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

Agency decision

Ask Donna

What actually matters in this document.

Text

Annual

Report

FISCAL YEAR 2023

INTERACTIVE VERSION

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

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

print version, but the clickable Contents menu throughout allows users

to navigate easily between sections.

Entrepreneurs continue to face a

considerable gap in accessing capital

through every stage of the business

cycle. While there have been some

advances in identifying and addressing

barriers to accessing capital, there is

much more work to do.

EWING MARION KAUFFMAN FOUNDATION.1

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | ii

Contents

MISSION: Who We Are

DATA: State of Capital Formation

Small and Emerging

Businesses and Exempt

Offering Data

Mature and

Later-Stage

Businesses

Initial Public

Offerings and Small

Public Companies

Women Founders

and Investors

Diverse Founders

and Investors

Natural Disaster

Areas

Rural

Communities

POLICY: Recommendations

Expand

educational

resources

Private

offering

changes

Support

emerging fund

managers

Avenues connecting

businesses and

investors

Scale and harmonize

small public company

requirements

ADVOCACY:

What We Do

COMMITTEE:

Highlights

ENDNOTES:

All the Details

OFFICE:

Meet the Team

102

121

Contents

MISSION | Who We Are

Introduction

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

MISSION

Who We Are

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

2019 via the bipartisan SEC Small Business Advocate Act of 2016 to advance the interests of

small businesses and their investors at the SEC and in the capital markets, from early-stage

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

are seeking liquidity, all the way to smaller public companies. The Office proactively works to

identify and address unique challenges faced by women-owned, diverse, rural, and natural disaster

area small businesses and their investors. We advocate for small businesses and their investors in

raising capital by

Contents

MISSION | Who We Are

Introduction

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

ANALYZING

capital-raising

trends, including

the impact of rules

and regulations

COMMITTEE | Highlights

ENGAGING

through

outreach and

education

HELPING

navigate securities

laws and other

issues via education

and policy

recommendations

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 raising

capital, to the complexities of the capital-raising regulatory framework, to unique challenges and

opportunities of different demographic groups and geographic regions. The insight we gain from

our events and conversations with small business ecosystem participants provides timely, practical

feedback to inform the Commission’s policymaking as well as the Office’s further outreach and

educational efforts.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 1

ENDNOTES | All the Details

OFFICE | Meet the Team

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

DATA

State of Capital

Formation

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 2

OFFICE | Meet the Team

ANALYZING

capital-raising

trends, including

the impact of rules

and regulations

Why data?

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

bringing together many important pieces of the capital formation story into one resource to aid in

evaluating the current flow of capital between investors and small businesses. Data reflecting the

successes and challenges small businesses face in capital-raising supplements the feedback and other

anecdotal evidence our Office receives throughout the year. Informed by this data, we can better identify

what tools, strategies, and approaches would be most helpful in crafting policy solutions. The data

provided in this Report is derived from public filings with the SEC, as analyzed by the SEC’s Division of

Economic and Risk Analysis (DERA), and is supplemented with data and analysis from third parties.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Where to start?

Introduction

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

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

Small and Emerging Businesses

and Exempt Offering Data

TOP INDUSTRIES

RAISING

CAPITAL2

BUSINESS

STAGE

COMMON

FUNDING

SOURCES

LIFE CYCLE

STAGE

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Small and emerging

businesses

Mature and later-stage

businesses

Self-funding

Grants

Loans

Friends and family

Crowdfunding

Angel investors

Incubator/Accelerator

Pre-seed and seed

VC funds

Corporate venture capital

Family offices

Businesses range

from small businesses

creating local jobs

to high-growth

startups raising capital

to launch prototypes

and products.

These businesses

are generally growing and

looking for larger amounts

of capital

to fund operations

of scale, ventures into new

product lines,

and preparation for public

markets.

Small public companies

Diverse Founders and Investors

Natural Disaster Areas

Initial public offering (IPO)

Other registered offerings

Exempt offerings

(e.g., private placements

or offshore offerings)

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

These later-stage

businesses have access

to a larger pool of capital,

enhanced liquidity,

reputational benefits and

are subject to rigorous SEC

reporting requirements.

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Given the wide

ranging options for

funding, the top industries

vary based

on funding source.

Software, commercial

products and services,

pharma and biotech, health

care, consumer goods and

services, IT hardware and

energy.

Health care, business

services, technology,

manufacturing, banking

and financial services, and

hospitality, retailing, and

restaurants.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 3

Small and Emerging

Businesses and Exempt

Ofering Data

his segment of companies includes both small businesses that create local jobs but may not fit

the high-growth model that is the typical target of venture capital (VC) investments as well as

high-growth startups that may ultimately fit the VC model but are still seeking capital to get off

the ground and launch early prototypes.3

Why is access to capital for small businesses so important?

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Small businesses are critical to the overall economy.

Initial Public Offerings and Small

Public Companies

43.5%

OPEN

99.9% of all businesses are

small businesses

(33.2 million businesses).4

Small businesses created

Women Founders and Investors

Diverse Founders and Investors

of the U.S. GDP

is created by

small businesses.5

Nearly 1 in 5 adults

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

63%

COMMITTEE | Highlights

of net new jobs

(17.3 million) from 1995-2021.6

“

is founding a business

or has done so in the past 3½ years.7

ENDNOTES | All the Details

OFFICE | Meet the Team

Capital is the lifeblood of business.

REIMAGINE MAIN STREET 8

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 4

Early-stage entrepreneurs report financial challenges and need

support to access capital to build their companies.

An increasing percentage of small businesses continue to experience

financial challenges.9

Contents

MISSION

Who W

e Are

MIS

SION | Who

94%

81%

64%

85%

DATA | State of Capital Formation

Introduction

66%

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

2018

2019

2020

2021

2022

Access to capital remains a barrier to entry and growth for entrepreneurs.

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

90% of new businesses with employees

need external capital at the start.10

78% of small business owners are concerned

about their ability to access capital.11

Access

to Capital

Over 50% of small businesses seeking

capital needed less than $50,000.12

55% of small business owners found it

harder to access capital than in prior years.13

3.7x more startups failed in 2022 due to

lack of financing or investors than in 2020.14

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 5

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Small businesses need resources, knowledge, and connections to operate

and grow their business; however, many startups struggle to find each of

these critical pieces.15

Financial

Resources

sional

Profes ctions

Conne

70% of startups

experience financial

challenges

Know

and K edge

now-H

76% o

f star

Contents

MISSION | Who We Are

ups

of star dvice

22g%

find a

stru

mode

or role

perien

tups

ce ch

with f

inding allenges

or res

ource upport

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Aspiring entrepreneurs often seek advice and support from family or friends.16

Initial Public Offerings and Small

Public Companies

Family members 61%

Women Founders and Investors

Diverse Founders and Investors

Friends or acquaintances 55%

Established business leaders

Natural Disaster Areas

20%

Rural Communities

Other business professionals 24%

POLICY | Recommendations

Entrepreneurial support organizations, like accelerators and incubators, are

designed to provide resources to early-stage, and rapid-growth startups.17

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Funding opportunities,

including “demo day” events,

investor introductions,

grants, and equity financing18

Network building and

connections to mentors,

as well as opportunities to

be a part of an

entrepreneurial

community19

Guidance and resources

such as education, training,

advisory and legal counsel,

and physical space20

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 6

OFFICE | Meet the Team

Where do small and emerging businesses turn for capital when

facing financial challenges?21

Personal funds 53%

Businesses with 4

or fewer employees

are more likely to use

Cash reserves 53%

personal

savings

compared to small

businesses with more

than 20 employees.22

External financing (with repayment) 42%

Grants or donations 18%

Of the small businesses that sought

external financing,

only 8% sought equity investments.23

Small businesses continue to struggle to shore up their capital needs.

Each year, 14% of

established businesses

need additional capital, but

nearly half of them do

not apply for it.24

50% of small businesses

report that they have

delayed plans to grow

their business in response

to higher interest rates.25

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

40%

of small businesses applied for a loan,

line of credit, and/or cash advance. About half of

those were fully funded, while roughly 21% did not

receive any funding.26

POLICY | Recommendations

None 21%

COMMITTEE | Highlights

Most 13%

ADVOCACY | What We Do

ENDNOTES | All the Details

Some 13%

All (53%)

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 7

OFFICE | Meet the Team

Angel investors remain a significant source of early-stage

capital, despite a drop in deal volume and size.

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.

367,945 active angel investors

Contents

MISSION | Who We Are

(1.2% increase from 2021)

DATA | State of Capital Formation

62,325 entrepreneurial ventures received angel funding

(9.8% decrease from 2021)28

$22.3 billion in total angel investments

(23.7% decrease from 2021)29

$356,650 average angel funding round

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

(15.4% decrease from 2021)30

Women Founders and Investors

17.7 deals on average per angel group

(up from 17.1 in 2021)31

Angel

investment

in 2022

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

21% of seed capital came from angel investments

(compared to 32% in 2021)32

POLICY | Recommendations

ADVOCACY | What We Do

3.4 jobs are created per angel investment

(down from 4.4 jobs per deal in 2021)33

1 in 4 chance of an entrepreneur securing an angel investment

(in 2022, the yield rate increased to 26.7% from 24.1% in 2021)34

First time CEOs constituted 73% of leaders funded by angel deals

(up from 70% in 2021)35

83% of angel deals and investments are in seed (63%) and

Series A (20%) rounds36

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 8

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

What were the top industries supported by angel investments in 2022?37

Contents

Software

Retail

Healthcare Services/

Medical Devices

MISSION | Who We Are

16%

17%

24%

Biotech

9.3%

Industrial/

Energy-Clean

Tech

9.1%

FinTech

Angel investors are allocating a lower portion of their investments within

their region than in 2022, shifting more funding outside their region.38

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Northeast

67.9%

New York

44.7%

(down from 89.5%)

(down from 59.8%)

Northwest

80.8%

Women Founders and Investors

(down from 95.0%)

Great Plains

51.5%

(down from 86.8%)

California

62.7%

(down from 75.7%)

Initial Public Offerings and Small

Public Companies

Diverse Founders and Investors

Great Lakes

74.2%

(down from 81.0%)

Southwest

68.8%

Mid-Atlantic

67.5%

(down from 79.6%)

(down from 91.3%)

Southeast

76.7%

(down from 87.3%)

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Texas

60.5%

(down from 75.6%)

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 9

What is happening with seed fundraising?

A pre-seed or seed round is typically a company’s first funding round.39 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.40 Businesses in an angel or seed round are the furthest from the public

market, which insulates from many macroeconomic challenges experienced in later stages.41

Seed activity has slowed in both overall deal value and count from its peak in

the first half of 2022, echoing trends seen throughout the venture life cycle.42

1,982

1,980

2,230

2,223

2,287

MISSION | Who We Are

DATA | State of Capital Formation

3,490

3,328

3,209

Contents

Introduction

2,585

2,386

1,810

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

$5.4B

$4.3B

$5.0B

$5.1B

$5.6B

$5.9B

$8.8B

$9.8B

$14.0B

$10.0B

$6.6B

2019

2018

2020

2021

Deal Value

2023

2022

Deal Count

Alpha

Prototype

20%

No Product

35%

Women Founders and Investors

Diverse Founders and Investors

Early-stage businesses successful in raising pre-seed and seed funding are

at different stages of product readiness.43

Pre-Seed

Initial Public Offerings and Small

Public Companies

Launched

Product

29%

Beta

Prototype

16%

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

Seed

Alpha

Prototype

21%

No Product

25%

No Product

Alpha Prototype

Beta

Prototype

14%

Beta Protoype

Launched

Product

40%

Launched Product

Since 2021, pre-seed fundraising has remained competitive for founders

as the investor-friendly climate has grown more entrenched.44

Investors

Founders

Less time engaging

with pitch decks

More pitch decks

sent per week

11.5%

16%

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 10

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Many early-stage investors seek equity – the amount of equity dilution to

founders varies in pre-seed, seed, and Series A rounds.

Contents

When investors take an ownership interest in a company, it dilutes or reduces the portion that

founders own, so this funding is often called dilutive capital. In addition, with a funding round

companies often reserve some equity for employee compensation.45

Median equity dilution

Preseed

19.9%

Seed

18.6%

Series A

14.6%

ution

equity dil

Average

in an ang

in 2022

9.3% .6% in 2021).

Other Equity

34.0%

12.6%

m 13

(down fro

Employee Equity Reserve

Fundraising timeframes can be highly variable; the average fundraising

time fell in 2021 but has risen since.47

20.5

Average number of weeks to fund pre-seed and seed rounds

Pre-seed

Seed

18.5

15.6

2020

2022

2023*

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

values of those rounds have continued to rise.

0.3%

1.6%

8.1%

0.3%

2.2%

9.4%

0.5%

2.9%

12.7%

1.2%

0.7%

4.7%

5.1%

16.4%

Average and median seed deal values49

$4.6M

Average

Deal Value

$25M+

$10M-$25M

44.9% 45.3% 44.4%

49.3%

45.9% 45.5%

$5M-$10M

$4.2M

15.4%

14.2%

31.3%

29.4% 29.6%

2018

2019

2020

$500K-$1M

11.6%

10.2%

10.0%

23.0%

21.5%

22.3%

2021

2022

2023*

$2.8M

$2.5M

$1.7M

$1.8M $1.8M

$2.6M

2019

2020

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

OFFICE | Meet the Team

$2.1M

Median

Deal Value

2018

Rural Communities

$2.9M

$2.8M

Under

$500K

*As of June 30, 2023

Initial Public Offerings and Small

Public Companies

ENDNOTES | All the Details

$3.3M

$1M-$5M

15.3%

Mature and Later-Stage Businesses

Natural Disaster Areas

*As of June 30, 2023

0.3%

1.4%

6.8%

Small and Emerging Businesses

and Exempt Offering Data

2021

Distribution of deals by size48

Introduction

Diverse Founders and Investors

11.5

2019

DATA | State of Capital Formation

Women Founders and Investors

13.5

MISSION | Who We Are

2021

2022

2023*

*As of June 30, 2023

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 11

Seed businesses face an uphill battle moving from a successful seed

round to Series A.50

The median time after a seed stage ofering

before raising a Series A has increased.

2014

2023

14 months

25 months

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Many seed investors are expanding their geographic reach.

In 2022, the

median distance

skyrocketed to

Median distance between company and

lead investor in a seed deal (miles)51

591.3 miles.

591.3

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

401.5

Natural Disaster Areas

Prior to 2019,

the median

distance was

under

100 miles.

94.9

2018

151.4

2019

Rural Communities

187.4

2020

2021

2022

POLICY | Recommendations

ADVOCACY | What We Do

While the median distance between lead investor

and company has increased, distance continues

to be an added barrier that companies in small

markets, and in markets far from venture

hubs, face when they need to raise capital.52

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 12

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Micro fund closings fall below pre-pandemic levels.53

664

48% of total fund counts

but only about 4% of all capital raised.

Contents

Micro funds represent

527

MISSION | Who We Are

398

293

306

294

342

DATA | State of Capital Formation

344

Introduction

241

171

125

$2.3M

$2.9M

$3.2M

$4.1M

$5.0M

$5.1M

$5.0M

$8.7M

$6.1M

$1.2M

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023*

Capital Raised

Fund Count

*As of June 30, 2023

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

What is a

micro fund?

A micro fund is a fund that raises $50 million

or less. In recent years, micro funds have

strengthened seed funding.54 A majority of

micro funds are raised by emerging managers.55

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

“

Micro funds mainly raise capital from family ofces and wealthy

individuals, such as GPs in VC funds and successful startup founders.

Because of this, their LP base tends to be more fckle than that of larger

frms, which is more geared towards institutional capital.

MARINA TEMKIN, PITCHBOOK56

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 13

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

What regulatory pathways are

companies and pooled funds

using to raise capital?57

Rule 506(c) General

Solicitation Oferings

Contents

These oferings allow companies and

pooled funds to raise unlimited capital

by broadly soliciting investors who

meet certain wealth thresholds or have

certain professional credentials.58

MISSION | Who We Are

DATA | State of Capital Formation

$169B

Rule 506(b)

Private Placements

Introduction

($750,000 median)

$2.7T

Small and Emerging Businesses

and Exempt Offering Data

($1.2M median)

These oferings allow companies

and pooled funds 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.61

Mature and Later-Stage Businesses

Rule 504

Limited Oferings

$258M

Flows into

Registered Funds

($250,000 median)

$8.8T

These oferings 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.59

Flows into registered funds (companies

registered under the Investment

Company Act) refects the estimated

amount of capital invested in registered

open-end mutual funds, exchange-traded

funds, and money market funds.60

Regulation A

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

$1.5B

($1.6M median)

POLICY | Recommendations

These oferings are sometimes called a "mini-IPO"

and allow eligible companies to raise up to $20

million in a 12-month period in a Tier 1 ofering and

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

2 ofering through a process similar to, but less

expensive than, a registered ofering.65

ADVOCACY | What We Do

COMMITTEE | Highlights

Crowdfunding

$352M

($100,000 median)

Regulation Crowdfunding oferings allow

eligible companies to raise up to $5 million

in capital in a 12-month period from investors

online via a registered funding portal.62

Other Exempt

Oferings

$1.3T

Other exempt oferings includes estimated amounts

raised under Regulation S (ofshore oferings) and

Rule 144A (following a private placement by a

company, purchasers may use this exemption ro resell

their securities to qualifed institutional buyers).63

Initial Public

Offerings

ENDNOTES | All the Details

$17B

($17M median)

OFFICE | Meet the Team

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.64

Other Registered Oferings

$1.1T

($300M median)

These oferings allow companies to

raise unlimited capital and selling

shareholders to obtain liquidity through

public oferings using a registration

statement fled with the SEC.66

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

RSIO

s been

this p

INTE

or a

age f

orma

the prev

merged

rience.

iewe

better v

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 15

How are U.S. companies (excluding pooled funds) raising capital

from investors?67

What pathways are U.S. public

and private companies using

to raise capital?

illion

Registered

Offerings

$874B

Only $4.6 nt was

of this

raised by

lic

small pubies

com

red

in registe

erings.

equity off

Contents

U.S. public companies are

raising more capital than

U.S. private companies.

MISSION | Who We Are

DATA | State of Capital Formation

U.S. public

companies raised

Introduction

$1.0 trillion

61% of the capital

raised by U.S. companies.

U.S. private

companies raised

Small and Emerging Businesses

and Exempt Offering Data

$662 billion

Mature and Later-Stage Businesses

39% of the capital

raised by U.S. companies.

Other Exempt

Offerings

$548B

Initial Public Offerings and Small

Public Companies

Rule 506(c) $16B

Regulation A $1.4B

Rule 506(b)

$266B

Regulation

Crowdfunding $0.4B

Women Founders and Investors

Rule 504 $0.2B

Diverse Founders and Investors

17,082

Natural Disaster Areas

U.S. Public Companies

U.S. Private Companies

Rural Communities

$874B

Deal Value

Ofering Count

$385B

1,900

$163B

704

225

$6.7B

$0.5B

$2.5B

$3.8B

$3.3B

Registered Other

Rule

Offerings Exempt 506 (b)

Offerings

$0.02B

$4.8B

Rule Regulation

506 (c)

2,229

306

$1.4B

$16B

$3.8B

$3.3B

$259B

485

$2.5B

Other

Exempt

Offerings

Rule

506 (b)

POLICY | Recommendations

ADVOCACY | What We Do

919

$0.4B

$4.8B

354

$0.2B

Rule Regulation Regulation Rule

506 (c)

Crowdfunding 504

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 16

How are different industries using the top 3 offerings pathways

to raise capital (excluding pooled funds)?68

Banking and

Financial Services

$477B

Technology

$143B

Health Care

$132B

Energy

$137B

Manufacturing

$105B

Hospitality, Retailing,

Restaurants

$43B

$219M

$39B $18M

Contents

MISSION | Who We Are

$30B $23M

DATA | State of Capital Formation

$7B $75M

Introduction

$4B $149M

$75B

Real Estate $29B

Business Services

$59B

Small and Emerging Businesses

and Exempt Offering Data

$557M

Mature and Later-Stage Businesses

$3B $337M

Initial Public Offerings and Small

Public Companies

$35B $5B $32M

Registered Oferings

Regulation D

Women Founders and Investors

Regulation A

Diverse Founders and Investors

What is happening with Regulation Crowdfunding offerings?

Crowdfunding has continued to support many diverse companies across the U.S. through small

checks from many different investors.69

25.2%

$428,486

$1,578

average investor

check size

of offerings in Q3

2022 had at least

one founder

of color

average raise in

2022, down 5.9%

from 2021

$506.7M

in 2022 capital

commitments,

down 10.2%

from 2021

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

71.5%

of offerings in

2022 exceeded

minimum funding

targets

Natural Disaster Areas

70%

28.5%

of oferings in

Q3 2022 had at

least one woman

founder

of capital is

distributed

outside the

top 10 capital

hubs

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 17

ENDNOTES | All the Details

OFFICE | Meet the Team

The number of U.S. counties with crowdfunded companies has continued

to increase, with new offerings not far from the 2021 and 2022 peaks.

U.S. Counties with

Crowdfunded Companies70

879

700

2021

220

Counties

2020

Contents

New Crowdfunding Oferings71

344

465

841

778

707

388

262

173

MISSION | Who We Are

755

357

DATA | State of Capital Formation

Introduction

137

Counties

2022

273 Counties

2020

2021

Small and Emerging Businesses

and Exempt Offering Data

2023

2022

New Form C Filings

New Form C Filings with Max

Ofering Between >$1.07M to $5M

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Where are companies using Regulation Crowdfunding to raise capital?

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

number of offerings in that state.72

Women Founders and Investors

Diverse Founders and Investors

Regulation

Crowdfunding

245

NONE

NJ 13

DC 23

POLICY | Recommendations

ADVOCACY | What We Do

ENDNOTES | All the Details

$500,000 - $1 MILLION

Rural Communities

COMMITTEE | Highlights

LESS THAN $500,000

1 NH

Natural Disaster Areas

$1 MILLION - $5 MILLION

OFFICE | Meet the Team

OVER $5 MILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 18

What is happening with Regulation D Offerings?

Pooled Funds account for the majority of funds raised under Regulation D.73

11,624

13,393

10,972

8,695

8,050

10,569

12,055

11,946

9,703

11,351

8,689

7,640

$681B

$86B

$649B

$107B

$1,074B

$1,060B

$1,013B

$181B

$182B

$149B

$1,069B

$134B

2020

2021

MISSION | Who We Are

companie

Operatingoffered

only

value

12% of gthuelation D

of all Re

but make

offerings

e number

55% ofoth

of fferin

6,200

5,051

Contents

$1,527B

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

$165B

2022

2023

Amounts Raised by Pooled Funds

Amounts Raised by Other Issuers

New Oferings by Pooled Funds

New Oferings by Other Issuers

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Where are companies using Regulation D to raise capital?

Women Founders and Investors

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

number of offerings in that state.74

Diverse Founders and Investors

Natural Disaster Areas

4,626

259

118

315

Regulation D

213

375

185

892

1,046

4,902

515

119

3,090

NONE

LESS THAN $1 BILLION

1,000

277

523

112

757

183

559

426

Rural Communities

1,501

NJ 559

500

DC 1,370

205

691

176

101

$1 BILLION - $5 BILLION

$5 BILLION - $20 BILLION

ADVOCACY | What We Do

ENDNOTES | All the Details

OFFICE | Meet the Team

1,995

POLICY | Recommendations

COMMITTEE | Highlights

640

369

116

4,592

359

222

134

200

192NH

OVER $20 BILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 19

What is happening in Regulation A offerings?

The overall amounts sought have declined since the peak in the second

half of 2021, while the number of offerings has remained steadier.75

194

190

138

109

142

$2.5B

2020

How much are issuers

seeking to raise?

$10 million (median)

$20 million (average)

$2.0B

2021

DATA | State of Capital Formation

$2.8B

$2.3B

MISSION | Who We Are

149

145

$3.8B

$1.7B

$1.3B

165

166

Over 80% of offerings

continue to seek to raise

$50M or less

174

164

160

Contents

2022

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Legal fees to conduct

the offering:

$25,000 (median)

$55,000 (average)76

Mature and Later-Stage Businesses

2023

New Initiated Offerings Seeking $50M or Less

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

Amounts Sought in Qualified Offerings

New Initiated Offerings

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Where are companies using Regulation A to raise capital?

Diverse Founders and Investors

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

number of offerings in that state.77

NONE

LESS THAN $5 MILLION

0 NH

NJ 2

DC 1

181

Rural Communities

Regulation A

Natural Disaster Areas

COMMITTEE | Highlights

OFFICE | Meet the Team

$5 MILLION - $20 MILLION

ADVOCACY | What We Do

ENDNOTES | All the Details

POLICY | Recommendations

$20 MILLION - $75 MILLION

OVER $75 MILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 20

Mature and Later-Stage

Businesses

Contents

MISSION | Who We Are

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

amounts of capital 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.

DATA | State of Capital Formation

Introduction

While VC activity is still concentrated in a few states, VC funds

are investing in growth startups across the U.S.

The below map illustrates the concentration of estimated VC deal value in 2022, with the number of

VC deals indicated on each state.78

578

182

121

184

220

473

5,503

172

194

454

194

938

110

219

318

169

275

322

Women Founders and Investors

NJ 171

271

DC 564

102

% decrea

fro

m 2020.79

767

1,064

The top 3

states

accounte

d for

63% of the

VC deal

value in 2

022 – a

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

423

207

39 NH

2,319

Small and Emerging Businesses

and Exempt Offering Data

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Less than $100 MILLION

$100 MILLION - $500 MILLION

$1.5 BILLION - $20 BILLION

OVER $20 BILLION

$500 MILLION - $1.5 BILLION

No data available

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 21

OFFICE | Meet the Team

The distance between VCs and their portfolio companies continues to increase.80

Median distance (miles) between lead/sole U.S. investor

and U.S. target company by funding round

1,229

1,088

Contents

955

739

694

654

512

315

594

527

283

415

384

2012

2013

2014

698

341

412

251

232

170

165

2015

2016

2017

Angel and Seed

Series A and B

412

402

329

310

2018

151

2019

Series C and D

722

557

595

395

401

712

629

591

DATA | State of Capital Formation

Introduction

187

2020

MISSION | Who We Are

Small and Emerging Businesses

and Exempt Offering Data

2021

2022

Mature and Later-Stage Businesses

Series E and Up

Initial Public Offerings and Small

Public Companies

What is the typical VC fund cycle?81

Women Founders and Investors

Diverse Founders and Investors

Fundraising

VCs typically raise capital via

capital commitments from their

investors. The median size of a

U.S. venture fund closed in 2022

was $40 million (down from $50

million in 2021).82 A fund’s closing

is the time when investors – often

called limited partners – commit

to an investment in the fund.

Investment

How Venture

Capital Works

VCs tend to invest in earlystage, high-growth companies.83

Early-stage deals accounted

for 70% of VC deals in 2022,

but, given the prevalence of

follow-on rounds, only 39% of

VC investments.84

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Re-investment

The fund ends when proceeds

from all investments have been

distributed to fund investors.

Many investors reinvest in new

funds. In 2022, the average

time between fundraises was

1.8 years—a decade low—and

was only 1.6 years for general

partners of billion-dollar funds.87

Company Growth

Exit

Many VC investors are actively

engaged with the companies in which

they invest – also called portfolio

companies. The majority of portfolio

companies are in contact with a VC

investor at least once a week.85

The life span of a VC fund

is typically 10 years. VCs

typically retain 20% of

proceeds, while returning 80%

to the fund’s limited partners.86

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 22

ENDNOTES | All the Details

OFFICE | Meet the Team

Beyond capital, how can a VC investment benefit a portfolio company?

Portfolio companies may receive:88

Contents

MISSION | Who We Are

Strategic

Guidance

87%

Marketing

69%

Introductions

Operational

Guidance

65%

Board

58%

Management

Personal

Guidance

46%

DATA | State of Capital Formation

Introduction

Many VC investments are accompanied by a board seat for a VC investor.89 For a portfolio company,

having VC directors with investments within the same industry is associated with:90

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

A higher probability of

additional investment

(raising 1.14 additional rounds)

A higher probability of

an IPO at

a higher valuation

(3.7 percentage point increase

in IPO probability)

A decreased

probability of failure

(12.5 percentage point

decrease)

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Conversely, after losing a VC director:91

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

A startup is

17% less likely to raise

another round and takes

4 months longer to close

A lower probability

of an IPO and an

18-month delay to

reach a successful exit

A higher probability

of failure

(increase of 6.7

percentage points

over the next 3 years)

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 23

How is VC investment activity changing?

Following historically high investment activity in 2021 and the first half of 2022, deal counts and

investment volume have fallen closer to pre-2021 figures.92

9,485

9,505

6,418

6,066

7,051

6,826

6,570

7,657

6,751

6,514

MISSION | Who We Are

$163B

$62B

$84B

Contents

9,847

$79B

$159B

$95B

$77B

$73B

$184B

$88B

DATA | State of Capital Formation

$86B

Introduction

2018

2019

2021

2020

Deal Value

2023

2022

Small and Emerging Businesses

and Exempt Offering Data

Deal Count

Deal volume and count for early-stage and later-stage deals continued

to decline from 2021 peaks.93

Early-Stage (Series A and B)

5,393

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Later-Stage (Series C and Up)

5,617

5,108

5,306

Women Founders and Investors

3,856

3,657

3,749

Diverse Founders and Investors

4,015

3,516

$41B

$45B

2018

2019

2020

Deal Value

3,300

$88B

1,942

$71B

$240B

$94B

$96B

$115B

2018

2019

2020

Natural Disaster Areas

$151B

2022

2023*

Deal Count

Rural Communities

$59B

$20B

2021

2,339

Deal Value

2021

2022

POLICY | Recommendations

2023*

Deal Count

*As of June 30, 2023

While the size of seed rounds has continued to increase, the size of

Series A, B, C, and D rounds has fallen from 2021 peaks.94

$21.8B

$13.9B

$26.8B

$24.8B

Average Series A and B Deal Size

$15.0B

Median Series C and D Deal Size

$7.3B

$21.9B

$8.0B

$9.2B

$5.6B

$5.5B

$6.0B

2018

2019

2020

Median Series A and B Deal Size

$21.2B

$25.4B

$18.2B

$15.9B

$11.7B

$7.6B

COMMITTEE | Highlights

$39.1B

Average Series C and D Deal Size

$27.5B

ADVOCACY | What We Do

$10.0B

$6.8B

$8.0B

$6.0B

2021

2022

2023*

*As of June 30, 2023

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 24

ENDNOTES | All the Details

OFFICE | Meet the Team

The need for capital in early-stage and later-stage VC deals exceeds the

available supply.95

Series C and D capital

demand nearing

available supply

Capital demand-supply ratio

in U.S. venture marketplace

2.9x

2.4x

2.0x

Contents

MISSION | Who We Are

1.9x

DATA | State of Capital Formation

1.1x

0.7x

1.0x

0.9x

0.6x

1.2x 1.2x

1.1x

1.1x 1.1x 1.1x 1.1x

0.8x

0.6x

0.7x

0.6x

Q2 Q3 Q4

0.7x

1.2x

1.5x

0.9x

0.8x 0.8x

1.0x

0.9x 0.9x

0.8x

0.6x

Q2 Q3 Q4

2018

0.9x

0.7x

2019

Q2 Q3 Q4

0.6x 0.6x 0.6x

0.5x

0.8x

0.6x 0.6x 0.6x

Q2 Q3 Q4

2020

2021

Series A and B

1.1x

Q2 Q3 Q4

1.6x 1.5x

Series A and B

capital availability

is the lowest it has

been since 2010

2022

2023

For companies that are closing VC rounds, how have market trends

affected those deals?

19% of deals were down rounds

(compared to 9% and 7% of deals in the second

quarter of 2022 and 2021, respectively).96

Time between rounds is climbing. After a seed round, the months between rounds average:97

YEAR 1

Seed

YEAR 2

YEAR 3

YEAR 4

YEAR 5

YEAR 6

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

YEAR 7

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

In the second quarter of 2023,

prior

than the

Small and Emerging Businesses

and Exempt Offering Data

Women Founders and Investors

Series C and D

nd:

Down rouith a

a round w ion

lower valu round

Introduction

YEAR 8

Series A

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

26 months average

Series A

Series B

28 months average

Series B

Series C

32 months average

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 25

How is VC fundraising activity changing?

VC fundraising slowed from the record highs of 2021 and 2022 and is on

pace to set a 6-year low.98

Contents

The frst half of 2023 saw a 73% decrease

in capital raised and a 44% decrease in

the number of funds, each as compared to

the frst half of 2022.99

MISSION | Who We Are

Capital raised

The amounts raised by VC funds

varied across fund size.100

$1B+

$250M-$500M

Fund Count

Introduction

$51B

$100M-$250M

1,095

$85B

$50M-$100M

Small and Emerging Businesses

and Exempt Offering Data

Under $50M

913

784

DATA | State of Capital Formation

$500M-$1B

1,443

$33B

772

Mature and Later-Stage Businesses

$26B

$25B

233

$18B

$22B

$9B

$14B

$12B

$15B

$7B

$5B

$16B

2019

$72B

$71B

$91B

$160B

$167B

$33B

$13B

$5B

2018

2019

2020

2021

2022

2023*

2018

*As of June 30, 2023

$16B

$23B

$31B

$1B

$26B

$27B

$1B

$6B

$5B

$9B

$8B

$6B

$10B

$8B

$6B

$7B

2020

2021

2022

2023*

$19B

*As of June 30, 2023

Over the past five years, the amount of capital that VCs have ready to

invest - often called "dry powder" - has continued to increase.101

While investments have slowed, record levels of dry powder could provide some insulation from the

overall market volatility.102

$280B

$220B

60.9% of this dry powder is

concentrated in mega-funds –

funds with $500M or more in

commitments.103

2018

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

$184B

$130B

Initial Public Offerings and Small

Public Companies

$154B

OFFICE | Meet the Team

2019

2020

2021

2022

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 26

Fundraising continued to concentrate in large and established funds

with the percentage of capital invested in emerging managers dropping

to a new decade low.104

For most of the past decade, the number of emerging firms has outpaced established firms by

more than 2-to-1. In 2022 and 2023, the number of emerging firms is roughly on par with

established firms.105

MISSION | Who We Are

815

628

413

449

508

478

148

$12B

$10B

2013

$27B

171

$27B

195

182

$32B

$24B

276

268

$48B

$40B

539

$16B

$19B

$22B

$24B

$31B

2014

2015

2016

2017

2018

2019

Introduction

545

$103B

$129B

$59B

Small and Emerging Businesses

and Exempt Offering Data

115

$57B

$10B

DATA | State of Capital Formation

550

374

349

251

504

$38B

$31B

118

$27B

$6B

2020

2021

2022

2023*

*As of June 30, 2023

Experienced Firm Capital Raised

Experienced Firm Count

Emerging Firm Capital Raised

Emerging Firm Count

of emerging

managers found

fundraising difficult

or very difficult106

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

“

91%

Contents

While there may be [an] appetite to invest with

emerging managers, that's probably going to be the

hardest area to raise capital, simply because people

are having to make some very difcult choices and

are prioritizing re-ups with proven managers who

have long track records, in lieu of new relationships.

FIONA ANDERSON WHEELER, BC PARTNERS107

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

What drives LPs to allocate funds to emerging managers?

108

Niche strategy options

29%

Attractive return potential

28%

Desire to access new talent

22%

Added portfolio diversifcation

More likely to negotiate better fees

16%

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 27

OFFICE | Meet the Team

Over the last decade, emerging managers have increasingly raised funds

outside of the traditional venture hubs.109

2,153

Contents

63.7%

882

MISSION | Who We Are

$81.0B

$47.2B

2002 - 2012

2013 - 2023*

Capital Raised

Fund Count

*As of April 17, 2023

of the capital raised since 2018 by

firms headquartered outside of

major markets has been by

emerging managers.110

“

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Local capital is imperative to help scout and fund startups that launch

outside of traditional capital hubs. A declining presence of emergingmanager-led funds could make it more difcult for startups to raise

capital and may force them into larger ecosystems.

MAX NAVAS, PITCHBOOK

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

111

How have nontraditional VC investors impacted fundraising?112

Although nontraditional VC investors—generally firms and institutions not called VCs—have assumed

increased prominence over the past several years, their involvement in VC deals decreased year-over-year

in 2022.113

Despite their decreased participation, nontraditional VC investors still

participated in deals that accounted for about 75% of the total VC deal value.114

11,766

8,457

9,184

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

8,895

7,224

4,437

4,682

$111B

$113B

$133B

$35B

$38B

$39B

2018

2019

2020

4,027

11,337

Diverse Founders and Investors

ENDNOTES | All the Details

6,167

4,673

$284B

$64B

2021

$184B

$62B

2022

1,841

$62B

$23B

2023*

*As of June 30, 2023

Traditional VC Investor Deal Value

Traditional VC Investor Deal Count

Nontraditional VC Investor Deal Value

Nontraditional VC Investor Deal Count

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 28

OFFICE | Meet the Team

There was a marked reduction in portfolio company exits in

2022 compared to previous years.

Contents

A reduction in exit activity reduces distributions from VC funds to their limited partners—in turn

stemming reinvestments by those limited partners into VC funds.115

U.S. VC exit value declined

90% year-over-year in 2022.116

While exit numbers have declined

dramatically since 2021, the overall exit

ratios by funding stage have generally

remained consistent.117

1,966

2023*

24%

31%

45%

2022

24%

33%

43%

2021

21%

32%

47%

2020

19%

36%

45%

2019

18%

41%

2018

18%

42%

40%

1,319

1,255

1,346

1,258

$662B

*As of June 30, 2023

Angel and Seed

Early-stage

Later-stage

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

471

$221B

$179B

$7B

$57B

$11B

$54B

$8B

$7B

In the first half of 2023,

POLICY | Recommendations

have generated the

majority of exit value

and have continued to account for about

ADVOCACY | What We Do

acquisitions

COMMITTEE | Highlights

$14B

$230M

$12B

$61B

$64B

$62B

$69B

2018

2019

2020

$102B

2021

$33B

$5B

$38B

$5B

2022

2023*

72%

OFFICE | Meet the Team

*As of June 30, 2023

Acquisitions

Buyouts

Public Listings

Deal Count

ENDNOTES | All the Details

of the overall exit volume.118

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 29

Initial Public Oferings and

Small Public Companies

Contents

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 earlier-stage

investors and employees.

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

What is happening with IPO activity?

The volume and number of initial public offerings has fallen significantly

since its peak in the first half of 2021.119

611

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

472

385

Small and Emerging Businesses

and Exempt Offering Data

Women Founders and Investors

$189B

Diverse Founders and Investors

$129B

$114B

111

132

$37B

2020

2021

$17B

$5B

2022

Total IPO Proceeds

Natural Disaster Areas

$11B

Rural Communities

2023

POLICY | Recommendations

Number of IPOs

What are the top industries raising capital in IPOs (excluding pooled funds)?120

$4.6B

Manufacturing

Technology

Banking and Financial Services

Health Care

Hospitality, Retailing, Restaurant

Energy

ADVOCACY | What We Do

$18.3B

COMMITTEE | Highlights

$2.5B

$22.1B

$2.2B

ENDNOTES | All the Details

$7.5B

OFFICE | Meet the Team

$1.2B

$3.2B

$0.8B

July 2022 – June 2023

July 2021 – June 2022

$1.7B

$0.6B

$0.5B

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 30

How are the dynamics changing for companies going public?

IPOs by U.S. small companies, when compared to the fluctuations in IPOs

by large companies and SPAC offerings, have been relatively stable.121

IPOs by Small Companies IPOs by Large Companies

SPAC Oferings

Contents

MISSION | Who We Are

613

DATA | State of Capital Formation

Introduction

354

$1B

$4B

$1B

$0.5B

$144B

198

2020

Mature and Later-Stage Businesses

2021

2022

$76B

2023*

Deal Value of IPOs

Small and Emerging Businesses

and Exempt Offering Data

252

$155B

$87B

116

$2B

2020

2021

$9B

2022

2023*

$12B

2020

2021

Numbers of IPOs

2022

2023*

*As of June 30, 2023

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

In 2022, the number of exchange-listed IPOs dropped to its lowest point

since 2009.122

Natural Disaster Areas

While the median age of an IPO issuer has generally become younger over time, since 2010, it has

hovered between 8 and 12 years.

Rural Communities

POLICY | Recommendations

Number of Exchange-Listed IPOs

Median Age

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

380 80 66 63 173 159 157 159 21

2000

2002

2004

2006

2008

2010

93 158 206 118 75 106 134 113 165 311 38

2012

2014

2016

2018

2020

2022

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 31

While the percentage of IPO companies with VC-backing has varied, the

link between VC-backing and preparation for an IPO remains.123

2015

65%

2000

64%

2010

44%

2005

28%

Contents

2020

68%

MISSION | Who We Are

ked

0, VC-bac

Since 200 counted for

s ac

companie

0% of

Os and 7124

54%

y IP

technolog

2022

37%

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

How does being VC-backed affect a company’s IPO chances?

125

The success of an IPO depends on many factors, including the quality and performance of the

startup, the underwriting services of investment banks, and general market factors. For many IPOs,

underwriters play a crucial role in the pricing, marketing, and distribution of IPOs.126

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

IPOs by VC-backed

portfolio companies

attracted 11.7% more

attention in the

week of the offering

than non-VC backed

IPOs.127

VC firms with

more underwriting

relationships are

more likely to

take their portfolio

companies public.128

VC firms that

lose underwriter

relationships

experience a 22.3%

decrease in the rate

of portfolio company

IPOs over the next 5

years.129

VC funds near

the end of their

lifespan had an even

greater decrease

in their portfolio

company IPO rate

after the loss of an

underwriter.130

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 32

How has the U.S. public market changed over time?

While the number of exchange-listed companies has declined,

small exchange-listed companies account for the vast majority of

that decline.131

Contents

Total Exchange-Listed

Companies

MISSION | Who We Are

6,342

5,677

4,756

1,036

DATA | State of Capital Formation

2,317

3,914

824

2,318

4,641

3,932

4,025

Small Exchange-Listed

Companies

1980

1990

3,641

2,573

Large Exchange-Listed

Companies

1,596

2000

Introduction

2010

1,068

2020

When taking into consideration mergers within and into the

public markets, the listing gap is much smaller. The increased

rate of mergers after 1997 accounted for about 2,500 fewer

public companies (1,000 in public-public mergers and 1,500

in public company acquisitions of private companies).132

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

“

[R]egulatory cost itself is unlikely to explain the full magnitude of IPO

declines in the U.S. over the past two decades. Non-regulatory factors,

such as decline in business dynamism, shifting investment to intangibles,

abundant private equity fnancing, changing economies of scale and scope,

and changing acquisition behavior are likely to play a more important role.

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

MICHAEL EWENS, ET AL.133

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 33

How has the public market fared based on other measures of size?

Contents

The aggregate market

capitalization of all public

companies has grown exponentially

to $43.6 trillion as of June 2023

(from $1.7 trillion in 1983).134

MISSION | Who We Are

Public companies’ profits

were 8.3% of GDP in 2021

– nearly double

the proportion of

profits to GDP in 1996.136

Public companies’ market

capitalization was more

than 2X GDP in 2021

(compared to less than

half of GDP in 1990).135

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

The portion of aggregate public company market capitalization

represented by small exchange-listed companies, however, has

declined by half each of the past four decades. From 1983

to the first half of 2023, it has fallen to 0.3% from over 13%.137

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Where are registered offerings – often called public offerings – being

used to raise capital?

Women Founders and Investors

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

number of offerings in that state.138

Registered

Offerings

351

NONE

LESS THAN $1 BILLION

Natural Disaster Areas

113

NJ 38

DC 12

253

195

159

1 NH

Diverse Founders and Investors

ADVOCACY | What We Do

ENDNOTES | All the Details

$1 BILLION - $5 BILLION

POLICY | Recommendations

COMMITTEE | Highlights

Rural Communities

$5 BILLION - $20 BILLION

OFFICE | Meet the Team

OVER $20 BILLION

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 34

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 many registered companies are small public companies?139

Small Public

Companies

2,696

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

rred

often refe

mpanies,”

pan

rting com

ents

to as repo

requirem

subje

report

file certain erly, and

and must

annual,

including

the SEC o

140

curren

g basis.

an ongoin

Large Public

Companies

2,989

Contents

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Top Industries of Small Public Companies

Based on Number of Companies

Natural Disaster Areas

Rural Communities

Health Care

716

Technology

403

Manufacturing

335

Banking and Financial Services

441

480

497

263

422

Business Services

176

195

Real Estate

121

259

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Small Public Companies

Large Public Companies

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 35

How are small public companies faring after exchange-listed IPOs?

Companies may seek to go public for many reasons, but each company should consider the potential

benefits and costs.

In 2022, out of 91 small cap companies that conducted an IPO

and listed their shares on certain exchanges for small cap stocks:141

92%

Contents

MISSION | Who We Are

DATA | State of Capital Formation

had a negative rate

of return from their

IPO price, with an

average return of -65%

34%

appeared on an

exchange non-compliance

list after their IPO

51%

completed

reverse stock

splits before

or after their IPO

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

What is a

A reverse stock split reduces the number of a

company’s outstanding shares, while the aggregate

reverse

value of the shares remains the same. It can be

stock split? viewed as a signal of a company in distress.

142

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

How are small public companies affected by instability in the

financial system?143

Commercial banking and financial system stability is very important to small public companies.

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

Losing a major creditor is more likely to cause more severe damage

to small public company borrowers than their larger counterparts.

Small public company borrowers are likely to suffer a heightened

negative reaction following a bank failure and experience more

negative returns longer term.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 36

ENDNOTES | All the Details

OFFICE | Meet the Team

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

registered equity offerings?144

Average

proceeds

$37M

Average

proceeds

$63M

Average

proceeds

$29M

269

MISSION | Who We Are

246

249

236

199

102

$11.9B

$14.6B

2020

$17.8B

$4.9B

2021

$3.1B

2023

2022

Total Proceeds

DATA | State of Capital Formation

apital is

Raising c

a pri ary

for

objective

23% of

lic

small pub 145

companie

170

$4.8B

Contents

Average

proceeds

$13M

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Number of Offerings

Diverse Founders and Investors

Despite the drop in the average offering size last year, the aggregate amount

raised in registered equity offerings across the top industries by U.S. small

public companies remained in line with the prior 12-month period.146

$1.3B

Hospitality, Retailing, Restaurant

POLICY | Recommendations

ADVOCACY | What We Do

$1.3B

COMMITTEE | Highlights

$509M

Technology

Banking and Financial Services

Rural Communities

$1.5B

Business Services

Manufacturing

$1.9B

$2.6B

Health Care

Natural Disaster Areas

$552M

$378M

$220M

ENDNOTES | All the Details

July 2022 - June 2023

July 2021 - June 2022

$235M

$526M

$72M

$78M

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 37

OFFICE | Meet the Team

Costs of being public

The costs associated with going public often garner much attention. However, the costs to operate

as a public company may be even higher. CFOs estimated the average percentage of their total

recurring incremental costs of being a public company.147

pliance

Total com

a median

costs for

mpany

public co

2.1% to

vary fro

32%

22%

18%

16%

12%

Incremental

Audit

Public/

Investor Relations,

Human Resources,

Information Technology

Financial

Reporting

Legal

Regulatory

Compliance

6.3%

of marke n.148

capitali

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Small public companies and new public companies face high regulatory costs as a percentage

of their size and profit. The regulatory costs for small public companies are disproportionate

relative to their size because many costs are fixed.149

Small public companies place greater importance on increasing research

coverage than large or mega-cap public companies.150

The average number of analysts

covering a mega-cap public

company is more than

4x higher

than at small public companies.151

Small public companies prioritize targeting new investors.152

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

80%

identify targeting new investors as a top priority

COMMITTEE | Highlights

ENDNOTES | All the Details

46%

focus on enhancing engagement with current shareholders

39%

prioritize increasing international share ownership

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 38

OFFICE | Meet the Team

Women Founders

and Investors

Contents

Women-Owned Business Formation and Ownership

MISSION | Who We Are

While the portion of businesses owned by women decreases as the

businesses mature, their survival rate outperforms the average small business.

DATA | State of Capital Formation

44.6%

25.0%

36.9%

of non-employer small

businesses are women-owned

or equally women-and menowned, representing

11.5 million firms.153

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

of employer small

businesses are women-owned

or equally women-and menowned, representing

2.1 million businesses.154

of VC deals in 2022

were with women-founded or

co-founded companies,

representing 4,372 deals and

accounted for only 17.6% of

all venture funding.155

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

The two-year survival rate for women-owned

employer businesses is 81%, besting the average

small employer business survival rate of 79%.156

Rural Communities

POLICY | Recommendations

By share of employer firms, women owners remain underrepresented across

demographic groups.157

ADVOCACY | What We Do

COMMITTEE | Highlights

64.5%

54.7%

64.8%

57.3%

4.3%

13.6%

37.2%

30.9%

28.0%

26.6%

African

American/Black

Native

American/

Alaska Native

Asian/Native

Hawaiian/Other

Pacific Islander

Hispanic/Latino

Women-owned

Equally-owned

8.2%

14.3%

21.2%

White

62.7%

10.7%

Men-owned

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 39

ENDNOTES | All the Details

OFFICE | Meet the Team

Women are drawn to entrepreneurship, but many women founders feel their

gender is holding them back.158

Contents

78% of women

perceived

entrepreneurship as a

good career choice in

2022 (up from 64%

in 2016).159

In 2020, on average

1,821 new businesses

were started daily.

Of those, 64% were

started by

women of color.160

34% of women

70% of female

founders reported

burnout (compared

to 20% of men

founders).161

founders felt their

gender has held

them back (up from

55% in 2019).162

As women advance in their career, they are increasingly disproportionately

shouldering domestic responsibilities.163

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Percentage of men and women in each role doing the

most household work and childcare in their family

Initial Public Offerings and Small

Public Companies

Senior Manager and up

Women Founders and Investors

Men

13%

Women

52%

First level manager

Men

Natural Disaster Areas

21%

Women

58%

Rural Communities

POLICY | Recommendations

Entry level

Men

Diverse Founders and Investors

30%

Women

58%

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Women founders turn to each other for support.

More than ever, women founders seek a

sense of community and connections with others

who share their struggles and successes.164

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 40

Capital-Raising Trends for Women-Owned Businesses

Women business owners are more likely than men to seek financing to meet a

critical operating need, while less likely to seek financing to grow or pursue a

new opportunity.165

62.3% of women sought financing to meet

operating expenses (compared to 54.6% of men).

Contents

MISSION | Who We Are

DATA | State of Capital Formation

26.3% of women sought financing to

expand, acquire assets, or pursue new

opportunities (compared to 32.6% of men).

Why seek

financing?

18.4% of women sought financing to replace or

repair assets (compared to 23.6% of men).

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

A woman’s confidence, compensation, and feelings of support are all drivers in

meeting growth targets that can determine access to financing.166

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

Confidence and feeling

supported are positive factors

in achieving cash flow

break-even.

Paying yourself as a

founder in the first year

can have a positive impact

on cash flow break-even.

The percentage of a woman

founder’s household income

coming from her business can

have a positive impact on

average monthly revenue.

2022 was a strong year for women entrepreneurs seeking angel capital.167

Women constituted

Angel investors invested in

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

37.1%

of entrepreneurs seeking angel capital

in 2022 (up from 28.6% in 2021).168

25.6%

of those investment opportunities brought

to their attention (up from 19.7% in 2021,

and mirroring the overall market increase

from 24.1% in 2021 to 26.7% in 2022).169

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 41

OFFICE | Meet the Team

As VC funding contracted, the share of funding to women founders remains

a fraction of the overall capital raised.170

Deals with

Women-Only Founders

Deals with

Men-Only Founders

Deals with

Women and Men Founders

14,123

13,132

Contents

MISSION | Who We Are

DATA | State of Capital Formation

10,290 10,199

Introduction

$288B

$4B

$8B

$5B

3,680

$1B

2,592 2,567

739

811

2019

2020

Deal Value

1,187

2021

1,133

2022

437

2023*

$23B

$22B

2019

2020

$203B

3,239

$125B

$146B

1,094

$52B

$38B

2021

2022

4,983

$62B

$23B

2023*

2019

Deal Count

2020

2021

2022

2023*

*As of June 30, 2023

Further, only

5% of that

slice of the pie

for all women

founders went to

Latina and Black

women founders.172

Only 2% of all

venture funding

raised in 2022 was

invested in startups

led by all women

founders.171

In 2022, both women-led and mixed founder teams received a declining

percentage of overall deal value in each progressive funding round.173

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

Angel and Seed 5%

16%

79%

COMMITTEE | Highlights

Early Stage 2%

18%

80%

ENDNOTES | All the Details

14%

Later-stage

OFFICE | Meet the Team

84%

Women-only founders

Women and men co-founders

Men-only founders

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 42

All-women teams faced strong headwinds raising capital.174

Similar to 2021,

all-women teams continued

to have more investor

meetings in 2022 than

all-men or mixed teams.175

However, all-women

teams raised less per

meeting ($14,300) than

all-men ($25,000) or

mixed ($27,900) teams.176

Contents

MISSION | Who We Are

DATA | State of Capital Formation

All-women teams with diverse members had a 51% decrease

in investor meetings (33% fewer meetings than their peers)

and continued to be the only demographic to raise on average

less than $1 million per raise.177

Introduction

Small and Emerging Businesses

and Exempt Offering Data

On average, VCs spent 125% more time on all-women team slides and scrutinized different

sections depending on the gender of the team members.178

All-Women Teams Most

Scrutinized Slides

All-Men Teams Most

Scrutinized Slides

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Team Slide

Product Slide

Natural Disaster Areas

Rural Communities

Business Model

POLICY | Recommendations

ADVOCACY | What We Do

Business Traction

Company Purpose

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 43

Women-founded companies continue to exit and return capital to

investors faster than the overall market.179

Contents

Median Time (Years) to Exit

All VC-backed

Companies

7.8

7.7

7.4

7.2

7.0

2018

6.7

2020

MISSION | Who We Are

DATA | State of Capital Formation

7.2

7.0

2019

8.1

7.2

Women-founded

Companies

2021

2022*

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

*As of June 30, 2022

Despite market headwinds, women founders do more with less.

As time between VC rounds increased and raising equity became more challenging, managing cash

and burn rate became critical.180

Women-founded companies use 25% less capital per month

than men founders, extending their runways and demonstrating resiliency and

resourcefulness amidst challenging economic conditions.181

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

“

Women bring fresh insights and new strategies to solving problems,

which the world needs more than ever. From climate change and

social and economic inequity to the digitization of industry, there are

an infnite number of complex challenges to address with innovative

solutions and services.

ARTI RAMAN, TITANIAM182

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 44

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Women in Leadership Roles

Women remain dramatically underrepresented in corporate leadership

roles.183

Women accounted for nearly half of

all entry level positions.

However, women’s representation in the

C-suite was half that amount.

Contents

MISSION | Who We Are

Only 1 in 4

C-suite

executives in

2022 was

a woman.

DATA | State of Capital Formation

Introduction

However, only 1 in 20 C-suite

executives was a woman of color.

Women of color accounted for

1 in 5 entry level positions.

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women are similarly underrepresented as founders in VC-backed

companies.184

48%

White

African

American/Black

Hispanic/Latino

Other

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

14%

Asian American

13%

Women Founders and Investors

Nearly ha

lf of

all VC-ba

cked

founders

are

White me

Men

Women

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Only 1 in 5 founders in VC-backed companies is a woman.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 45

OFFICE | Meet the Team

While women remain underrepresented in board roles at VC-backed

companies, the number of boards with at least one woman has increased

in recent years.185

Content

Cont

ents

68%

61%

At least one woman on board

MISSION | Who We Are

51%

of all directors are

women of color

and

28%

27%

Independent seats held by women

20%

16%

Women-held board seats

76%

2022

2021

2020

of company boards

do not include a single

woman of color.186

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

14%

Mature and Later-Stage Businesses

11%

Initial Public Offerings and Small

Public Companies

For the first time, women average

1 board seat per private-company board

(while men average 6 seats).

Men continue to hold:

88%

an can

“One wom nce.”

iffere

make a d

N BOWE

– SHARO , NYSE187

91%

of investor-director

board seats and

of executive

director seats.

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Many of these gains are driven by

independent director seats. Women are

most likely to occupy an independent

director seat (53%) than an investor-director

or executive director seat.188

The lack of diversity among investors

and the entrepreneurs they back shapes

the demographics and network of the

boardroom.189

COMMITTEE | Highlights

Private companies with gender diverse boards raise more capital and are

more likely to conduct an IPO.190

Gender diverse boards

raised an average of

16% more funding

($302 million), and

ADVOCACY | What We Do

were

10x more likely

to have gone public.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 46

ENDNOTES | All the Details

OFFICE | Meet the Team

Women represent only a fraction of the C-suite of small public companies;

however women-led companies have more diverse boards than those led

by men.

Women CEOs make

up 6.4% of all CEOs

in the Russell 3000

(rising to 192 in 2023,

from 163 in 2020).191

Companies led by

women CEOs have more

gender-balanced boards

(35%) than those led by

men (6%).192

Contents

MISSION | Who We Are

DATA | State of Capital Formation

“

Introduction

[W]hen women join the C-suite, they catalyze a shift in corporate thinking

that may support new longer-term, internally cultivated value-creation

strategies. For example, management teams become more likely to focus

on R&D versus M&A and more open to change, yet less open to risk.

JACKIE COOK, MORNING STAR.193

While more women now hold board seats at small public companies

than they have historically, gender parity remains rare, and progress

has slowed.194

Only 7% of Russell 3000

board seats are held by

women of color.

Women held

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

29%

60% of the seats

seats

gained by women

women wer

were

added to the board

board –

not replacing

replacing a man.

Small and Emerging Businesses

and Exempt Offering Data

of the Russell 3000

board seats

(up only

1% from 2022).

ADVOCACY | What We Do

COMMITTEE | Highlights

In 2023,

37%

of new directors

were women

(down from

40% in 2022).

55%

ENDNOTES | All the Details

of Russell 3000

company boards are

gender-balanced

or have 3 or more

women on boards.

OFFICE | Meet the Team

Only 12% of

boards achieved

gender parity.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 47

Trends in Women Investors in Small Businesses

As a percentage of active investors, women angel investors reached a new

record high in 2022.

Contents

39.5%

MISSION | Who We Are

of angel investors in 2022 were

women (an increase from 33.6% in 2021).195

DATA | State of Capital Formation

Women investors lead on values-based investing.196

Introduction

51% of women invest

Small and Emerging Businesses

and Exempt Offering Data

45% of women invest

in startups aligned with

their values

(compared to 39% of men).

in startups to make the

world a better place

(compared with 23% of men).

Although gender diversity continues to improve in the VC industry, women

remain significantly underrepresented at senior levels.197

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

2016

45% 45% 45%

2018

2020

2022

47%

Natural Disaster Areas

33%

25%

Rural Communities

35%

28%

21%

23%

15%

All Employees

Junior-Level Investment

Professional

POLICY | Recommendations

26%

Investment Professional

11%

14%

16%

19%

Investment Partners

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

“

[There remains] a huge imbalance in terms of who's managing the capital . . .

[which amounts to] a hugely inefcient market opportunity . . . [A]t the end of

the day we need allocators to actually allocate their capital to diverse managers.

CHRISSIE CHEN PARISO, MPOWERED CAPITAL198

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 48

OFFICE | Meet the Team

Women constitute a distinct minority of investors with senior decisionmaking powers and control a fraction of total VC dollars.199

Contents

20%

25%

17%

of firms’ investment

committees are women

(down from 21%

in 2020).

of deals were

originated by women

(up from 24%

in 2020).

of investment firm

owners are women

(down from 18%

in 2020).

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Despite hurdles, women-owned VC firms are growing.

150

22%

investment firms were

women-owned in 2022

(a 29% increase over 2021).200

of investment partners at firms founded within

the last 10 years were women (up from 17% at

firms founded over 10 years ago).201

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Women-owned firms often raise smaller funds and have a harder time raising capital from

institutional investors than their male counterparts.202 These challenges are even more acute for

African American/Black and Hispanic/Latina fund managers.203

Natural Disaster Areas

Rural Communities

Women-owned frms by race and ethnicity

POLICY | Recommendations

$45M

median

fund size

target

$75M

median

fund size

target

Hispanic/

Latina

White

49%

77% of African

American/Black women,

African

American/

Black

22%

$50M

median

fund size

target

Asian

American

22%

43% of Asian American

women, and

ADVOCACY | What We Do

COMMITTEE | Highlights

30% of Hispanic/Latina women

ENDNOTES | All the Details

were raising a first-time fund,

OFFICE | Meet the Team

64%

of White women

while

were raising a successor fund.204

$100M

median

fund size

target

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 49

Diverse Founders

and Investors

Contents

iversity205 is the representation of various elements of identity, including race, ethnicity,

nationality, gender identity, LGBTQ+ status, socioeconomic status, ability, religion, and age.

Diversity often refers to the degree to which specific groups are represented in the workforce

and leadership.206

MISSION | Who We Are

DATA | State of Capital Formation

Business Formation and Ownership Trends

Introduction

The proportion of diverse business owners is growing.207

Small and Emerging Businesses

and Exempt Offering Data

2022 had the highest proportion of new business formation by founders of color.208

20%

15%

10%

-5%

-10%

-15%

-20%

-25%

-30%

16.77%

Founders of Color

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

-16.21%

Diverse Founders and Investors

White Founders

2020

2021

2022

Women Founders and Investors

2023*

*Through June 30, 2023

People of color are increasingly creating new businesses, but need more

support as those businesses grow and become more established.

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

Over the last 10 years, diverse businesses accounted for over

50% of new businesses and created 4.7 million jobs.209

The top motivators for entrepreneurs of color include

the desire to be their own boss (30%), dissatisfaction with

corporate America (20%), and pursuit of passion (13%).210

Diverse

Business

Formation and

Growth

African American/Black and Hispanic/Latino adults

intend to create new businesses at over 2.5X and

2X the rate of White adults, respectively.211

The rate of Hispanic/Latino adults starting or running

a new business increased by about 10 percentage

points (from 17% in 2021 to 27% in 2022).212

White adults continue to own established businesses at a higher

rate than African American/Black and Hispanic/Latino adults.213

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 50

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Age

People of color are more represented among young founders than

among older founders.214

21-30

10%

31-40

41-50 5% 8%

51-60 5% 5%

61-80

19%

10%

15%

60%

20%

60%

15%

of color

Founders

d 49%

represente ar-old

0 ye

of all 21-3 nd only

founders

1-80

17% of all 6unders.

ar-old fo

69%

3% 10% 2%

African American/Black

Contents

51%

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

83%

Hispanic/Latino

MISSION | Who We Are

Asian American

Other

White

Mature and Later-Stage Businesses

The COVID-19 pandemic has a lasting impact on diverse business owners.

Business Earnings Losses During the

COVID-19 Pandemic by Race and Ethnicity216

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

COVID-19 negatively affected

earnings of many small businesses,

however, losses were

disproportionately felt by

diverse business owners.215

-15%

Rural Communities

-19%

-21%

POLICY | Recommendations

White

Hispanic/Latino

Asian American

-28%

African American/Black

ADVOCACY | What We Do

COMMITTEE | Highlights

“

The COVID-19 pandemic has impacted the ability of entrepreneurs to

access the capital that they need to sustain (or grow) their businesses,

especially among Black entrepreneurs, with the share of business

whose fnancing needs are met declining.

EWING MARION KAUFFMAN FOUNDATION217

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 51

ENDNOTES | All the Details

OFFICE | Meet the Team

Precursors to Accessing Capital

Discrepancies in wealth and income across demographic groups affect

the financial starting line for many entrepreneurs of color.218

Contents

Many founders rely on funds from personal savings, friends, or family to start their business.219 The

nation’s significant wealth inequality across racial groups particularly affects African American/Black

and Hispanic/Latino entrepreneurs’ ability to tap personal assets as a funding source.220

MISSION | Who We Are

Share of U.S. Households

Share of U.S. Net Worth

82%

Black

merican/

African A

nic/Latin

and Hispa

ad 24

families h

ite

for everywealth.221

family

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

64%

Mature and Later-Stage Businesses

12%

White

14%

10%

Other

African American/Black

10%

Hispanic/Latino

Disparities in income also affect the ability of entrepreneurs of color to grow personal wealth and

savings and self-fund a business.

Household Income Distribution,

by Race and Ethnicity222

Under $99,999

23%

13%

$100,000–$199,999

Median Household Income

by Race and Ethnicity223

Over $200,000

22%

18%

16%

Asian American

$108,700

31%

White

$81,060

72%

76%

78%

Hispanic/Latino

$62,800

46%

Asian

American

White

Hispanic/

Latino

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

28%

59%

Initial Public Offerings and Small

Public Companies

African

American/

Black

Native

American

and Alaska

Native

African

American/Black

$52,860

Native American/

Alaska Native

$52,810

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 52

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Limited access to traditional financial systems and lending also serves

as a barrier to funding a new business.

Contents

Over the last few years, while more diverse households have opened bank accounts, the overall

unbanked rate has remained steady.224

18%

16%

MISSION | Who We Are

Despite progress, Hispanic/Latino and

African American/Black households are

17%

3 to 5X more likely

14%

11%

DATA | State of Capital Formation

than White households to be

14%

unbanked.

12%

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

5% 5%

Native

American/

Alaska Native

African

American/

Black

Hispanic/

Latino

Asian

American

Multiracial

3% 3%

White

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

2017

2019

2021

Natural Disaster Areas

Entrepreneurs of color

are less likely to receive all the

funding they seek from sources

such as loans, lines of credit,

and cash advances.

Rural Communities

Share of Funding Received by Small

Businesses by Race and Ethnicity225

African American/

Black

20%

30%

POLICY | Recommendations

50%

ADVOCACY | What We Do

44%

COMMITTEE | Highlights

Native American/

Alaska Native

36%

Hispanic/Latino

38%

30%

32%

Asian American

33%

37%

31%

White

21%

58%

All

25%

Most/Some

18%

None

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 53

ENDNOTES | All the Details

OFFICE | Meet the Team

Difficulty accessing capital can affect whether the business will seek

capital for future needs.226

47%

of businesses

that needed

capital did

not apply.

Of those businesses, the percentage that did not apply because they expected

to be turned down varied by race and ethnicity:

Contents

46%

32%

MISSION | Who We Are

30%

29%

24%

DATA | State of Capital Formation

Introduction

African

American/Black

Hispanic/Latino

Asian American

Native American/

Alaska Native

White

Lack of access to professional support and capital is a barrier for all

entrepreneurs, but the challenge is heightened for entrepreneurs of color.227

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

35%

of Asian

American

30%

of African

American/

Black

29%

of Multiracial

23%

of Native

American

22%

of Hispanic/

Latino

18%

of White

entrepreneurs reported

trouble finding professional support,

advice, or role models in their network

when starting and growing a business.

A lack of access to financial resources is particularly problematic for

some entrepreneurs of color.228

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

44% of Native American

42% of African American/Black

ENDNOTES | All the Details

41% of Hispanic/Latino

35% of Asian American

32% of Multiracial

31% of White

entrepreneurs cite a lack of access

to financial resources as the primary

reason they stopped pursuing

starting their business.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 54

OFFICE | Meet the Team

Capital-Raising Trends

The number of entrepreneurs of color seeking angel capital continues an

upward trend, but underrepresentation persists.

Founders of color constituted

Contents

Angel investors invested in

MISSION | Who We Are

33.1%

15%

DATA | State of Capital Formation

Introduction

of entrepreneurs seeking angel capital

in 2022 (an increase from 12.8% in 2021

and 5.3% in 2020).229

of those investment opportunities

brought to their attention

(a slight increase from 30.5% in 2021).230

A majority of founders of color have seen increased interest from VCs.231

52%

50%

of founders of color say they received increased

interest from VCs in 2021-2022.

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

of founders of color say they had an increase in

conversations with VCs in 2021-2022.

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

VC investors more heavily scrutinized particular sections of diverse

teams’ pitch decks compared to decks of all-White teams.

ADVOCACY | What We Do

Teams with diversity experienced:

232

COMMITTEE | Highlights

ENDNOTES | All the Details

25% more time on the

team sections. For all-White

teams, this was one of the

least important slides.

28% more time

on the traction

section.

67% more time

on the market

size section.

55% more

time on competition

section.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 55

OFFICE | Meet the Team

Diverse founding teams face outsized challenges in securing VC investment,

and the amounts invested are lower.233

e firs

Within th

can/

an Ameri

years, Africbusinesses raise

ned

from

Black-ow

as much

about 1/3

s as

apit

235

venture c

rtups.

other sta

Racially and ethnically diverse teams raised

33% less

on average in 2022 than all-white teams.234

While it is difficult to get accurate race

and ethnicity statistics on the overall

market, data providers have started to

provide insight on VC funding raised by

founders of color. Within that data, a meager

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

6% of VC investments were categorized as

Mature and Later-Stage Businesses

the gender, race, or ethnicity of the business’s

leadership team.

Initial Public Offerings and Small

Public Companies

“Diversity Investments” based on

Of those investments,

only

Contents

16% of funding

went to racially and ethnically

diverse founders (as identified

or self-identified on the platform):236

Hispanic/Latino 6.7%

Asian American/Pacific Islander 5.2%

African American/Black 3.7%

Middle Eastern/North African 0.1%

nt of

3, the cou

In Q1 202

fo nders

h diverse

its

deals wit

reaching

declined,

Native American/Alaska Native 0.1%

al cou

lowest de020.237

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

since 2

COMMITTEE | Highlights

As VC funding dropped between 2021 and 2022, African American/Black- and Hispanic/Latinofounded startups saw a disproportionately larger decline in their share of investments.238

Only 1.5% of VC dollars

Only 1.1% of VC dollars was

was invested in Hispanic

invested in African American/

founders in 2022

(down from 2.5% in 2021).

239

Black founders in 2022

(down from 1.5% in 2021).240

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 56

ENDNOTES | All the Details

OFFICE | Meet the Team

Diverse Founders in Leadership Roles

African American/Black and Hispanic/Latino founders and executives

remain underrepresented as compared to their share of the labor market.241

U.S. Labor Force

Contents

MISSION | Who We Are

Founders

Executives

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

73%

63% 62%

Mature and Later-Stage Businesses

18%

White

Hispanic/Latino

12%

18%

African

American/Black

14%

Asian American

Other

Directors of color occupy 20% of seats on public company boards.

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

242

Natural Disaster Areas

Rural Communities

100%

80%

White

Black

merican/

African A

ighest

saw the

directors

hips, a

in direc

increase

re than 9

rise of mo

23.24

19 and 2

betw

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

African American/Black (8.3%)

ENDNOTES | All the Details

Asian American/Pacific Islander (7.2%)

20%

Hispanic/Latino (3.6%)

Middle Eastern (0.9%)

Native American/Alaska

Native/Native Hawaiian (0.2%)

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 57

OFFICE | Meet the Team

Diverse Investors and Allies

Diversity increased among angel investors, although underrepresentation

remains.

8.6% of angel investors in 2022 were

MISSION | Who We Are

racially or ethnically diverse (an increase

from 4.1% in 2021 and 5.3% in 2020).244

DATA | State of Capital Formation

The percentage of persons of color has increased at VC funds but they

remain particularly underrepresented at senior levels.245

26%

Junior-level

Professionals

61%

Contents

A 30% increase in diverse

junior-level professionals

(from 30% in 2018 to 39% in 2022).

Introduction

Asian American/Pacifc Islander

Hispanic/Latino

African American/Black

White

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

22%

Investment

Professionals

69%

A 29% increase in diverse

investment professionals

(from 24% in 2018 to 31% in 2022).

18%

75%

Investment

Partners

als

rofession

Diverse p

employed for

level

ior39% of jun , but only

nals

professio

stment

31% inveals and

professio

estment

25% of invers.

partn

A 25% increase in diverse

investment partners

(from 20% in 2018 to 25% in 2022).

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Persons of color are also underrepresented among limited partner

investors in VC funds.246

Hispanic/

Latino

Asian

American

19%

Other

White

69%

African American/Black 4%

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 58

Most African American/Black and Hispanic/Latino investment partners

are in firms that focus on seed and early stages.247

Seed stage

Early stage

early-stag

Seed and

ave

nts

248

investme

ck size.

28%

smaller c

25%

Multi-stage 2%2%

22%

Growth stage

19%

MISSION | Who We Are

DATA | State of Capital Formation

African American/Black

Contents

Hispanic/Latino

Introduction

Asian American

Investors of color are more likely to invest in businesses with diverse

founders.249

Women and people of color

are the founding partners at

74% of the active seed funds

whose investment criteria include founder

diversity and are making ½ of their

investments in underrepresented founders.250

ss of

the succe

may be

“One

ng teams

to invest

divers

ore likely

nders.”

that th

ented fou

251

in und

VEY

AL SUR

AN CAPIT

– VC HUM

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

While more investors and VCs are focused on diversity, equity, and

inclusion, the enthusiasm that rose in 2020 for investing in diversefounded companies has waned.

More VC frms have had their investors

(LPs) request the frm’s diversity, equity, and

inclusion details:252

Natural Disaster Areas

Rural Communities

More VC frms are focused on DEI at their

portfolio companies.253

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

36%

2018

41%

2020

47%

2022

19%

2018

30%

2020

38%

2022

However, some of the enthusiasm seen in 2020 to close the funding gap for founders of color has

reverted to 2019 levels.254

32% of firms identified finding opportunities with

diverse-founded companies as a top priority

(down from 43% in 2020 and 33% in 2019).255

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 59

ENDNOTES | All the Details

OFFICE | Meet the Team

LGBTQ+ founders report challenges raising capital.

40% of LGBTQ+ business owners cite raising capital as

their greatest business challenge.256

93% of LGBTQ+ business owners note that

access to capital is limiting their growth potential.257

Access

to Capital

for LGBTQ+

Founders

LGBTQ+ founders are more likely to use cash

reserves (61%) and personal funds (59%) than

non-LGBTQ+ founders (52% and 53%, respectively).258

Only 20% of LGBTQ+ founders that applied for

business loans were approved (compared to 50%

of non-LGBTQ+ businesses).259

11% of LGBTQ+ and 17% of LGBTQ+ founders of color

report experiencing anti-LGBTQ+ discrimination in banking

or financial services.260

LGBTQ+ founders are raising less funding than non-LGBTQ+ founders,

but creating more jobs, patents, and exits.

7.1%

of the U.S.

population identify

as LGBTQ+.261

of LGBTQ+ founders

sought equity

investments, which

is in line with the

average founder.262

0.5%

of venture capital

was raised by

LGBTQ+ founders.263

16%

less funding is raised

by LGBTQ+ founders

as compared to the

average founder.264

LGBTQ+ founders create:

36% more

jobs

114% more

patents

86%

of LGBTQ+

investors

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

44% more

exits.

265

Many investors want opportunities to invest in LGBTQ+ equity and inclusion.266

45%

of all U.S.

investors

Contents

76% of

investors with

an LGBTQ+

household

member

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 60

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Founders with disabilities often start businesses out of necessity.267

Contents

13.4%

9.5%

6.3%

of the US population

has a disability

(roughly 44 million).268

of workers with a disability

are self-employed vs 6.1% of

those with no disability.269

of small businesses, or

MISSION | Who We Are

2.1 million

small businesses, are

owned by a person with

a disability.270

Founders with disabilities face challenges accessing capital.271

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

10% of adults with a

disability are unbanked vs

5% of people who do not

have a disability.272

84% of disabled

entrepreneurs note that

they do not have the same

access to opportunities and

resources as non-disabled

entrepreneurs.273

61% of disabled

entrepreneurs say they

have to demonstrate

superior knowledge to be

taken seriously.274

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

“

[As a disabled founder], it’s easier to build a satellite and send it to

space than it is to raise money.

ERIC275

Despite challenges accessing capital, entrepreneurs with disabilities have

developed and launched innovative products and solutions.

58% of founders with a disability used their

disability experience to develop and design

products and services that others haven’t thought of.276

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 61

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Veteran founders report challenges raising capital.

Contents

5.2%

MISSION | Who We Are

of small business are veteran-owned

(1.7 million businesses).277

Veteran small business owners

employ roughly 4 million people.278

DATA | State of Capital Formation

Introduction

Access to capital continues to be a barrier to veterans starting or

growing a small business.279

49%

34%

Lack of Financing

entrepren

eurs feel

that the c

apital the

need is n

ot readily

available.280

Mature and Later-Stage Businesses

37%

Lack of Access to Capital

40% of ve

tera

Small and Emerging Businesses

and Exempt Offering Data

41%

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

20%

Lack of Mentors

Lack of Experience in

Entrepreneurship

26%

18%

Diverse Founders and Investors

2022

2021

25%

10% of veteran entrepreneurs sought an

equity investment.281

Veterans remain underrepresented at VC firms.

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

Only 3% of investment firm employees were

veterans, the same percentage as in 2020 (compared to

nearly 8% of the U.S. population).282

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 62

OFFICE | Meet the Team

Natural Disaster Areas

Contents

MISSION | Who We Are

How do natural disasters affect small businesses?

DATA | State of Capital Formation

OPEN

14%

CLOSED

of small businesses

experienced natural disaster

related losses

(up from 12% in 2021).283

1 in 4

Introduction

Small and Emerging Businesses

and Exempt Offering Data

CLOSED

Nearly 2/3 of small

businesses in the Northeast

that had disaster-related

losses were forced to close,

at least temporarily.284

Mature and Later-Stage Businesses

employer firms owned by

people of color reported

experiencing disasterrelated losses.285

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Natural disasters affect communities and their small businesses across

the country.

Diverse Founders and Investors

Between October 1, 2022 and September 30, 2023, there were 29 natural disaster events with losses

exceeding $1 billion.286

Severe hail

and weather

ated

Total estim lated

risaste re

natural d

xceeded

the U.S. e 287

losses in

billion.

$11.5B

Natural Disaster Areas

Rural Communities

Historic tornado

outbreak

$8.9B

POLICY | Recommendations

ADVOCACY | What We Do

$109

Winter

storm

COMMITTEE | Highlights

$10.5B

ENDNOTES | All the Details

The 2022 drought

was the costliest

on record.

OFFICE | Meet the Team

$22.9B

Severe storms

$46B

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 63

Capital from investors remains a small portion of funding for

small businesses affected by natural disasters.

Those affected by natural disasters use similar funding sources as all small and emerging businesses.288

Personal finances

65%

Cash reserves

56%

Percent of small businesses

that applied for external

capital and sought

equity financing289

Firms that used external

capital to cope with

disaster losses290

59% of firms

Affected

businesses

External capital

(with repayment) 47%

10%

Grants or donations

21%

Unaffected

businesses

owned by

persons of color

37% of

white-owned

firms

How does the percentage of the population affected by natural

disasters compare to the share of capital from investors raised

by affected businesses?

49%

Of the total U.S. capital raised from

investors over the last 3 years

46% of

issuers

39% of

capital

Registered Equity Oferings by Small

Public Companies

$863B

$55B

$334B

(39%)

$26B

(46%)

Regulation A

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

Initial Public Offerings and Small

Public Companies

Diverse Founders and Investors

Natural Disaster Areas

supported a small business affected

by a natural disaster.293

Capital raised by small businesses in areas affected by natural disasters

varied under different offering pathways.294

Regulation D

MISSION | Who We Are

Women Founders and Investors

46% of

offerings

of the U.S. population291 lives in an area that was

affected by a natural disaster during the three

years ending June 30, 2023.292

Contents

Regulation Crowdfunding

$4.7B

$0.8B

$1.6B

(34%)

$0.5B

(57%)

d equity

Registere

by small

offerings

mpanies

public counted for

only acco

apital rais

7% of the c registered

across all

erings ov

equity off

this 3 yea

Amount of total capital raised by all small businesses over 3 years

Amount (percentage) of capital raised by disaster-afected small businesses over 3 years

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 64

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Rural Communities

Contents

Small businesses are the economic backbone of rural communities,

providing the majority of rural jobs.

While 79% of rural small

businesses each employ fewer than

those businesses

collectively account for

10 employees,295

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Small and Emerging Businesses

and Exempt Offering Data

54%

Mature and Later-Stage Businesses

of employment in rural counties

(compared to 45.5% in metropolitan counties).296

Initial Public Offerings and Small

Public Companies

Women Founders and Investors

Rural small businesses are located across the country, with the

majority in the central U.S.297

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.

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

East North Central

13% of U.S. Rural Small Businesses

18% of Small Businesses in the Region

Pacific

13% of U.S. Rural Small Businesses

13% of Small Businesses in the Region

New England

3% of U.S. Rural Small Businesses

8% of Small Businesses in the Region

POLICY | Recommendations

ADVOCACY | What We Do

West North Central

17% of U.S. Rural Small Businesses

40% of Small Businesses in the Region

Middle Atlantic

13% of U.S. Rural Small Businesses

9% of Small Businesses in the Region

Mountain

8% of U.S. Rural Small Businesses

22% of Small Businesses in the Region

COMMITTEE | Highlights

ENDNOTES | All the Details

South Atlantic

12% of U.S. Rural Small Businesses

7% of Small Businesses in the Region

West South Central

13% of U.S. Rural Small Businesses

14% of Small Businesses in the Region

East South Central

8% of U.S. Rural Small Businesses

18% of Small Businesses in the Region

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 65

OFFICE | Meet the Team

Access to capital remains critical to building and strengthening

rural entrepreneurial ecosystems.298

Small banks remain the most prominent financial services provider for

rural small businesses.299

Contents

MISSION | Who We Are

DATA | State of Capital Formation

Rural communities are

10X

62%

more likely to be located

in a banking desert.300

39%

25%

12%

Small Bank

Large Bank

Introduction

Non-Bank

Financial

Company

Credit Union

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

None

Other

Initial Public Offerings and Small

Public Companies

The percentage of rural businesses seeking capital from investors is

increasing, but it remains a very small portion of funding.

Women Founders and Investors

Diverse Founders and Investors

of rural small businesses

seeking external capital sought

equity financing

(compared to 8% of urban

small businesses).301

Up from

of rural small businesses

seeking external capital in 2021

(compared to 7% of urban

small businesses in 2021).302

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

ADVOCACY | What We Do

“

[T]he pandemic was very tough in many ways, but one of the benefts

—and a tail wind to rural—has been its entering mainstream acceptance

for remote working. It's gotten a lot easier to do business development

networking . . . [and] to understand from an investment thesis

standpoint, how you can build a scalable, very meaningful business,

even in a small town in the U.S.

JAY BOCKHAUS, CORI INNOVATION FUND303

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 66

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

How does the rural population compare to the share of capital

from investors raised by rural small businesses?

Contents

18%

15%

of small

employer firms are

located in rural areas.305

of the U.S. population

lives in rural areas.304

MISSION | Who We Are

DATA | State of Capital Formation

Introduction

Of the total U.S. capital raised from investors over the last 3 years

Small and Emerging Businesses

and Exempt Offering Data

Mature and Later-Stage Businesses

3.6%

of offerings

3.7%

of issuers

Initial Public Offerings and Small

Public Companies

1.6%

of capital

supported rural small businesses.306

Women Founders and Investors

Small businesses in rural areas raised a notably smaller portion of overall capital relative to the rural

share of population during the three years ending June 30, 2023.307

Regulation D

Registered Equity Oferings by Small

Public Companies

$863B

$55B

$14B

(1.6%)

$860M

(1.6%)

Regulation A

Regulation Crowdfunding

$4.7B

$798M

$54M

(1.1%)

$37M

(4.7%)

Diverse Founders and Investors

Natural Disaster Areas

Rural Communities

POLICY | Recommendations

d equity

Registere

by small

offerings

mpanies

public counted for

only acco

apital rais

7% of the c registered

across all

erings ov

equity off

this 3 yea

Amount of total capital raised by all small businesses over 3 years

Amount (percentage) of capital raised by disaster-afected small businesses over 3 years

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 67

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

POLICY

Recommendations

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 68

HELPING

navigate securities laws

and other Issues via

education and policy

recommendations

ased on feedback we have received through our engagements with small businesses and their

investors, the Office has developed the following policy recommendations for Congress and

the Commission. We have distilled this feedback into five key areas for action to address the

most significant issues raised about our capital-raising rules.

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, a

discussion of particular impacts 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 continue to work together to bring innovations

to market.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

e joined

, our Offic

In Ju

siness

inority Bu

the U.S. M

y’s first

nt Agenc

orum

usiness F

nts like

annual D

ation. Eve

on Ca

rtunities to

vide oppo

these pro

m though

ctives fro

gain

cesses an

n the suc

leaders o

ll busines

cing sma

chall

investors

and their

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 69

Entrepreneurs and their investors need accessible tools and

educational resources to navigate complex securities laws.

Background Context

Throughout the last fiscal year, we met with entrepreneurs and investors from across

the country with diverse capital-raising experience. We heard from 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 for

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

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

Others told us that they were in early exploratory stages and unsure how to start

their funding journey or what options were available.

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 understand

what capital-raising pathways may be available to them.

Demographic Impacts

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

the complexity of our regulatory framework remains. Women and diverse

entrepreneurs308 often lack access to the same networks, experienced mentors and

advisors, or supportive entrepreneurial communities as their counterparts309 and

therefore face an uneven playing field when navigating that complexity.

Related Developments

We have continued to partner with other SEC offices and divisions to expand and

enhance the Capital Raising Hub, a centralized portal of educational resources for

each phase of the capital-raising journey for small businesses and their investors.

Since we launched the Capital Raising Hub in 2021, our resources have received

over 255,000 views. We continue to add resources based on feedback we receive

through our outreach efforts.

For example, this year we added:

§ 10 new topics to our Building Blocks suite of educational “one-pagers” that

break down into plain language securities law concepts, at all stages of the

lifecycle, and which collectively received nearly 400,000 views this year;

§ new Capital Raising 101 videos briefly walking through introductory topics;

§ a brand new Funding Roadmap that explores small business funding

options from self-funding to non-dilutive options like grants to loans to capital

from investors;

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 70

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

§ additional terms to our popular Cutting through the Jargon glossary, which

seeks to demystify common terminology; and

§ a new educational video and chart to our Rulemaking Gallery providing

high-level summaries of the new Private Fund Adviser rules.

Contents

Proposed Solution

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

businesses, investors, federal and state agencies, and other thought leaders in

the market to expand, promote, and improve accessibility of our educational

resources. We also will continue to seek feedback and welcome suggestions for

future resources.

We continue to receive calls to make these resources more accessible and for

additional resource topics and formats. In order to be able to respond to these

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

our efforts in this area. This support 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 and to access our capital

markets effectively.

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

In August

2023, our

Office join

Nasdaq E

ntreprene

urial Cente

“Capital R

r’

aising Re

adiness”

webinar to

share our

education

resources

with early

-stage

entrepren

eurs seek

ing to rais

capital. T

he event

was one

of many th

at highlig

hted the

challenge

s facing e

ntreprene

urs.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 71

ENDNOTES | All the Details

OFFICE | Meet the Team

Exempt offering pathways are essential to small business

capital raising. Targeted regulatory changes could improve

their utility.

Contents

Background Context

Every operating company needs capital to build, grow, and scale. When that capital

does not come from retained business earnings, personal savings, or debt financing,

companies regularly look to the private markets to finance early-stage operations and

development. Some founders do this with a single private financing in mind; others

do so with aspirations of raising multiple rounds in preparation for becoming a

public company. In both cases, raising capital through the private markets via exempt

offerings is a necessary step in building the company. For companies that will one day

go public, early-stage capital provides a foundation for the business to reach the size

and maturity needed to go public. For the millions of small businesses that are not

looking to become public companies, funding is critical for their development and for

job creation in communities throughout the United States.

As we engage with entrepreneurs, investors, entrepreneurial support organizations,

and other thought leaders, many share details about what has been working well

with respect to capital raising and areas where they face challenges. Overwhelmingly,

companies and investors alike tell us that Regulation D works well for those companies

that have access to accredited investors. In fact, as highlighted in this report, Regulation

D is the most frequently used pathway to raise capital from investors.310

However, many founders do not have pre-existing accredited investor networks.311

Further, angel investments, a significant source of early-stage capital (especially for

women and founders of color), have slowed over the past year,312 adding a further

barrier to raising capital for those unable to self-fund or tap into wealthy networks.

Targeted regulatory changes are needed to promote inclusivity and equity in the

entrepreneurial ecosystem and improve the capital-raising process.

Demographic Impacts

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

companies founded by women and racially and ethnically diverse entrepreneurs.313 This

is the case at all lifecycle stages, from startups through later-stage companies, leaving

these businesses financially constrained and unable to reach their full potential.314

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 72

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Diversifying capital allocators and decision-makers facilitates greater funding of

diverse founders. Data shows that investors of color are more likely to invest in

diverse founders.315 Therefore, policies that have a disproportionate impact on

diverse investors are likely to further impede investment in the next generation of

diverse innovators working to grow their companies.

For example, the accredited investor definition largely determines whether an

individual is eligible to invest in many early-stage companies.316 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.317 Racial and ethnic

diversity among angel investors increased in 2022, yet diverse founders are still

significantly underrepresented.318

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Changes that would decrease the pool of accredited investors, including angel

investors, would impact small business capital formation and especially for

first-time founders and racially and ethnically diverse entrepreneurs.

Due to our nation’s racial and ethnic wealth gap, founders of color are less likely

to have sufficient personal wealth to finance their company by bootstrapping.319

They are also less likely to have fulsome access to traditional financial systems and

lending or to benefit from a robust personal network of accredited investors.320

Yet many diverse founders have found funding opportunities through Regulation

Crowdfunding, which enables a company to raise capital from their local

community, brand or product loyalists, and other non-accredited investors.321 This

pathway also has been particularly attractive to small businesses located outside of

traditional capital hubs.322

“

Angel investors, they play an important role, because they're bringing

this access to capital. It's arguably more important for diverse founders,

and why is that? Because . . . if Latinos are a refection of my family,

we don't have the tios and tias—the aunts and uncles—that are going

to fund me a couple hundred thousand, right? They don't have the

sophisticated networks that are going to introduce them to the VC

that's just going to write them that million-dollar check, because we

went to the same school, and I just really believe in what you've got. We

just don't have that network. And so angel investors really do play an

important role for these early-stage founders.

JENNIFER GARCIA, LATINO BUSINESS ACTION NETWORK323

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 73

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Related Developments

The Commission’s most recent rulemaking agenda continues to indicate that it

will consider amendments to Regulation D, including updates to the accredited

investor definition and Form D.324 In addition, Section 413(b)(2)(A) of Dodd-Frank

Wall Street Reform and Consumer Protection Act requires the Commission to

undertake a review of the accredited investor definition at least once every four

years to determine whether the requirements of the definition should be adjusted

or modified.325 In connection with any changes to or review of the income and

net worth thresholds in the accredited investor definition, our office has urged the

Commission to consider several important data matters:

1. The impact any changes would have on racially and ethnically diverse founders

and populations located in rural areas.326

2. When discussing the size of each of the private market and public market, it is

important to take into account the amount of capital raised by both operating

companies and pooled funds.327 For example, of the $2.9 trillion raised under

Regulation D over the 12-month period ended June 30, 2023, operating

companies raised only $299 billion, or approximately 10 percent, while pooled

funds raised the other 90 percent.328

Regulation D

Registered Offerings + Flows into

Registered Funds

Operating Companies

$299 Billion

over 21,758 oferings

Pooled Funds

$2.6 Trillion

over 16,329 oferings

Operating Companies

$1.1 Trillion

over 2,302 oferings

Registered Funds

$8.8 Trillion

fows into registered funds

Because the public and private markets differ in so many ways, particularly with

respect to liquidity, it is difficult to estimate the relative size and growth rates of

each market, but any such attempt to compare these markets should separately

assess amounts raised by operating companies and pooled funds and be based on

data reflecting the capital raised in each market.

3. In evaluating the role of the accredited investor definition in offerings under

Regulation D, it is important to keep in mind that 81% of offerings under

Regulation D ($2.3 trillion over the 12-month period ended June 30, 2023)329

were by a type of fund (3(c)(7) funds) that is unlikely to be affected by changes to

the accredited investor definition.330 The accredited investor definition is far more

relevant for 3(c)(1) funds, which accounted for only 4% of all offerings under

Regulation D ($130 billion over the 12-month period ended June 30, 2023).331

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 74

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Percentage of capital raised under Regulation D by issuer type:

Operating

Companies

10%

3(c)(7) Funds

81%

Other Funds 4%

3(c)(1) Funds 4%

Contents

MISSION | Who We Are

Proposed Solution

DATA | State of Capital Formation

Based on the feedback we have received throughout our engagement with small

businesses and their investors, we recommend proceeding with caution on any

potential changes to Regulation D. We also recommend certain changes to the

accredited investor definition and Regulation Crowdfunding, as set forth below.

POLICY | Recommendations

Regulation D:

When considering changes to Regulation D, we urge the Commission not to make

the Form D notice and associated disclosure requirements more burdensome,

particularly for smaller operating companies raising smaller amounts of capital.

Rationale:

The Rule 506(b) safe harbor for the statutory exemption provided by Section

4(a)(2) is by far the most frequently used method for raising capital.332

Operating companies made up 55% of the total number of offerings under

Regulation D since 2020 but accounted for only 12% of the total value of all

such offerings. The other offerings were by pooled funds.333

Any changes that result in deterring operating companies from relying on this

safe harbor are likely to have a chilling effect on access to capital for smaller

companies seeking to raise capital, particularly those that are already facing

some of the greatest challenges accessing capital. It is also important to keep

in mind that any changes that make compliance with Regulation D more

costly may have the unintended result of driving companies to raise capital

under the statutory Section 4(a)(2) exemption instead.

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.334

The Commission should consider the impact any change to the income and net

worth thresholds would have on access to capital for women and racially and

ethnically diverse founders and populations located in rural areas. This consideration

and any review of the definition should expressly include a review of data regarding

household income and net worth by race and ethnicity and by geographic location.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 75

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Rationale:

As is clear from the data on wealth and income inequality across demographic

groups,335 raising the wealth and income thresholds would have a

disproportionate impact on entrepreneurs and investors of color. A more

homogenous pool of accredited investors would negatively affect the ability of

diverse entrepreneurs to raise capital.336

In addition, increased wealth and income thresholds would have a

disproportionate impact on geographic areas with a lower cost of living,

including rural areas, which already tend to have less VC activity.337

When evaluating amounts raised in reliance on Regulation D, the Commission should

separately assess amounts raised by operating companies and pooled funds. Further,

in considering data on the use of the accredited investor definition by pooled funds,

amounts raised by 3(c)(7) funds should be excluded, as investors in those funds

must be “qualified purchasers,” a much higher standard than the accredited investor

definition. This will allow the Commission to focus more accurately on the effect any

changes may have on capital raised by 3(c)(1) funds and other private funds, which

are the funds most likely to be impacted by changes to the definition.

Regulation Crowdfunding:

The Commission or Congress should amend Regulation Crowdfunding338 to make it a

more attractive capital-raising pathway, including by

§ allowing flexibility in the type of accounting a company uses for small businesses

raising up to $500,000, and

§ increasing the offering size threshold under which an issuer may meet its financial

statements requirements by providing financial statements and income tax return

information certified by the principal executive officer.339

Rationale:

Although Regulation Crowdfunding has become more widely used,340 only a

small fraction of capital is raised using this pathway.341

Crowdfunding offerings have been a particularly important source of funding

for women and founders of color342 and geographically diverse companies,

with 70% of capital contributed outside the top 10 capital hubs.343

Market participants report that existing reporting requirements for raising

small dollar amounts through Regulation Crowdfunding are costly and

outsized, creating practical barriers to relying on this pathway. For example,

the requirements to have financial statements reviewed by an independent

public accountant344 delay the ability to commence an offering and impose an

upfront cost without a guarantee that the offering will be successful. Finding

ways to reduce the costs associated with smaller offering sizes would help

make Regulation Crowdfunding more attractive to small businesses looking to

meet funding needs to grow and expand.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 76

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

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

provision that excludes investment companies (or excluded companies under

Section 3(b) or 3(c) of the Investment Company Act) from using the Regulation

Crowdfunding exemption.345

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.346 Entrepreneurs,

investors, and other thought leaders report that this SPV model has not

worked as well as intended due to the prescriptive requirements and the

statutory prohibition on investment companies.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

w commo

rkable ho

“It’s rema

ms are fro

the proble

system to

neuria

amental

[entrepre

k the fund

improve th

anothe

g to do is

’r

thing w

preneurs

s of entre

for ways

outcome

tive, loo

more c

to them,

r network

open you

tor them.

ys to men

or find wa

AWAY,

IAN HATH

ES34

VENTUR

FAR O

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 77

ENDNOTES | All the Details

OFFICE | Meet the Team

Connecting founders with savvy investors is essential

to capital raising.

Background Context

Knowledgeable early-stage investors can be invaluable for early-stage companies,

often bringing relevant industry experience, mentorship, business connections,

strategic guidance, and follow-on financial support, all of which can have

a significant and positive impact on a small business’s trajectory. Yet not all

entrepreneurs have personal connections to sophisticated, early-stage investors with

deep pockets and the right risk tolerance. Registered broker-dealers tend to provide

their matchmaking services for larger offerings,348 but a company’s need to connect

with savvy investors applies regardless of the 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.349 While the Commission has not included finders or an alternative

approach on its agenda, this issue remains as timely today as ever.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Demographic Impacts

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

network of accredited, angel, and VC investors.350 Further, many report trouble

finding professional support, advice, or role models in their network.351 The lack of

access to networks of potential investors has a significant impact on capital raising,

which further extends 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.

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

“

If the success of entrepreneurs depends more on who they know

than on what they can do, then the traditional rules serve to entrench

class distinctions. Those who come from money and therefore have

connections to wealth become successful entrepreneurs because they

can raise the needed funds. Those who lack those connections may fail

for lack of capital, despite their ability and innovations.

BRIAN BECKON, CUTTING EDGE CAPITAL352

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 78

ENDNOTES | All the Details

OFFICE | Meet the Team

Related Developments

In October 2020, the Commission proposed an order353 that would permit natural

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

without registering with the Commission as a broker-dealer. 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.354

Contents

MISSION | Who We Are

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.355 For decades, market participants have asked for clarity about the

legal obligations of finders. We remain supportive of those calls and continue to

recommend that Congress or the Commission provide additional regulatory clarity

for finders.

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

was

networks

hout

The impo

rd throug

a theme

in our

including

ussion

the year,

anel disc

Octobe

apitalists

enture C

State of

on “

eurs: The

and En

g Field.”

the Playin

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 79

ENDNOTES | All the Details

OFFICE | Meet the Team

Emerging fund managers need support in order to continue

to play their key role in funding startups, particularly those

seeking smaller, early-stage checks.

Contents

Background Context

Founders seeking funding for their businesses beyond their personal network

of friends and family or regional angel investors often turn to private funds of

sophisticated pooled capital, like VC funds. Generally, larger, established funds

tend to seek a consolidated number of larger investments to ensure they are

managing a reasonable number of portfolio companies.356 Meanwhile, founders

looking to raise smaller, earlier rounds, report challenges and decreasing interest

from VC funds.357 VC funding activity has slowed and become more concentrated

in large and established funds.358 The percentage of capital invested with emerging

fund managers that tend to have smaller funds and write smaller checks dropped

to a new decade low.359

The impact of this challenge goes beyond the dollars raised in the round, as VC

funding tends to result in a higher probability of additional investments and an IPO

and a decreased probability of failure.360

Demographic Impacts

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

We continually hear through our outreach efforts, and data highlighted in this

report shows, that women and racially and ethnically diverse fund managers face

disproportionate challenges raising capital from institutional investors, resulting

in smaller funds and in turn smaller investments in their portfolio companies.361

Women and diverse fund managers are more likely to invest in diverse founders, so

fundraising challenges for these managers may lead to fundraising challenges for

diverse founders.362

While investors and VC firms are showing an increased focus on diversity, equity,

and inclusion, the enthusiasm that rose in 2020 for investing in diverse-founded

companies has waned.363 In addition, we hear from market participants that recent

litigation over funds’ use of diversity criteria may continue to curb that enthusiasm.364

“

Women of color are the most founded, entrepreneurial demographic . . .

They are just the least funded.

ARIAN SIMONE, FEARLESS FUND365

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 80

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Related Developments

Our prior Annual Reports have recommended that Congress and the Commission

explore regulatory solutions to support emerging fund managers given the role these

managers play in supporting startups, and in our 2022 Annual Report we included

the following specifics:

§ 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” that is excluded from the 20% non-qualifying

investment basket.

§ Increasing the current 100 beneficial owner limit for funds that rely on the

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

§ Increasing the limit on investors in, and expanding the $10 million maximum

fund size of, a “qualifying venture capital fund” under the exemption in Section

3(c)(1) of the Investment Company Act of 1940.366

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

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

in the Investment Advisers Act of 1940. Congress would need to act to amend

the beneficial owner limit and “qualifying venture capital fund” definition in the

Investment Company Act of 1940.

Private offering changes

Proposed Solution

Support emerging fund managers

Emerging fund managers play a key role in capital formation for startups, and we

reaffirm the recommendations in our prior Annual Reports as follows:

Scale and harmonize small public

company requirements

The Commission should amend Rule 203(l)-1 of the Investment Advisers Act of

1940 by defining “venture capital fund” to include investments by venture capital

funds into other venture capital funds, often called “fund of funds” investments,

as “qualifying investments” that would be excluded from the 20% non-qualifying

basket limit.

Rationale:

A fund of funds model would permit larger funds to invest in smaller funds,

managed by emerging managers, that write smaller checks, potentially

unlocking capital otherwise earmarked for later-stage companies to be

reallocated to early-stage companies.367

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 81

Avenues connecting businesses

and investors

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Congress should amend the exemption in Section 3(c)(1) of the Investment Company

Act of 1940 to increase the limit on the number of beneficial owners.368

Rationale:

Limiting a 3(c)(1) fund to 100 beneficial owners makes it difficult for

emerging fund managers – who may not have access to a network of

investors who can write large checks – to raise a sufficient amount of capital.

Congress should further amend Section 3(c)(1) to increase the limit on investors in,

and the $10 million maximum fund size of, a “qualifying venture capital fund.”369

Rationale:

A qualifying venture capital fund can have no more than $10 million from

no more than 250 investors. Raising the $10 million limit would improve

the exemption’s utility by allowing for a diversified portfolio of investments

and the fund’s operating costs. Assuming a “2 and 20” fee structure, a $10

million fund would have only $200,000 per year for operating expenses,

such as salaries, portfolio management, audit, diligence, and compliance.

Expanding the $10 million cap and the related 250 investor limit, would

equip emerging managers to raise a meaningful sized fund while covering

their expenses.

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

At the 20

23 Wome

n of Colo

and Capit

al confere

nce, our

Office join

ed a disc

ussion

about the

unique ex

erience

for wome

n of color

as fund

managers

and inves

tors.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 82

Scale disclosures and harmonize requirements for

small public companies to help them stay public.

Background Context

After a very busy 2021, IPO activity dropped considerably in 2022 and 2023.370

While supply chains have normalized and inflation has eased, macroeconomic and

geopolitical conditions remain challenging. Notably, monetary policy continued to

tighten, likely contributing to the subdued IPO market.

Despite the slow IPO environment and sustained decline in the number of public

companies, market capitalization and profits for exchange-listed public companies

thrived. At the same time, the portion of that aggregate market capitalization

represented by small companies has continued its long-standing, steady decline,

which suggests that while large companies are receiving the benefits of being public,

many small ones are not.371

Small public companies face considerable challenges. They continue to receive little

research coverage, suffer heightened negative reactions to market events and lower

liquidity, and feel the greater impact of regulatory costs that are fixed or not easily

scaled for their size.372 Many small public companies also see their stock price suffer

following their IPOs, as they struggle to comply with exchange rules.373 Without

steps to improve the prospects of small public companies, their numbers are likely

to continue to decline.374 To avoid this fate, fostering a regulatory environment that

encourages smaller companies to remain public is as important as helping them

go public.

Demographic Impacts

Despite a growing proportion of racially and ethnically diverse business owners

and increased VC interest in founders of color, diverse owners still face significant

challenges when trying to access capital.375 Similarly, although women founders

had a relatively strong year in some aspects of capital raising, they remain

underrepresented among business owners.376 An ecosystem in which early-stage

capital formation is disproportionately challenging for diverse and women founders

unsurprisingly yields public company boards and management teams in which

people of color and women are underrepresented.377 In the case of small public

companies, it is especially telling that women represent only a fraction of C-suite

executives and that progress toward parity in directorships has slowed.378

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 83

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

Related Developments

The success of our capital markets cannot rest exclusively on the shoulders of large

companies. In our 2022 Annual Report, we recommended being mindful of how

and whether SEC rules are promoting an environment that fosters small public

companies going and remaining public. In particular, we recommended continued

tailoring of the SEC’s disclosure and reporting framework to the complexity and size

of operations of companies, either by scaling obligations or delaying compliance for

the smallest of the public companies.

In the past year, the Commission has adopted several rules that impose new

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

has scaled the new obligations or delayed compliance for small public companies, in

some cases providing accommodations that were not initially proposed.379 In others,

however, small public companies are not afforded any accommodations.380

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

“

Private offering changes

And that is the point at which a smaller cap company, even one that's

been public a long time, will start to think about, ‘Is the regulatory

burden worth the beneft of being public if we have no real public

market benefts?’

HILLARY HOLMES, GIBSON, DUNN & CRUTCHER381

Proposed Solution

To address the challenges facing small public companies, it is imperative that we

make the public market an environment that allows companies of all sizes to thrive.

We recommend that the Commission consider ways to harmonize the frameworks

governing Smaller Reporting Company (SRC) and Accelerated Filer definitions.

Specifically, we recommend that the Commission again consider aligning the SRC

and non-accelerated filer categories. This alignment would allow all SRCs to enjoy

all the benefits of being non-accelerated filers—namely the exemption from the

auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act.

Rationale:

Aligning the definitions of SRC and non-accelerated filer would complement

the Commission’s previous efforts to scale disclosure requirements for small

public companies. It would also help to simplify a complex regulatory

landscape, thus easing regulatory burdens on smaller companies. This could

encourage more small companies to go public and make it easier for them to

remain public.

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 84

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

In addition, we reaffirm our prior recommendation 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. Small public companies will benefit

from seeing the disclosure that large public companies prepare in response to similar

new requirements.

During th

is year’s

SEC Sma

ll Busines

Forum, p

anelists d

sed

what it ta

kes to be

come

and stay

a public

reporting

company

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

Introduction

Expand educational resources

Private offering changes

Avenues connecting businesses

and investors

Support emerging fund managers

Scale and harmonize small public

company requirements

ADVOCACY | What We Do

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 85

Contents

MISSION | Who We Are

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

Outreach and Engagement

42nd Small Business Forum

Educational Tools and Resources

COMMITTEE | Highlights

ENDNOTES | All the Details

OFFICE | Meet the Team

ADVOCACY

What We Do

SEC OFFICE OF THE ADVOCATE FOR SMALL BUSINESS CAPITAL FORMATION | FISCAL YEAR 2023 ANNUAL REPORT | 86

ENGAGING

through

outreach and

education

Outreach and Engagement

Our outreach extends from coast to coast, across media platforms, and to a breadth of

partners and organizations. What we learn through our engagement with small businesses, their

investors, and other thought leaders in the small business marketplace informs our advocacy efforts

throughout the year.

Contents

MISSION | Who We Are

Our Approach

Our advocacy work relies on our ability to stay attuned to the needs of small business owners and

their investors, and to respond in turn with information and resources that are meaningful and

accessible across all stages of the capital-raising life cycle. We incorporate feedback and assess our

outreach and educational resources on an ongoing basis to ensure our efforts stay relevant and

accessible in an evolving market.

DATA | State of Capital Formation

POLICY | Recommendations

ADVOCACY | What We Do

Outreach and Engagement

42nd S

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.