credit-risk.177

White

Asian American

43%

31%

19%

27%

53%

28%

African American/Black

27%

32%

41%

Hispanic/Latino

24%

35%

41%

All

Most/Some

None

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Business Formation and Ownership Trends

Entrepreneurial activity remains high across minority groups.178

17.5%

African American/Black

27.9%

15.7%

Hispanic/Latino

24.8%

13.0%

White

12.5%

12.4%

Asian American

17.7%

17.6%

Other

22.6%

Current Entrepreneurship

Entrepreneurship Planning

Minority entrepreneurs perceive entrepreneurship positively, but further

resources are needed to support minority businesses’ growth.179

African American/Black

and Hispanic/Latino adults intend

to create new businesses

at

2X the rate of White adults.

1/3 of working age

African American/Black

adults are starting or running

a new business.

White adults own

established businesses180

2X

the rate as

at almost

African American/Black

and Hispanic/Latino adults.

“

Achieving equity in entrepreneurship has the potential to unleash a new

era of businesses, hiring, and generational wealth.”

MARC H. MORIAL, PRESIDENT AND CEO OF THE NATIONAL URBAN LEAGUE

AND JON COWAN, PRESIDENT OF THIRD WAY181

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Capital Raising Trends

VC investors more heavily scrutinized particular deck slides of teams

with minority members compared to all-White teams.

Teams with minority members experienced:182

78% more time

spent on the

competition slide.

For all-White teams,

this was one of the least

important slides.

67% more time

spent on the

market size section.

20% more time

spent on the

product slide.

Less time

spent on the

business model.

For all-White teams,

this was the most

important slide.

“

The discrepancies in viewing times that correlate with less funding

suggest to me that investors have a harder time believing facts and

statements from underrepresented founders within their pitch decks.

The pre-seed round is where we’re seeing these biases emerge strongly

and where founders are being overlooked the most.”

DARREL FRATER, THECLUB APP AND VISIBLE HAND VC183

At the pre-seed stage, the funding process often requires more effort

and more meetings for teams with minority members.

Average number of investor meetings per pre-seed fundraising:184

All-White teams

Teams with Minority Members

All men

Women and men

All women

All men

Women and men

All women

MEETINGS

MEETINGS

MEETINGS

MEETINGS

MEETINGS

MEETINGS

37

37

35

45

71

74

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The number of minority entrepreneurs seeking angel capital is up, but

underrepresentation persists.

Minorities constituted

Angel investors invested in

of entrepreneurs seeking angel capital in 2021

(a robust increase from 5.3% in 2020

and 9.3% in 2019).185

of those investment opportunities

brought to their attention

(down slightly from 33.0% in 2020).186

12.8%

30.5%

Funding for seed and early-stage funding remains inequitably

distributed as reflected in average amounts raised in 2021, broken

down by race and ethnicity.187

Series A Average Amount Raised

35%

Pre-seed and Seed Average Amount Raised

23%

Percent of Pre-Seed, Seed,

and Series A Deal Count

24%

$0.4M

$0.6M

$19.3M

$15.6M

$5.1M

$3.0M

$4.7M

White

Other

$14.9M

2%

5%

$4.1M

$1.4M

Asian American

11%

$2.1M

$1.7M

Native American/

Hawaiian/Pacific

Islander

African

American/Black

Hispanic/Latino

The inequitable distribution can also be seen across the share of seed

and early-stage funding in 2021, broken down by race and ethnicity.188

46.6%

26.4%

23.2%

White

Other

Asian American

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|

1.9%

1.2%

0.7%

Hispanic/Latino African American/ Native American/

Black

Hawaiian/Pacific

Islander

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

LGBTQ+ founders similarly report challenges accessing capital.

Nearly 3 out of 4

entrepreneurs say

93% of LGBTQ+

entrepreneurs say

LGBTQ+ entrepreneurs

face more challenges

than non-LGBTQ+

owned businesses.189

access to capital

is limiting their

growth potential.190

46% of LGBTQ+

entrepreneurs received

none of the financing

that they applied for

compared to 34% of

non-LGBTQ+ businesses.191

Entrepreneurs with disabilities also face obstacles accessing capital.192

15%

OPEN

of the adult population

has a disability

(about 40 million

people).193

1.8 million of them

own a small business.194

About 1 out of 4 of those

entrepreneurs did not apply

for credit because they did

not think they would be

approved.195

“

A massive obstacle disabled founders face is access to capital, as is the

case for all underestimated entrepreneurs. Women, Black, and Latino

entrepreneurs each receive less than 3% of venture capital funding…

However, when it comes to disabled entrepreneurs, the data on funding

doesn’t even exist.”

DIEGO MARISCAL, FOUNDER AND CEO OF 2GETHER-INTERNATIONAL196

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Minority Investors and Allies

Minorities among angel investors have decreased for the last three years.

4.1%

of angel investors in 2021 were minorities

(down from 5.3% in 2020 and 7% in 2019).197

Minorities remain vastly underrepresented among asset managers, but

they are more likely to fund minority founders.

of the total assets under management in the U.S. are in

1.4%

minority-owned funds, but they are

3x to 4x more likely than non-minority-owned funds to

fund minority entrepreneurs.198

The representation of minority partners in the VC industry has remained

steadily low—although the number of emerging funds launched by African

American/Black partners has grown by record amounts in recent years.199

53%

2%

59%

3X

60

|

of the decision-making roles at

the top U.S. VC firms are held by

White men (down from nearly

64% of such roles in 2018).200

of VC investment partners are

Hispanic/Latino.202

27%

3.5X

of Hispanic/Latino VC investment

professionals work at smaller VC

funds.204

Follow-on funds raised by African

American/Black-led and Hispanic/

Latino-led funds are 3X more

sensitive to past performance—with

investors more harshly punishing

poor performance.206

1/2

of African American/Black VC

partners launched funds within

the past two years barely keeping

pace with the overall growth. 201

Since 2018, the number of African

American/Black partners who

make investment decisions and

lead deals at top U.S. VC firms

increased 3.5 times (to over two

dozen from 7).203

African American/Black-led

first-time funds were nearly half the

size of the first-time funds raised by

everyone else (averaging $30.5 million

compared to $57 million).205

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

In addition to investing in minority entrepreneurs at a higher rate, minorityled VC funds can create ripple effects within the investor community.

56%

25.3% of funds that allocate part of their

capital to diversity, equity and inclusion (DEI) or

minority investments had a minority VC partner,

compared to 5.9% of funds that don’t have a DEI

or minority investment allocation.208

of African American/Black

VC partners are actively

mentoring other investors

in the Black VC community.207

Public Company Board Leadership

Diversity has increased on public company boards.209

Percentage of board seats

held by minority directors

Two or more minority directors

At least one minority director

2020

11%

16%

2022

29%

55%

62%

90%

Minority representation on public company boards still lags behind the

overall population.

16%

of small public company board members in 2022 are Hispanic/Latino (3%),

African American/Black (6%), or Asian American/Pacific Islander (7%), an

aggregate increase from 11% in 2020.210

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Natural Disaster Areas

How do natural disasters affect small businesses?

12%

OPEN

CLOSED

of small businesses were

affected by natural disasters.211

CLOSED

2/3 of small businesses that

had disaster-related losses

were forced to close, at least

temporarily.212

$$

The share of small businesses

experiencing disaster-related

losses doubled (from 7% in

2019 to 14% in 2021).213

Natural disasters affect communities and their small businesses

across the country.

Between October 1, 2021 and September 30, 2022, there were 18 natural disaster events with

losses exceeding $1 billion.214 The total estimated natural disaster-related losses in the U.S. exceeded

$55 billion.215

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Capital from investors remains a small portion of funding

Similar to all small and emerging businesses, those affected by natural disasters used personal funds

(66%), grants and other funds that do not need to be repaid (64%), and cash reserves (57%) before

seeking external capital (with repayment) (53%).216 Of those that applied for external capital:

7%

sought

equity financing

(compared to 6% of small businesses

not affected).217

How does the percentage of the population affected by natural

disasters compare to the amount of capital being raised?

37%

of the U.S. population218 lives in an area that was affected by a

natural disaster during the three years ending June 30, 2022.219

As a percentage of capital raised nationwide, capital raised by

businesses in areas affected by natural disasters varied under different

offering pathways.220

50%

Percentage of Capital Raised Over 3 Years

45%

40%

$280M

total

35%

30%

$57B

total

25%

U.S.

population in

areas affected

by natural

disasters

20%

15%

10%

$1.4T

total

$1.3B

total

5%

0%

Regulation D

Regulation A

Regulation

Crowdfunding

Registered

Equity Offerings

by Small Public

Companies

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Rural Communities

Small businesses drive employment in rural areas, despite the

declining number of new small businesses

Small businesses are critical to rural communities, employing well over half of workers in rural

areas.221

Workers

employed

in small

businesses

62%

Rural Areas

47%

Urban Areas

Since 2008, rural small business creation has fallen below the

replacement level.222

Net Difference between Firm Starts and Closures in Nonmetropolitan Areas223

10,000

5,000

0

-5,000

-10,000

1978

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1981

1984

1987

1990

1999

1996

1999

2002 2005 2008

2011

SE C O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

2014

2017

2020

“

One element that is at the heart of virtually every development

strategy that works well in rural communities is entrepreneurship.

Every entrepreneur matters in rural communities—from the creative,

home-based business, to the owner of a small Main Street business,

to the larger potential growth company.”

DEB MARTIN, GREAT LAKES COMMUNITY ACTION PARTNERSHIP224

Rural small businesses are located coast to coast, with the majority

in the middle of the country.225 The below map illustrates the distribution of rural

businesses across the U.S. by region, as well as the percentage of businesses within each region that

are rural.

West North Central

17% of U.S. Rural Small Businesses

36% of Small Businesses in the Region

Mountain

13% of U.S. Rural Small Businesses

23% of Small Businesses in the Region

New England

2% of U.S. Rural Small Businesses

5% of Small Businesses in the Region

East North Central

18% of U.S. Rural Small Businesses

18% of Small Businesses in the Region

Middle Atlantic

4% of U.S. Rural

Small Businesses

4% of Small Businesses

in the Region

Pacific

12% of U.S. Rural Small Businesses

10% of Small Businesses in the Region

East South Central

7% of U.S. Rural Small Businesses

19% of Small Businesses in the Region

South Atlantic

13% of U.S. Rural

Small Businesses

9% of Small Businesses

in the Region

West South Central

14% of U.S. Rural Small Businesses

19% of Small Businesses in the Region

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Access to capital is a direct driver in building rural

entrepreneurial ecosystems226

Access to Capital

Inclusive Tech

Culture-Building

Access to

Digital Jobs

Scalable Tech

Entrepreneurship

Support and Incubation

Digital Workforce

Development and Support

Rural Entrepreneurial

Ecosystems

Small banks remain the primary source of capital for rural small

businesses, despite the decline in small banks and small business

lending

59%

of rural

small businesses use

small banks as their

primary source of

funding.227

The smallest banks

(up to $300M in assets) are

the only banking segment

that is smaller than it was

in 1988.228

The number of small business

loans declined 23%

from 2008 to 2020

(despite an 11% increase from

2019 to 2020).229

Capital from investors remains a very small portion of funding

4%

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|

of rural small businesses seeking

external capital sought

equity financing

(compared to 7% of urban small businesses).230

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

How does the rural population compare to the amount of capital

being raised?

16%

18%

of the U.S. population

lives in rural areas.231

of small employer firms are

located in rural areas.232

However, businesses in rural areas233 raised a notably smaller portion of overall capital relative to the

rural share of population during the three years ending June 30, 2022:

Percentage of Capital Raised Over 3 Years

18%

U.S.

population in

rural areas

16%

14%

12%

10%

8%

$29M

total

6%

4%

2%

$21B

total

$810M

total

$80M

total

0%

Regulation D

Regulation A

Regulation

Crowdfunding

Registered

Equity Offerings

by Small Public

Companies

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Policy Recommendations

T

he Office developed the following policy recommendations for Congress and the Commission

based on feedback from small businesses and their investors about our capital raising rules. We

have distilled their feedback into five key areas for action to address the most significant issues

raised.

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

are a multitude of potential approaches, and indeed we may need to combine multiple approaches

to arrive at an effective solution. For each recommendation, we include background context,

particular impact on demographic groups, notes on related developments, and our proposed

solution.

We welcome further engagement by Congress and the Commission to implement these solutions so

that entrepreneurs and their investors together can bring innovations to market.

On August 27, 2022, our Office and the Fort Worth Regional Office joined the University of Houston C.T. Bauer College

of Business for a series of discussions with entrepreneurs on their successes and challenges in starting and growing

their businesses and accessing funding.

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Entrepreneurs and their investors need accessible tools and

educational resources to navigate complex securities laws.

Background Context

All businesses need capital to create jobs, grow, and innovate. Many entrepreneurs

need support to access that essential capital.234

Throughout the last fiscal year, we met in-person and virtually with entrepreneurs

and investors from across the country. We heard countless examples of hard work

and perseverance that allowed small businesses and their investors to overcome the

challenges brought by the COVID-19 pandemic. We met with many founders who

have been able to fund their operations using personal savings, credit cards, retained

business earnings, or grants. We also talked with many small businesses owners for

whom those non-dilutive funding sources were unavailable or insufficient and who

were looking to investors to help finance their operations and development.

Many of the entrepreneurs we met—no matter how business savvy or

technologically sophisticated—noted that the capital raising rules are complex and

expressed the need for accessible resources at every stage to help them navigate the

capital raising process.

Demographic Impacts

Even as the regulatory pathways to raising capital have expanded in recent years, the

complexity of our regulatory framework remains. In particular, women and minority

entrepreneurs face an uneven playing field when navigating that complexity, as they

do not have access to the same networks, experienced mentors and advisors, or

supportive entrepreneurial communities as their counterparts.235

Related Developments

Over the last year, the Commission has supported our partnership with other SEC

offices and divisions to launch the Capital Raising Hub, a centralized portal of

educational resources for small businesses and their investors. The Capital Raising

Hub provides resources for each phase of the capital raising journey, and we

continue to expand and update the resources based on feedback we receive through

our outreach efforts.

One of the most popular resources within the Capital Raising Hub is our Building

Blocks suite of educational materials, akin to “one-pagers” that break down

fundamental securities law concepts into plain language. Also popular are the

Cutting through the Jargon glossary, which demystifies common terminology, and

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the Navigate your Options tool, a “choose-your-own-adventure” style resource

to help users navigate through the capital raising options.

Proposed Solution

Looking forward, we will continue to engage with diverse audiences of small

businesses, investors, and other thought leaders in the market to promote and

improve our educational resources. We also will continue to seek feedback and

welcome suggestions for future materials.

The Commission’s continued support of our efforts in this area is critical to

ensuring that entrepreneurs and their investors, at every stage, have access to

tools and educational resources to understand and comply with the securities

laws in order to access our capital markets effectively.

In October 2021, the Office joined Wyoming founders, investors, and other small business leaders for an engaging

conversation about capital raising for early-stage companies. One participant noted the importance of accessible

resources: “Entrepreneurs just want to run their business. We need to make the process simpler by using normal

language that people use in their living rooms.”

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Targeted regulatory changes can improve access to capital.

Background Context

As we engage with small businesses, investors, and other thought leaders, many

share details about successes in the capital raising process as well as areas of

challenges. Overwhelmingly, small businesses and investors alike tell us that

Regulation D works well for businesses that have access to accredited investors.

Many small businesses across the country, however, do not have pre-existing

accredited investor networks—often resulting in additional layers of challenges and

hurdles when seeking to capital raise. Market participants have identified a number

of targeted regulatory changes to improve the capital raising process.

“

[Y]ou find that when you have a thriving capital market, you’ve got

jobs."

ARMEER KENCHEN, SMALL BUSINESS CREDIT INITIATIVE AND

CORNERSQUARE COMMUNITY CAPITAL236

Demographic Impacts

Data highlighted in this report shows the dismal proportion of capital raised by

small businesses founded by women and minority entrepreneurs. This is the case

at all lifecycle stages—from startups through later-stage businesses seeking venture

capital—leaving these businesses financially constrained and unable to reach their

full potential.

Diversifying the pool of investors and capital allocators facilitates greater funding

of diverse founders. Women VC partners were three times more likely than men

VC partners to invest in women entrepreneurs.237 Minority-owned funds were three

to four times more likely than non-minority-owned funds to invest in businesses

founded by minority entrepreneurs.238 Therefore, policies that have a negative impact

on underrepresented investors further impede investment in the next generation of

diverse innovators working to grow their companies.239

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For example, the accredited investor definition largely determines whether an

individual is eligible to invest in many early-stage companies.240 However, African

American/Black and Hispanic/Latino investors are excluded from the accredited

investor definition at higher rates than White and Asian American/Pacific Islander

investors due, in large part, to historic wealth inequality.241

One area where data has shown progress has been Regulation Crowdfunding, where

women and minority founders are finding more success raising capital than through

other capital raising options.242

Related Developments

The Commission’s most recent rulemaking agenda indicates that it will consider

amendments to Regulation D, including updates to the accredited investor definition

and Form D.243

Proposed Solution

Based on the feedback we have received, we recommend the following changes to the

accredited investor definition and Regulation Crowdfunding. We also recommend

proceeding with caution on any potential changes to Regulation D or Form D.

ACCREDITED INVESTOR DEFINITION:

The Commission should expand the definition to include additional

qualitative professional criteria and offer more opportunities to

demonstrate financial sophistication as an alternative to the income and

net worth thresholds.

The Commission also should consider the impact any change to

the income and net worth thresholds would have on minorities and

populations located in rural areas.

Rationale:

• As reflected in the data244 on net worth and income inequality

across demographic groups, raising the wealth thresholds

would have a disparate impact on minorities, adding additional

barriers to entry for minority entrepreneurs.

•

In addition, increased thresholds would have a disparate impact

on geographic areas with a lower cost of living, including rural

areas. These regions already have less capital raising activity

than urban areas.245

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REGULATION CROWDFUNDING:

The Commission or Congress should amend Regulation

Crowdfunding246 to increase the offering size threshold under which

an issuer may meet its financial statement requirements by providing

financial statements and income tax return information certified by the

principal executive officer.

Rationale:

• Crowdfunding offerings have been a successful source of

funding for many women-founded, minority-founded, and

geographically diverse companies.247

•

However, the requirement to have financial statements

reviewed by an independent public accountant248 delays the

ability to commence an offering and imposes an upfront cost

without a guarantee that the offering will be successful. Under

the Commission’s COVID-19 relief in effect from May 4,

2020 through August 28, 2022, issuers offering $250,000

or less in a 12-month period could meet the Regulation

Crowdfunding financial statement requirements by providing

financial statements of the issuer and certain information

from the issuer’s Federal income tax returns, both certified by

the principal executive officer.249 The relief was available to

companies that had been operating for six months or more

prior to the commencement of the offering. A permanent

extension of this relief would benefit small businesses that

may look to meet urgent funding needs through a Regulation

Crowdfunding offering.

Congress should amend Section 4A(f)(3) of the Securities Act to

modify the provision that prohibits investment companies (or excluded

companies under Section 3(b) or 3(c) of the Investment Company Act)

from using the Regulation Crowdfunding exemption.250

Rationale:

• In 2020, in response to feedback, the Commission adopted

Rule 3a-9 under the Investment Company Act to allow special

purpose vehicles (SPVs) to conduct Regulation Crowdfunding

offerings as co-issuers to a traditional issuer, provided that the

SPV meets certain requirements.251 Entrepreneurs and other

thought leaders report that this SPV model has not worked as

intended due to the prescriptive requirements and the statutory

prohibition on investment companies.

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REGULATION D AND FORM D:

When considering changes to Regulation D, we urge the Commission

not to make the Form D notice and associated requirements more

burdensome, particularly for small businesses.

Rationale:

• The Rule 506(b) safe harbor to the statutory exemption

provided by Section 4(a)(2) is the most commonly used pathway

to raise capital.252 Any changes that deter businesses from

relying on this safe harbor are likely to have a chilling effect

on access to capital. In addition, such changes would be most

pronounced on small businesses and those owned by women

and minorities that are already facing some of the greatest

challenges accessing capital.

On May 5, 2022, the Office joined National Diversity Council’s Asian Love Town Hall, which focused on empowering the

Asian American/Pacific Islander community and the need to bridge network gaps.

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Connecting founders with savvy investors is essential

to capital raising.

Background Context

Connecting with early-stage investors who bring relevant industry experience can

have a significant and positive impact on a small business’s trajectory through

mentorship, business connections, strategic guidance, and follow-on financial

support. Yet not all entrepreneurs have personal connections to sophisticated,

early-stage investors with deep pockets and the right risk tolerance.253 Registered

broker-dealers tend to provide their matchmaking services for larger offerings,254 but

a company’s need to connect with savvy investors applies regardless of the dollar-size

of its offering.

Since our first Annual Report in 2019, our Office has been advocating for regulatory

clarity on the role of finders in facilitating introductions between founders and

investors.255 This issue remains as timely today as ever.

Demographic Impacts

Women, minority, and rural founders often start with a smaller network of

accredited, angel, and VC investors.256 The lack of access to networks of potential

investors has an impact that extends well beyond capital raising and into company

survival and growth prospects, diversity among board leadership, and the mentoring

that often comes from savvy investors. These barriers to company success in turn

may affect founders’ ability to build wealth and reinvest capital going forward.

“

Inclusive, collaborative entrepreneurial ecosystems can help bridge

these long-standing gaps and dismantle… the barriers to access—

opportunity, funding, knowledge, and support…. [These barriers] get in

the way of too many people starting businesses and spurring economic

growth.”

PHILIP GASKIN, KAUFFMAN FOUNDATION257

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Related Developments

In October 2020, the Commission proposed an order258 that would permit natural

persons to engage in certain limited “finders” activities involving accredited investors

without registering with the Commission as brokers. The Commission has not taken

further action on the proposal, and providing regulatory clarity for finders is not on

the Commission’s current regulatory agenda.259

Proposed Solution

We hear frequently that the lack of regulatory clarity on the role of finders in

facilitating introductions between investors and founders harms both investors and

the companies those investors are seeking to support. The lack of a clear framework

makes it easier for unscrupulous intermediaries to solicit investors without disclosing

hidden conflicts of interest. Further, to the extent an intermediary engages in

unregistered broker-dealer activity, it could expose the company to rescission

rights, which would require the company to return to investors their investment

plus interest.260 For decades, market participants have asked for clarity about the

legal obligations of finders. We are supportive of those calls and recommend that

Congress or the Commission provide additional regulatory clarity for finders.

On August 16, 2022, the Office joined a roundtable hosted by Engine where we heard about successes and challenges

faced by entrepreneurs.

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Emerging fund managers play a key role in

small business capital formation and need support.

Background Context

Businesses that seek funding beyond friends and family or their local angel network

often turn to private funds of sophisticated pooled capital, such as VC funds. Larger

funds tend to target larger investments so they can maintain a reasonably sized

portfolio of companies that they can actively manage. As a result, earlier-stage,

smaller deals may get pushed aside in favor of later-stage, more mature companies.

Founders looking for seed and early-stage capital often struggle to raise financing

for their smaller, earlier rounds. While micro-funds have strengthened seed activity,

the percentage of total capital going to micro-funds and emerging fund managers

remains just a sliver of the overall pie, with the percentage going to emerging fund

managers declining to a new decade low.261 Founders seeking smaller amounts of

capital—which are typically more regional rounds—are finding less funding before

the large VC funds come to the table.262 For those businesses that do receive earlystage VC funding, that capital tends to be key to meeting developmental milestones,

including rolling out operations, growth, and expansion.263

Emerging fund managers play a key role supporting startups across the country,

particularly for those seeking smaller, early-stage financing. Their funds tend to be

smaller and more likely to invest in a more diverse pool of entrepreneurs as well as

businesses located in geographic areas not traditionally served by more established

fund managers.264 However, emerging fund managers may be disproportionally

affected by the recent slowdown in IPOs, as fewer IPOs mean fewer exits resulting

in distributions to a fund’s LPs, which in turn may result in those LPs allocating the

now smaller pool of available capital to established, larger fund managers.265

Demographic Impacts

Diversity among those who make investment decisions results in more capital

flowing to more diverse founders.266

During outreach events, we repeatedly hear that support from an institutional LP

can significantly enhance a new fund’s ability to attract other investors. While a

number of LPs publicly pledged support for diverse fund managers following the

2020 murder of George Floyd, we hear that the amount of capital earmarked for

diverse fund managers is still a tiny fraction of the total amount that institutional LPs

are allocating to VC investments.267

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“

[W]e can’t believe that we’re all fighting gladiator style or Hunger

Games style to get a small sliver of the pie… Just because [we are]

historically overlooked fund managers doesn’t mean we should be

looked at differently and given different opportunities for smaller slices

of the pie than others.”

BRANDON BROOKS, OVERLOOKED VENTURES268

Related Developments

Last year, our Office recommended that Congress and the Commission explore

regulatory solutions to support smaller, regional funds, including:

§ Amending the “venture capital fund” definition under Rule 203(l)-1 of the

Investment Advisers Act of 1940 to permit VC funds to invest in other VC funds

as a “qualifying investment.”

§ Improving the utility of the “qualifying venture capital fund” exemption in

Section 3(c)(1) of the Investment Company Act of 1940.

The Commission has the authority to amend the “venture capital fund” definition.

Congress would need to act to improve the “qualifying venture capital fund”

exemption.

Proposed Solution

Given the role that emerging fund managers play in supporting startups, we reaffirm,

and expand on, the recommendations in our 2021 Annual Report. Specifically, we

recommend that:

§ The Commission amend the “venture capital fund” definition under Rule

203(l)-1 of the Investment Advisers Act of 1940 to treat VC funds’ investments

in other VC funds to be “qualifying investments.” This would allow these

investments to be excluded from the 20% non-qualifying basket.

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Rationale:

• This amendment would allow larger—and often more

geographically concentrated—funds to invest in emerging

fund managers who write smaller checks, increasing both the

diversity of investment decision-makers and access to capital for

founders seeking smaller VC funding rounds. As noted by the

SEC’s Small Business Capital Formation Advisory Committee,

“larger funds tend to invest larger amounts in a handful of

later-stage companies, while smaller funds tend to invest smaller

amounts in a proportionate handful of earlier-stage companies.

A fund-of-funds model—where a larger fund invests in smaller,

regional funds—could unlock capital otherwise competing for

late-stage allocations and benefit smaller companies in emerging

entrepreneurial ecosystems.”269

§ Congress increase the current 100 beneficial owners limit for funds that rely on

the exemption in Section 3(c)(1) of the Investment Company Act of 1940.

Rationale:

• Limiting a fund to 100 beneficial owners can make it more

difficult to raise a sufficient amount of capital. Many managers

tell us that this limitation is particularly challenging for new

managers who may not have the networks, track record, or

access to investors who can write large checks.

§ Congress increase the limit on investors in, and expand the $10 million maximum

size of, the “qualifying venture capital fund” exemption in Section 3(c)(1) of the

Investment Company Act of 1940.

Rationale:

• As noted in our 2021 Annual Report, assuming a “2 and

20” fee structure by a fund, a $10 million (the maximum size

under the definition) qualifying venture capital fund only has

$200,000 per year to operate, inclusive of salaries, compliance,

diligence, and portfolio management costs. Such a low amount

sets these small funds up for failure. If Congress increases the

$10 million cap, the current 250 investor limit may impede the

ability of new managers to successfully raise a sufficient amount

of capital, as we have seen in the case of traditional funds

relying on the exemption in Section 3(c)(1) of the Investment

Company Act of 1940.

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Scaled disclosures for small public companies

help them stay public.

Background Context

“Banner year for IPOs” was the headline last year. Fast forward 12 months,

and we are in a very different environment. A combination of factors, including

macroeconomic conditions, notably tighter monetary policy and inflationary

pressures, geopolitical challenges, disruptions to supply chains, a tight labor

market, the reassessment of company valuations, and recent SEC rulemakings, have

contributed to the significant decline in the number of IPOs.270

Simply put, the vibrancy of our public markets depends on two key factors:

§ Are private companies going public?

§ Are public companies staying public?

Not only must we focus on ways to foster a robust IPO pipeline despite current

macroeconomic headwinds, it is also critical that we address the challenges of

staying public.

Demographic Impacts

The demographic impacts we identify in the four recommendations above have

ripple effects and are some of the leading indicators for the demographic challenges

we see in the public markets. After all, a public company starts its journey as a

private company and needs capital in order to mature to the point that it is ready

to go public. If we are not able to address the challenges that impede women

and minority founders from accessing capital to grow their startups into public

companies, we are not going to see progress in the next generation of public

companies led by women and/or minorities. If savvy women and minority investors

do not have a role in making investment decisions, either because they do not

qualify as accredited investors or because they are not able to launch or lead a fund,

companies will lose out on the guidance and perspective those investors could have

brought to the table. For some companies, that insight and experience could make

the difference in whether they succeed in becoming and remaining a public company.

“

[D]iversity is in the interest of businesses. A diverse board helps that

business be more profitable. A diverse workforce helps that business be

more profitable. The value proposition of diversity is there.”

PETER HOLT, THE JOINT CORPORATION271

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Related Developments

The vibrancy of our capital markets depends on having companies of varying sizes.

Last year, we recommended tailoring the SEC’s disclosure and reporting framework

to the complexity and size of operations of companies. In particular, we highlighted

the need for scaling disclosure obligations or delaying compliance for small public

companies.

Since then, the Commission has embarked on a number of initiatives that will affect

the disclosures that public companies make. In some cases, the Commission has

taken steps to scale obligations or delay compliance for small public companies,272

and in other cases, small public companies will be subject to the same requirements

at the same time as much larger companies.273

Proposed Solution

Small public companies, compared to larger ones, receive less research coverage,

attract lower levels of institutional investors, and are more sensitive to fixed

compliance costs.274 It is imperative that we create an environment that nurtures and

supports those small public companies staying public. Absent this, we will continue

to see a declining number of small public companies,275 which translates into fewer

investment choices for investors.

On March 17, 2022, our Office met with women entrepreneurs in Phoenix, AZ where we heard about challenges they

face raising capital.

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With this in mind, we recommend that the Commission, when considering new

disclosure obligations for public companies, scale those obligations and delay

compliance for small public companies. Scaling disclosure obligations helps to better

balance the costs and benefits of the rules, particularly because the proportional

expense of costs that are not scalable is higher for small public companies. Delaying

compliance for small public companies helps to promote better initial disclosure for

those companies, as they will benefit from seeing the disclosure that large public

companies prepare in response to similar new requirements.

“

[R]ules and exceptions out there for small reporting companies and

emerging growth companies—that is really pivotal to what allowed

SkyWater to become a public company when we did. Without that, we

very likely would not have been able to capitalize on the opportunity to

go to market and become a public company in 2021.”

STEVE MANKO, SKYWATER TECHNOLOGY, INC.276

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Small Business Capital

Formation Advisory

Committee FY2022 Summary

T

he Small Business Advocate Act also established the SEC’s Small Business Capital Formation

Advisory Committee. The Committee is designed to provide a formal mechanism for the

Commission to receive advice and recommendations on Commission rules, regulations, and

policy matters affecting: small businesses, from emerging, privately-held companies to publiclytraded companies with less than $250 million in public market capitalization; trading in securities

of such companies; and public reporting and corporate governance of such companies. The Office

provides administrative support for the Committee, which otherwise functions independently.

The Committee’s membership includes company and investor representatives, and other thought

leaders from across a diverse set of experiences, industries, geographies, and company life cycle

stages. The Commission is grateful for their service and commitment to small businesses and their

investors.

The members of the Committee as of the end of fiscal year 2022 were as follows:

CARLA GARRETT, Chair

Corporate Partner,

Potomac Law Group PLLC

Washington, DC

JEFFREY M. SOLOMON,

Vice Chair

Chief Executive Officer,

Cowen, Inc.

New York, NY

GREGORY YADLEY, Secretary

Partner, Shumaker,

Loop & Kendrick, LLP

Tampa, FL

YOUNGRO LEE,

Assistant Secretary

CEO and Co-Founder,

NextSeed

Houston, TX

DONNEL BAIRD

Founder and CEO,

BlocPower LLC

Brooklyn, NY

WILLIAM M. BEATTY*

Securities Administrator of the

Washington State Securities

Division

Olympia, WA

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KESHA CASH

Founder and General Partner,

Impact America Fund

Oakland, CA

GREG DEAN*

Senior Vice President of the Office

of Government Affairs, FINRA

Washington, DC

BAILEY DEVRIES*

Associate Administrator for the

Office of Investment & Innovation,

U.S Small Business Administration

Washington, DC

ROBERT FOX

National Managing Partner,

Professional Standards Group,

Grant Thornton LLP

Chicago, IL

STEPHEN GRAHAM

Co-Chair, Fenwick & West LLP’s

Life Sciences Practice

Seattle, WA

SARA HANKS

CEO and Co-Founder,

CrowdCheck, Inc.

Alexandria, VA

BRIAN LEVEY

Chief Business Affairs and Legal

Officer, Upwork Inc.

San Francisco, CA

SAPNA MEHTA

General Counsel & Chief

Compliance Officer, Rise of

the Rest Seed Fund; Associate

General Counsel, Revolution

Washington, DC

CATHERINE MOTT

Founder and CEO of

BlueTreeCapital Group,

BlueTree Allied Angels, and

BlueTree Venture Fund

Pittsburgh, PA

JASON SEATS

Chief Investment Officer,

Techstars

Austin, TX

MARC OORLOFF SHARMA*

Chief Counsel of the Office of the

Investor Advocate, U.S. Securities

& Exchange Commission

Washington, DC

HANK TORBERT

President, AltaMax, LLC

New Orleans, LA

SUE WASHER

President and CEO, Applied

Genetic Technologies Corporation

Gainesville, FL

* Committee members include the SEC’s Advocate for Small Business Capital Formation (vacant at

the end of fiscal year 2022) and three non-voting members appointed by each of the SEC’s Investor

Advocate, the North American Securities Administrators Association (NASAA), and the Small Business

Administration, as well as an observer appointed by the Financial Industry Regulatory Authority

(FINRA).

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Summary of Activities

The Committee met virtually four times during FY2022. Materials from the meetings, including

agendas, transcripts, webcasts, and presentations, are available on the Committee’s webpage.

Meeting Date

Agenda Topics

November 16, 2021

Rural Entrepreneurship and the Challenges Accessing Financial

Capital and the U.S. Department of Treasury’s State Small

Business Credit Initiative

February 10, 2022

Accredited Investor Definition

May 6, 2022

Proposed Rules on Climate-Related Disclosures and SPACs,

Shell Companies, and Projections

August 2, 2022

Secondary Market Liquidity for Investors in Regulation A and

Regulation Crowdfunding Companies and Smaller Public

Companies

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Committee Recommendations

During fiscal year 2022, the Committee put forward the following four recommendations to the

Commission:

Accredited Investor Definition

February 10, 2022

According to the Commission’s rulemaking agenda, the Division of Corporation Finance

is considering recommending that the Commission seek public comment on updates to the

financial thresholds in the definition of “accredited investor” as set forth in Securities Act

Rule 501(a) of Regulation D. The definition was most recently amended in 2020, and in

connection with that rulemaking, the Committee made several recommendations in 2019.

The Committee recognizes the complexity of crafting a workable definition of accredited

investor that balances protecting investors with facilitating capital formation and

investment opportunities. As the Commission considers updating the definition’s financial

thresholds for individual investors’ net worth and annual income, the Committee urges the

Commission to avoid unintended consequences. It is also important for the Commission

to recognize that a business’s failure to succeed is not the same thing as fraud. And further,

fraud occurs at the hands of bad actors regardless of regulatory thresholds. The Committee

believes that the SEC should continue its robust enforcement program to root out fraud

across markets of all sizes, while supporting investor education on the importance of

portfolio diversification to mitigate risk of one investment’s failure.

Accredited investors are a critical source of early-stage capital for small businesses in

communities across the country, and changes that would shrink the pool of currently

accredited investors would have a detrimental effect on small business capital formation.

The ripple effects of limiting access to early-stage capital would negatively impact access to

future rounds of financing from funds and other later-stage investors, rippling further into

the companies that will one day go public.

The Committee is also concerned that raising the thresholds could have disproportionate

impacts on various demographic groups, making the definition less inclusive and widening

the nation’s already wide racial wealth gap. The Committee discussed the wealth gap

among different racial and ethnic groups, as well across different geographic communities.

The Commission should be mindful of the disparate impacts that increases to the financial

thresholds could have on the pool of accredited investors. A more homogeneous pool

of accredited investors would negatively impact the diversity of entrepreneurs who raise

capital, decreasing inclusion in capital formation.

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Further, the Committee discussed the additional ripple effects that raised financial

thresholds would have on companies whose shareholders may no longer qualify as

accredited investors, inadvertently triggering the registration thresholds of Section 12(g).

In light of the foregoing and consistent with the Committee’s 2019 recommendations,

the Committee presents the following new recommendations to the Commission for

consideration in connection with potential future rulemaking on the definition of accredited

investor:

1. Do not increase the current financial thresholds for individual investors to qualify as

accredited.

2. Going forward, consider indexing the financial thresholds for inflation on a periodic

basis.

3. Given the imperfect proxy that financial thresholds provide for measuring investor

sophistication, provide alternative methods for investors to qualify as sophisticated,

which could include investment experience, knowledge gained through work experience

or membership in associations, education credentials, additional professional

certifications, or tests to demonstrate sophistication.

Lastly, given the impact of early-stage investors who tend to invest within their local

communities, as well as regional differences in income and wealth, the Committee

recommends that the Commission consider creating a new exemption for local and/or

micro-investments that would not be limited to accredited investors.

Climate-Related Disclosures Proposal

May 6, 2022

On March 21, 2022, the Commission proposed rules on the Enhancement and

Standardization of Climate-Related Disclosures for Investors (Release No. 33-11042).

As the Commission works toward finalizing the proposed rules, while the Committee

recognizes that climate is an important topic, the Committee urges the Commission to

consider:

§ Providing a more detailed cost-benefit analysis, including the impact that the proposed

rules would have on smaller public and private companies;

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§ Scaling and delaying the compliance requirement for emerging growth companies, along

with smaller reporting companies;

§ Expanding the safe harbor for liability for Scope 3 emissions disclosures to include all

climate-related disclosures;

§ Eliminating the attestation requirement, as it would be costly and burdensome, and it

will delay reporting;

§ Requiring the information to be furnished, rather than filed;

§ Tailoring the requirements for certain industries;

§ Re-evaluating the timing for filing climate-related disclosures since the information may

not be available in time for a company’s annual report on Form 10-K; and

§ Providing a longer implementation timeframe for the new rules, so that smaller

companies would have more time to transition, work through implementation, and

comply with the new requirements.

In addition, the Committee has the following observations and suggestions:

1. The Committee asks that the Commission consider incentives, rather than penalties, for

companies that are providing climate-related disclosures. Companies that are moving in

the direction of doing things that are more climate-friendly may, for instance, be deterred

from putting together an analysis due to concerns of having to disclose it before it is

finalized or concerns of being required to provide additional disclosures that could be

financially costly and time-consuming.

2. The Committee urges the Commission consider how the climate-related disclosure

requirements may deter private companies from going public. There should be a pathway

for very small companies to become public reporting companies without hiring expensive

climate-related consultants.

3. The Commission should consider the rule’s impact on small companies that are suppliers

or vendors for public companies. To the extent public companies are required to track

and provide downstream greenhouse gas emissions, smaller suppliers and vendors that

are unable or delayed in providing their greenhouse gas emissions may lose business to

larger companies that can provide such metrics. Due to disadvantages arising from lack

of resources and smaller operations scale, both small public and private companies may

face greater challenges in accessing capital and generating revenue they need to sustain

their businesses.

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SPACs Proposal

May 6, 2022

On March 30, 2022, the Commission proposed rules on Special Purpose Acquisition

Companies (SPACs), Shell Companies and Projections (Release No. 33-11048). The

Committee’s recommendations related to this proposal are as follows:

1. The Committee would like for SPACs to remain a viable path for companies to pursue as

a means of getting access to public market capital. The Committee is concerned that the

proposed rules, as written, might render SPACs unusable as an alternative to IPOs.

2. The Committee is generally supportive of improving disclosures for SPACs, particularly in

the period of time between the announcement of the merger and the closing of the de-SPAC

transaction.

3. The Committee encourages the Commission to clearly identify which participants would

have underwriter liability. Participants should be held accountable to the same extent they

would be in traditional IPOs.

4. Management projections are an important part of the rationale for companies in

determining whether to engage in a merger with a SPAC, and they are necessary when

financial intermediaries provide fairness opinions related to de-SPAC transactions. As a

result, the Committee recommends that the projections in de-SPAC transactions be covered

by the liability safe harbor provisions of the Private Securities Litigation Reform Act when

disclosed in the de-SPAC transaction.

5. The Committee recommends that the Commission expand or eliminate the 18 month and

24 month timelines provided in the Investment Company Act safe harbor for SPACs. The

requirement to engage in a de-SPAC transaction within 18 months after its IPO and complete

its de-SPAC transaction within 24 months could incentivize SPAC sponsors to engage in

riskier acquisitions to complete the merger process within the artificially short periods.

Regulation A Secondary Market Liquidity

August 2, 2022

The Committee discussed secondary market liquidity issues. Provided that statutory authority

can be established, the Committee recommends that the Commission, on a pilot basis, provide

federal preemption from state regulation for secondary sales by investors of securities initially

sold pursuant to Tier 2 of Regulation A. This recommendation is limited to issuers current in

their ongoing reports and whose primary offering was subject to Staff review.

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Endnotes

1

2

3

The SEC conducts the Forum annually and

prepares a report in accordance with the Small

Business Investment Incentive Act of 1980 [15

U.S.C. 80c-1 (codifying section 503 of Pub. L.

No. 96-477, 94 Stat. 2275 (1980))].

See https://www.sec.gov/education/capitalraising

This graphic is based on DERA data. This

graphic depicts amounts reported or estimated

as raised from July 1, 2021 through June 30,

2022. Data on offerings under Regulations D

and Crowdfunding is based on information

reported by companies and was collected from

EDGAR filings (new filings and amendments)

on Forms D and C, respectively. Data on

registered offerings was collected from Thomson

Financial’s SDC Platinum database. For offerings

under Regulation Crowdfunding, except where

specified otherwise, estimates of the number

of offerings are based on offerings completed

during this period as shown on progress updates

on Form C-U; estimates of amounts raised are

based on proceeds reported in progress updates

filed on Form C-U during the report period.

For offerings under Regulation A, except where

specified otherwise, estimates of the number

of offerings are based on offerings qualified

during this period, excluding post-qualification

amendments; estimates of amounts raised are

based on proceeds reported in filings made

during the report period. Capital raised is

based on information reported by companies

in Forms 1-Z, 1-K, 1-SA, 1-U, and offering

circular supplements pertaining to completed

and ongoing Regulation A offerings and postqualification amendments, and for companies

whose shares have become exchange-listed,

information from other public sources. Estimates

represent a lower bound on the amounts raised

given the timeframes for reporting proceeds

following completed or terminated offerings and

that offerings qualified during the report period

may be ongoing. For the offerings that permit

pooled investment funds, such as Rule 506(b)

and (c) of Regulation D and registered offerings,

the data includes offerings conducted by pooled

investment funds.

4

5

6

7

8

9

10

11

12

“Other exempt offerings” includes estimated

amounts raised under Regulation S, and Rule

144A for calendar year 2021. The data used

to estimate the amounts raised in 2021 for

other exempt offerings includes: (1) offerings

under Regulation S that were collected from

Thomson Financial’s SDC Platinum service;

and (2) resale offerings under Rule 144A that

were collected from Thomson Financial’s SDC

New Issues database, the Mergent database,

and the Asset-Backed Alert and Commercial

Mortgage Alert publications, to further estimate

the exempt offerings under Regulation S. We

include amounts sold in Rule 144A resale

offerings because those securities are typically

issued initially in a transaction under Section

4(a)(2) or Regulation S but generally are not

included in the Regulation S data identified

above. These numbers are accurate only to the

extent that these databases are able to collect

such information and may understate the actual

amount of capital raised under these offerings

if issuers and underwriters do not make this

data available. The data on Rule 144A debt

offerings from Mergent is available only through

September 30, 2021. We have extrapolated the

data to obtain a full calendar year. We do not yet

have data to provide an estimated amount raised

under Regulation S and Rule 144A for the 12

month period ended June 30, 2022.

17 C.F.R. § 230.506(b); see https://www.sec.gov/

smallbusiness/exemptofferings/rule506b.

17 C.F.R. § 230.506(c); see https://www.sec.gov/

smallbusiness/exemptofferings/rule506c.

17 C.F.R. § 230.504; see https://www.sec.gov/

smallbusiness/exemptofferings/rule504.

17 C.F.R. § 227.100 et seq.; see https://

www.sec.gov/smallbusiness/exemptofferings/

regcrowdfunding.

Securities Act of 1933 § 3(a)(11), 17 C.F.R. §

230.147, and 17 C.F.R. § 230.147A; see https://

www.sec.gov/smallbusiness/exemptofferings/

intrastateofferings.

17 C.F.R. § 230.251 et seq.; see https://www.sec.

gov/smallbusiness/exemptofferings/rega.

See https://www.sec.gov/investor/alerts/ipoinvestorbulletin.pdf for more information.

15 U.S.C. § 77a, et seq.; see https://www.sec.gov/

smallbusiness/goingpublic.

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13

14

15

16

94

This graphic presents capital raised in registered,

Regulation D and Regulation A offerings across

the top industries from July 1, 2021 through

June 30, 2022. Offerings by non-pooled

investment funds in other industries accounted

for approximately $25 billion, $79 billion and

$96 million in registered, Regulation D and

Regulation A offerings, respectively. Regulation

A and registered offerings were classified into

industry groups based on the primary SIC code

reported by the company. Industry groups

were self-reported by companies on Form D.

Differences in data sources and definitions

may limit the comparability of industry data.

Offerings by pooled investment funds, which

accounted for approximately $63 billion

and $2.1 trillion in registered offerings and

Regulation D, respectively, are excluded from

this graphic. See supra note 3 for a description of

how these amounts were reported or estimated.

The maps included in this section depict the

amounts reported or estimated as raised by

issuers, including pooled investment funds that

report a primary location in the U.S., including

U.S. territories, from July 1, 2021 through June

30, 2022. See supra note 3 for a description of

how these amounts were reported or estimated.

See Crowdfund Capital Advisors, “Investment

Crowdfunding. Democratizing Access to

Capital. 2021 Annual Report, “Feb. 2022” at

9, 12-13, 31-32 and 49, available at https://

crowdfundcapitaladvisors.com/2021-investmentcrowdfunding-year-in-review-report-released/.

Because of lags in offering qualifications,

withdrawals, and abandonments, for greater

comparability, this analysis considers all initiated

Regulation Crowdfunding offerings and does

not exclude offerings that are subsequently

withdrawn or abandoned. See supra note 3 for a

description of how these amounts were reported

or estimated.

|

17

18

19

Because of lags in offering qualifications,

withdrawals, and abandonments, for greater

comparability, this analysis considers all initiated

Regulation Crowdfunding offerings and does

not exclude offerings that are subsequently

withdrawn or abandoned. See supra note 3

for a description of the methodology used to

calculate this data. Effective March 15, 2021,

the maximum aggregate amount that an

issuer is permitted to raise under Regulation

Crowdfunding in a 12-month period was

raised to $5 million (from $1.07 million). See

“Facilitating Capital Formation and Expanding

Investment Opportunities by Improving Access

to Capital in Private Markets,” (Mar. 10,

2021) available at https://www.sec.gov/corpfin/

facilitating-capital-formation-secg.

See supra note 3 for a description of the

methodology used to calculate this data. Effective

March 15, 2021, the maximum aggregate

amount that an issuer is permitted to raise under

Rule 504 of Regulation D in a 12-month period

was raised to $10 million (from $5 million). See

Facilitating Capital Formation and Expanding

Investment Opportunities by Improving Access

to Capital in Private Markets, supra note 17.

Offerings under Rule 504 accounted for 0.9% of

all new Regulation D offerings and 0.03% of the

aggregate amounts raised under Regulation D.

From March 15, 2021 through June 30, 2022,

there were 12 offerings that raised between $5

and $10 million under Rule 504 for an aggregate

of $77.6 million.

This graphic includes the top industries based on

the reported amounts raised by non-pooled fund

issuers during the respective periods. Offerings

by non-pooled fund issuers in other industries

accounted for approximately $62 billion and $86

billion in the twelve months ended June 30, 2021

and 2022, respectively. See supra note 3 for a

description of the methodology used to calculate

this data.

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20

21

22

23

Because of lags in offering qualifications,

withdrawals, and abandonments, for greater

comparability, this analysis considers all initiated

Regulation A offerings (whether qualified or

not) and does not exclude offerings that are

subsequently withdrawn or abandoned. Due

to lags and bunching in proceeds data and

temporary relief provided to Regulation A

in March 2020, the dollar amounts in this

graphic are based on the amounts sought (in

$ million) in qualified Regulation A offerings

and not on reported proceeds. See supra note

3 for a description of the methodology used

to calculate this data. Effective March 15,

2021, the maximum aggregate amount that an

issuer was permitted to raise under Tier 2 of

Regulation A in a 12-month period was raised to

$75 million (from $50 million). See Facilitating

Capital Formation and Expanding Investment

Opportunities by Improving Access to Capital in

Private Markets, supra note 17.

This graphic includes the top industries by

aggregate amounts sought in qualified Regulation

A offerings during the respective periods.

Additional offerings accounted for approximately

$81 million and $162 million in the twelve

months ended June 30, 2021 and 2022,

respectively. See supra note 3 for a description of

the methodology used to calculate this data.

This graphic includes pooled funds. See supra

note 3 for a description of the methodology used

to calculate this data.

This graphic includes the top industries by IPO

proceeds. Additional IPOs by non-pooled fund

issuers accounted for approximately $9.6 billion

and $7.6 billion in the twelve months ended

June 30, 2021 and 2022, respectively. Pooled

investment funds, including SPACs, accounted

for approximately $179 billion and $60 billion

in the twelve months ended June 30, 2021

and 2022, respectively. See supra note 3 for a

description of the methodology used to calculate

this data.

24

25

26

27

28

29

See NVCA, “2022 Yearbook,” (Mar. 2022) at

10 (noting that VCs typically invest in young,

high-growth companies in need of capital to

grow) available at https://nvca.org/wp-content/

uploads/2022/03/NVCA-2022-Yearbook-Final.

pdf. See also Thomas Huckabee, “Not All

Startups Are a Fit for the VC Funding Model:

Why They Need Projected Revenues of over

$25 Million,” Thomas Huckabee, Inc., (June

11, 2021) available at https://tehcpa.net/

uncategorized/not-all-startups-are-a-fit-for-thevc-funding-model-why-they-need-projectedrevenues-of-over-25-million/.

See Daniel Wilmoth, Ph.D, “Small Business

Facts. Small Business Job Creation,” U.S. Small

Business Administration Office of Advocacy,

(Apr. 2022) available at https://cdn.advocacy.

sba.gov/wp-content/uploads/2022/04/22141927/

Small-Business-Job-Creation-Fact-SheetApr2022.pdf.

See U.S. Small Business Administration Office of

Advocacy, “2022 Small Business Profile,” (2022)

at 1, available at https://cdn.advocacy.sba.gov/

wp-content/uploads/2022/08/30121338/SmallBusiness-Economic-Profile-US.pdf.

See Jeffrey M. Jones, “Confidence in U.S.

Institutions Down; Average at New Low,” (July

5, 2022) available at https://news.gallup.com/

poll/394283/confidence-institutions-downaverage-new-low.aspx (noting that 68% of

Americans have confidence in small businesses).

Major US Institutions included in survey: Small

business, military, police, medical system, church

or organized religion, public schools, organized

labor, banks, large technology companies,

U.S. Supreme Court, presidency, newspapers,

criminal justice system, Big business, Television

news, and Congress. See Gallup, “Confidence in

Institutions,” (2022) available at https://news.

gallup.com/poll/1597/confidence-institutions.

aspx.

See Ewing Marion Kauffman Foundation,

“America’s New Business Plan,” (2022) at 12,

available at https://www.startusupnow.org/wpcontent/uploads/sites/12/2022/05/ANBP-RefreshFinal_v3.pdf#page=12&zoom=100,0,0.

See Nasdaq Entrepreneurial Center, “Pay

Ownership Valuation (POV) Research Findings,”

(2022) at 7, available at https://evidence2impact.

psu.edu/wp-content/uploads/2022/07/POVFinal_Research.pdf.

A N N UA L R EPORT: FI SCA L YEA R 2022

|

95

30

31

32

33

34

35

36

37

38

39

40

41

42

96

See Small Business Majority, “Survey: Small

Businesses Optimistic About the Future, Despite

Concerns about Inflation and Barriers to

Capital, (Oct. 13, 2022) at 2, available at https://

smallbusinessmajority.org/sites/default/files/

research-reports/2022-SSTB-SBM-Network-PollReport.pdf.

See Hello Alice, “Capital Access Temp Check,”

(Apr. 2022) at 1, available at https://helloalice.

com/wp-content/uploads/2022/05/APRILCapital-Access-Temp-Check-.pdf.

Id.

Id. at 3.

See January Ventures, “2021 Early Stage

Founder Sentiment Report,” (2021) at 9,

available at https://34a0404e-3457-4b9f8fcc-19732fc72efe.filesusr.com/ugd/8d7061_

f955edaf79ba40bba50fcca2a2ebbd53.pdf.

See Ewing Marion Kauffman Foundation, supra

note 28, at 20.

Id.

See The White House, “The Small Business

Boom Under the Biden-Harris Administration,”

(Apr. 2022) at 1, available at https://www.cdfa.

net/r/WhiteHouse_04-2022_Business-BoomUnder-Biden-Harris-Administration.html.

See Economic Innovation Group, “More

Physical Places of Businesses Open Now than

Pre-Pandemic, Led by Sun Belt Metros,” (Apr. 5,

2022) available at https://indicators.kauffman.

org/wp-content/uploads/sites/2/2022/03/2021Early-State-Entrepreneurship-National-Report.

pdf. By contrast, only 44 percent of counties had

reached a similar milestone five full years after

the onset of the Great Recession.

See Robert Fairlie, “National Report on

Early-Stage Entrepreneurship in the United

States: 2021,” (Mar. 2022) at 19, available at

https://indicators.kauffman.org/wp-content/

uploads/sites/2/2022/03/2021-Early-StateEntrepreneurship-National-Report.pdf.

See Federal Reserve Banks, “Small Business

Credit Survey. 2022 Report on Employer Firms,”

(Feb. 22, 2022) at 7, available at https://www.

fedsmallbusiness.org/survey/2022/report-onemployer-firms.

Id. at i.

Id. at 7. In addition, 45% cut staff hours

or downsized operations, 28% altered their

payments or did not make a payment, and 2%

reported no action in response to the challenges.

|

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

Id. at 19. Percentages add to more than 100

because respondents could select multiple

options. Unlike prior years, the Federal Reserve’s

Small Business Credit survey did not include data

about the use of retained earnings for ongoing

business operations.

Id. at ii, 14-17. In 2021, 42% of businesses made

their need met, a decline from 47% of businesses

in 2020.

Id. at ii, 16-17.

See Jeffrey Sohl, “The Angel Market in 2021:

Metrics Indicate Strong Market,” Center for

Venture Research, (May 20, 2022) at 1, available

at https://paulcollege.unh.edu/sites/default/files/

resource/files/fy_2021_analysis_report_final.pdf.

Id. at 1.

Id.

Id. at 2.

See Angel Capital Association, “Angel Funders

Report 2022,” (Nov. 2022) at 10, available at

https://www.angelcapitalassociation.org/angelfunders-report-2022/.

Id. at 14.

See Jeffrey Sohl, supra note 46, at 1.

Id. at 2.

See Angel Capital Association, supra note 50, at

36.

Id. at 12.

See “Seed Round” available at https://www.sec.

gov/jargon-z#S.

See PitchBook-NVCA, “Venture Monitor Q2

2022,” (July 13, 2022) at 8, available at https://

pitchbook.com/news/reports/q2-2022-pitchbooknvca-venture-monitor.

See Samir Kaji, “Why Emerging Managers have

Become a Staple of LP Portfolios,” Venture

Unlocked (Aug. 11, 2022) available at https://

ventureunlocked.substack.com/p/why-emergingmanagers-are-a-critical; see also Gené Teare,

“How Seed Funding Has Exploded in the Past 10

Years,” (Oct. 28, 2021) available at https://news.

crunchbase.com/venture/seed-funding-startupstop-vc-firms-a16z-nea-khosla/.

See Samir Kaji, supra note 58 (providing 2022

estimate); see CBInsights, “The 106 Most

Active Seed Venture Capital Firms,” (Jan. 10,

2015) available at https://www.cbinsights.com/

research/active-seed-venture-capital-firms-2014/

(providing number of active U.S. seed VC

investors as of 2010-2014).

See PitchBook-NVCA, supra note 57, at 8. Excel

“Angel & Seed Activity” tab.

SE C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

61

62

63

64

65

66

67

68

69

70

71

72

73

74

See Dropbox DocuSend, “The Pre-Seed Round

in 2021-22. Adapting the Pitch Deck for a New

Market,” (Aug. 17, 2022) at 10, available at

https://try.docsend.com/fundraising-report; see

Dropbox DocuSend, The Seed Round in 202122. Proving Market Fit and Monetization Amid

Uncertainty,” (Nov. 2022) at 11, available at

https://try.docsend.com/seed-fundraising-report.

See Dropbox DocuSend, “The Pre-Seed Round

in 2021-22. Adapting the Pitch Deck for a New

Market,” supra note 61, at 10.

See Dropbox DocuSend, “The Pre-Seed Round

in 2021-22. Adapting the Pitch Deck for a New

Market,” supra note 61, at 21; see Dropbox

DocuSend, “The Seed Round in 2021-22.

Proving Market Fit and Monetization Amid

Uncertainty,” supra note 61, at 22.

See Dropbox DocuSend, “The Pre-Seed Round

in 2021-22. Adapting the Pitch Deck for a New

Market,” supra note 61, at 18.

Id. at 3-4.

See Dropbox DocuSend, “The Seed Round

in 2020-21. Make or Break Moment for

Founders,” (2021) at 19, available at https://try.

docsend.com/seed-fundraising-report.

See Jeffrey Sohl, supra note 46, at 2.

See PitchBook-NVCA, supra note 57. Excel

“Angel & Seed Activity” tab. This graph depicts

the combined the Angel and Seed market.

However, the angel market constitutes a small

part of the combined market values. From 2018

to Jun. 30, 2022, the angel activity was between

13% and 5% of the combined angel and seed

market value reflected in the graph.

Id at 8.

Id.

See PitchBook-NVCA, “Venture Monitor Q1

2022 (Apr. 13, 2022) at 9, available at https://

pitchbook.com/news/reports/q1-2022-pitchbooknvca-venture-monitor. Excel “Fundraising

Activity” tab; see Kyle Stanford, “Micro-Funding

Opportunity. Micro-Funds Proliferate in a

Market Where Everything is Getting Larger,”

PitchBook (Apr. 5, 2022) at 2-3, available at

https://files.pitchbook.com/website/files/pdf/

Q2_2022_PitchBook_Analyst_Note_MicroFunding_Opportunity.pdf.

See Kyle Stanford, supra note 71, at 8.

Id. at 6.

See Angel Resource Institute, “HALO Report.

Annual Report on Angel Investments (2021) at

4, available at https://angelresourceinstitute.org/

reports/HALO2021.pdf; see Kyle Stanford, supra

note 71, at 5.

75

76

77

78

79

80

81

82

83

84

85

86

87

88

Regions that do not have data available are

shown in white with an outline. See Angel

Resource Institute, supra note 74, at 7. The

overall percent of in-region investments was 75%

in 2020 and 60% in 2019. See Angel Resource

Institute, “HALO Report. Annual Report on

Angel Investments,” (2020) at 6, available

at https://angelresourceinstitute.org/reports/

HALO2020.pdf.

See Kyle Stanford, supra note 71, at 5.

Id.

See Kenan Institute of Private Enterprise,

“Capital Ecosystems: Seeding Small and Regional

Funds to Increase Opportunity,” (June 1, 2022)

available at https://kenaninstitute.unc.edu/kenaninsight/capital-ecosystems-seeding-smaller-andregional-funds-to-increase-opportunity/.

See PitchBook-NVCA, supra note 57. Excel

“Deals x State” tab.

Id. The top three states for VC funding are

California, New York, and Massachusetts.

See Venture Forward, “Employment Dynamics

at VC-Backed Companies in the United States:

1990 to 2020,” (Feb. 15, 2022) available

at https://ventureforward.org/resources/

employment-dynamics/.

See NVCA, supra note 24, at 10; see also

Venture Forward, “Venture 101,” (2022)

available at https://ventureforward.org/

education/venture-101/.

See NVCA, supra note 24, at 10.

Id.

See Natee Amornsiripanitch et al., “More than

Money: Venture Capitalists on Boards,” The

Journal of Law, Economics, and Organization

(Apr. 11, 2019) at 5, available at https://papers.

ssrn.com/sol3/papers.cfm?abstract_id=2586592.

See Jeremy Greenwood et al., “Venture Capital:

A Catalyst for Innovation and Growth,” (Apr.

21, 2022) at 3, available at https://files.stlouisfed.

org/files/htdocs/publications/review/2022/04/06/

venture-capital-a-catalyst-for-innovation-andgrowth.pdf.

See PitchBook-NVCA, supra note 57, at 31.

See Marina Tempkin, “VCs Hit with

'Fundraising Pain' as LPs Deal with Venture

Overexposure,” PitchBook (May 5, 2022)

available at https://pitchbook.com/news/articles/

vc-fundraising-venture-capital-asset-allocationsLP-GP-diligence.

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97

See Will Gornall and Ilya A. Strebulae, “The

Economic Impact of Venture Capital: Evidence

from Public Companies,” (June 2021) at 7,

available at https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=2681841 (noting that census

data show 4.3 million business formations in

2020 (31 million over the past decade), while

PitchBook data show 3,842 companies received

their first VC financing in 2020 (35 thousand

over the past decade)).

90 See NVCA, supra note 24, at 8. Data from

PitchBook-NVCA, supra note 57. Excel “Median

Deal Size” tab. Average exit value is calculated

from the exit value and exit count. See Venture

Forward, supra note 81.

91 See PitchBook-NVCA, supra note 57, at 3.

92 Id. Excel “Deal Activity” tab.

93 Id. Excel “Angel and Seed Activity”, “Early

Stage Activity” and “Late Stage Activity” tabs.

94 Id. at 14. Excel “Median Deal Size” tab; see

also Lian Chang, “State of Private Markets,”

Carta (Aug. 19, 2022) available at https://carta.

com/blog/state-of-private-markets-q2-2022/

(regarding the relative stagnation of post-money

valuations at Series C, D and E+ levels).

95 See Lian Chang, supra note 94.

96 See PitchBook-NVCA, supra note 57. Excel

“Fundraising x Size tab; see Priyamvada Mathur,

“US Venture Capital Trends in Five Charts,”

PitchBook, (July 15, 2022) available at https://

pitchbook.com/news/articles/venture-monitor-vctrends-charts.

97 See PitchBook-NVCA, “Q1 2022 PitchBook

NVCA Venture Monitor First Look. VC Industry

Facing Market Full of Headwinds,“ (Apr. 5,

2022) at 2, available at https://files.pitchbook.

com/website/files/pdf/Q1_2022_PitchBook_

NVCA_Venture_Monitor_First_Look.pdf.

98 See PitchBook-NVCA, supra note 57, at 35.

Excel “Emerging vs. Experienced Funds” tab.

Emerging is defined as firms that have launched

fewer than four funds and Experienced firms are

defined as firms that have opened four or more

funds.

99 Id.

100 See Silicon Valley Bank, “Global Fund

Banking Outlook Report,” (Q3 2022) at 12,

available at https://www.svb.com/globalassets/

trendsandinsights/reports/global-fund-bankingoutlook/q3-2022/gfb-report-q3-2022-9722.pdf.

101 Id. Respondents to the survey can choose up to

three options.

89

98

|

102 Id.

103 Id. Respondents to the survey can choose up to

three options.

104 Id.

105 Id. See also Michael Maziar, “Rising Tech

Hubs Mean New Opportunities for Emerging

Managers,” Silicon Valley Bank (Oct. 4, 2022)

available at https://www.svb.com/emergingmanager-insights/scaling-for-success/rising-techhubs-for-emerging-managers; see also Waverly

Deutsch, “Women and Minority Investors

Are Taking Matters into Their Own Hands,”

Chicago Booth Review (May 10, 2021) available

at https://www.chicagobooth.edu/review/womenand-minority-investors-are-taking-matters-theirown-hands.

106 See PitchBook-NVCA, supra note 57, at 19;

see also James Thorne, “Corporate VC Firms

Buck ‘Tourist’ Reputation with Pandemic

Dealmaking,” PitchBook, (Sept. 28, 2020)

available at https://pitchbook.com/news/articles/

corporate-vc-firms-pandemic-dealmaking-ratebucks-tourist-reputation; see also James Thorne,

“What’s Driving Private Equity’s March on

VC?,” PitchBook, (Sept. 8, 2021) available at

https://pitchbook.com/news/articles/privateequity-nontraditional-investors-vc-deals; see

also Cameron Stanfill et al., “Crossing Over

Into Venture,” PitchBook, (Apr. 20, 2021) at 2,

available at https://pitchbook.com/news/reports/

q2-2021-pitchbook-analyst-note-crossing-overinto-venture.

107 See PitchBook-NVCA, supra note 57. Excel

“Alternative VC” tab.

108 Id. at 30. Excel “Alternative VC” tab; see

Richard Waters, “Venture Capital’s Silent Crash:

When the Tech Boom met Reality,” Financial

Times (Aug. 1, 2022) available at https://www.

ft.com/content/6395df7e-1bab-4ea1-a7eaafaa71354fa0.

109 See PitchBook, “US VC Valuations Report,”

(Feb. 4, 2022) at 17, available at https://files.

pitchbook.com/website/files/pdf/2021_Annual_

US_VC_Valuations_Report.pdf.

110 See Miriam Gottfried and Laura Cooper,

“Buyout Firms Seek $1 Trillion of New Funding

Even as Markets Drop and Deal-Making Dries

Up,” The Wall Street Journal (July 18, 2022)

available at https://www.wsj.com/articles/

buyout-firms-seek-1-trillion-of-new-fundingeven-as-markets-drop-and-deal-making-driesup-11658136602.

S E C O FFIC E O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

111 See Marina Tempkin, supra note 88.

112 See PitchBook-NVCA, supra note 57, at 31.

Excel “Exits x Type” tab.

113 Id. at 32. Excel “Exits x Previous Round” tab.

114 Includes issuers with a market capitalization of

$250 million or less.

115 Data on U.S. listed domestic firms was estimated

by DERA based on the Center for Research in

Security Prices (CRSP) database. The analysis

includes U.S. common stocks (share codes 10 and

11) listed on NYSE, NYSE MKT and Nasdaq.

The analysis excludes investment funds and

trusts (Standard Industrial Classification codes

6722, 6726, 6798, and 6799). A company with

several classes of shares is counted once. Data for

2022 represents the number of listed firms and

market capitalization as of June 30, 2022.

116 See supra note 115 for a description of the

methodology used to calculate this data.

117 This graphic is based on DERA data, including

pooled funds. This data was collected from

Thomson Financial’s SDC Platinum database.

IPOs by small companies include IPOs by U.S.

companies that after the non-SPAC offering

have a size less than or equal to $250 million,

calculated by multiplying price of the company’s

stock at the close of the day of the offering by

the number of outstanding shares on the day of

the offering. IPOs by large companies include

IPOs by companies that after the non-SPAC

offering have a size greater than $250 million,

calculated as described above. Data from the

Center for Research in Securities Prices (CRSP),

Dealogic, and Compustat were used to fill in

missing information from SDC Platinum. Those

companies with missing either (1) a stock price

on the day of the offering or (2) a number

of outstanding shares are not included in the

statistics. The estimates provided in this graph

for small public companies are based on the

estimated market capitalization for the issuer on

the date of the offering as provided in the abovelisted databases. There have been significant

downward revisions in the most recent estimates

as the market capitalization of issuers are

corrected in the databases.

118 See supra note 117 for a description of the

methodology used to calculate this data. The

number shown on the top of the bar represents

the total number of IPOs. The percentages not

illustrated are IPOs by small foreign companies.

See also Tom Zanki, “Small IPOs Buck Trends

in an Otherwise Cold Market,” Law 360, (Aug.

24, 2022) available at https://www.law360.

com/banking/articles/1523843/small-ipos-bucktrends-in-an-otherwise-cold-market.

119 See Will Gornall and Ilya A. Strebulae,

supra note 89, at 17. The study used market

capitalization and enterprise value as of

December 31, 2020. All other variables,

including research and development dollar

amount and number of patents, are from

Compustat as of 2020 or the most recent fiscal

year. VC classifications are from PitchBook,

Thomson ONE, VentureSource, and manual

matching.

120 See Jeremy Greenwood et al., supra note 86, at

7. This study is based on U.S. public companies

between 1970 and 2014.

121 See “Smaller Reporting Company Definition,”

Release Nos. 33-10513; 34-83550; File No. S712-16 (June 28, 2018) available at https://www.

sec.gov/rules/final/2018/33-10513.pdf.

122 See “Pay Ratio Disclosure,” Release Nos. 339452; 34-70443; File No. S7-07-13 (Aug. 5,

2015) at 89, available at https://www.sec.gov/

rules/proposed/2013/33-9452.pdf (providing

estimates of the number of annual reports on

Form 10-K based on a review of EDGAR filings

in 2011). For comparability with the 2011 data,

DERA staff estimated the number of annual

reports on Form 10-K filed in 2021 based on a

review of EDGAR filings.

123 See Bill Hortz, “The Microcap Universe:

Overview and Opportunities,” Nasdaq, (June

7, 2022) available at https://www.nasdaq.com/

articles/the-microcap-universe%3A-overviewand-opportunities; see also, Todd Lincoln, MBA,

“What is Market Cap? Everything You Need

to Know,” Medium, (Jan. 15, 2021) available

at https://medium.com/the-investors-handbook/

market-cap-a474214c1368 (defining micro-cap

as companies with market cap between $0M and

$300 million, and small-cap as companies with

market cap between $300M and $2 billion).

A N N UA L R EPORT: FI SCA L YEA R 2022

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99

124 This graphic is based on DERA data. Registered

offering data includes IPOs and registered

secondary equity offerings, and was collected

from Thomson Financial’s SDC Platinum

database. Registered debt offerings have been

excluded. Small public companies include

U.S. public companies with a size less than

or equal to $250 million on the date of the

offering, calculated by multiplying the price

of the company’s stock at the close of the day

of the offering by the number of outstanding

shares on the day of the offering. Data from

CRSP, Dealogic, and Compustat were used to

fill in missing information from SDC Platinum.

Those companies with missing either (1) a stock

price on the day of the offering or (2) a number

of outstanding shares are not included in the

statistics. The estimates provided in this graph

for small public companies are based on the

estimated market capitalization for the issuer on

the date of the offering as provided in the abovelisted databases. There have been significant

downward revisions in the most recent estimates

as the market capitalization of issuers are

corrected in the databases.

125 See supra note 124 for a description of the

methodology used to estimate registered equity

offerings by small public companies. This graphic

includes the top industries based on the total

proceeds raised in registered equity offerings

by small public company during one of the

respective periods, excluding offerings filed by

pooled funds. Offerings for industries outside of

these top industries accounted for approximately

$0.9 billion and $0.3 billion in the twelve

months ended June 2021 and 2022, respectively.

Offerings by pooled funds, including SPACs,

accounted for approximately $17 billion and

$17 billion in the twelve months ended 2021 and

2022, respectively.

126 See “Accelerated Filer and Large Accelerated

Filer Definitions,” Release No. 34-88365;

File No. S7-06-19,” (Apr. 23, 2020) at

39, available at https://www.sec.gov/rules/

final/2020/34-88365.pdf (amending the

accelerated and large accelerated definitions).

127 See Protiviti Global Business Consulting, “SOX

Compliance Amid Rising Costs, Labor Shortages

and Other Post-Pandemic Challenges (June 9,

2022) at 5, available at https://www.protiviti.

com/sites/default/files/2022-10/protiviti_2022sox-compliance-survey_global.pdf.

128 Id. Excludes external audit-related fees.

100

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129 See U.S. Securities and Exchange Commission,

“Staff Report on the Issues Affecting the

Provision of and Reliance Upon Investment

Research Into Small Issuers,” (Feb. 18, 2022)

at 7, available at https://www.sec.gov/files/staffreport-investment-research-small-issuers.pdf; see

also Todd Lincoln, MBA, supra note 123.

130 See U.S. Securities and Exchange Commission,

supra note 129, at 7. The Congressional

Research Report defines small issuers as

companies with market capitalization ranging up

to $250 million, and large issuers as companies

with market capitalization above $250 million.

131 Id. at 11-12, 45-46.

132 See IR Magazine, “Sample: Retail Investors

Research Report Sponsored by Broadridge,”

(Aug. 2021) at 3, 5, available at https://www.

thecorporatecounsel.net/member/memos/

Broadridge/08_21_report.pdf. See Garnet Roach,

“Only Small Caps See Minority of Shares Held

by Institutions, Research Shows,” IR Magazine,

(Jan. 18, 2022) available at https://www.

irmagazine.com/small-cap/only-small-caps-seeminority-shares-held-institutions-shows-research.

133 See U.S. Small Business Administration Office

of Advocacy, supra note 26, at 3. Ownership

includes equal and majority ownership.

134 Id. Ownership includes equal and majority

ownership.

135 See PitchBook, “All In. Female Founders in

the US VC Ecosystem,” (Nov. 2, 2022) at

4, available at https://pitchbook.com/news/

reports/2022-all-in-female-founders-in-the-us-vcecosystem. Women-founded includes companies

with at least one woman founder. Deal count is

in Excel “VC deal activity” tab.

136 See Carta, “Annual Equity Report 2021,” (Dec.

8, 2021) at 13, available at https://carta.com/

equity-summit/reports/2021/.

137 See https://data.census.gov/

table?q=ab1900*&tid=ABSCB2019.

AB1900CSCB01&hidePreview=true&nkd=QDESC~B01. Percentages may not add to 100%

due to rounding. Ownership includes majority

ownership.

138 See Robert Fairlie, supra note 39, at 8. See

also Ewing Marion Kauffman Foundation,

“Who is the Entrepreneur? New Entrepreneurs

in the United States, 1996-2021,” (2022) at

1, available at https://www.kauffman.org/

wp-content/uploads/2022/10/Kauffman_

Trends-in-Entrepreneurship-Who-Is-TheEntrepreneur-2021.pdf (noting that 39.9% of

new entrepreneurs in 2021 were women).

S EC O FFICE O F TH E ADVO CATE FOR SMA LL B USI N ESS CA PI TA L FOR MATI ON

139 See January Ventures, supra note 34, at 7.

140 Id. at 10.

141 See Kate Davidson and Aubree Eliza Weaver,

“We Have a Lot of Work to do: Women and

the Economy,” Politico Morning Money (June

29, 2022) available at https://www.politico.

com/newsletters/morning-money/2022/06/29/

we-have-a-lot-of-work-to-do-women-and-theeconomy-00043029.

142 See Jeffrey Sohl, supra note 46, at 2.

143 Id.

144 See PitchBook-NVCA, supra note 57. Excel

“Female Founder Activity” tab.

145 Id.

146 Id. Excel “Female Founder Activity” tab and

“Deal Activity” tab.

147 Id. Excel “Female Founder Activity” tab.

148 See Carta, supra note 136, at 14.

149 See Jordan Rubio, “Check Out Where Female

Founder Fundraising is Growing Fastest in

the US,” PitchBook (Sept. 6, 2022) available

at https://pitchbook.com/news/articles/femalefounders-metro-growth. The percentage

illustrates the growth in capital raised from 2020

to present compared to 2008-2019.

150 See Dropbox DocSend, “The Funding Divide

2022. Underrepresented Founders Get More

Attention, but for Most, the Dollars Don’t

Deliver,” (2022) at 3, available at https://try.

docsend.com/funding-divide-report.

151 Id. at 6. See Justin Izzo, “Gains in Fundraising

Can’t Shake Off the Losses for Female and

Minority Founders in 2021,” Dropbox DocSend

(Mar. 29, 2022) available at https://www.

docsend.com/blog/fundraising-gains-still-resultin-losses-for-female-and-minority-founders/.

152 See Dropbox DocSend, supra note 150, at 9-10.

153 Id. at 10.

154 See Engine, “Making the Startup Ecosystem

More Equitable,” (Nov. 2021) at “Introduction”, available at https://static1.squarespace.

com/static/571681753c44d835a440c8b5/t/

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