The SEC’s “Office of the Advocate for Small Business Capital Formation” — which covers emerging, privately-held companies up to small-cap public companies — recently released its second Annual Report, which as you might guess by the name of the office, provides data on the state of small business capital formation. There were several SEC rulemakings last year that impacted this set of companies, and page 7 of the report links to video summaries of these changes:
– Accredited investor amendments
– COVID-19 crowdfunding relief
– Accelerated filer amendments (SOX 404(b))
– Capital formation proposal
– Modernizing Rule 15c2-11 governing quotations for OTC securities
– Accredited investor proposal
Of course, the biggest stories in 2020 were the impact of the pandemic and the challenges faced by founders and investors from underrepresented groups. The report says that the number of small businesses decreased by 27% from January through September last year — and gives a state-by-state breakdown of those losses on page 18. The IPO process has also changed in ways that some think will become the “new normal” — at least for companies that are well-known enough to get noticed without needing an in-person meeting. Here are some highlights:
– While traditionally issuers and their underwriters traveled across the country and sometimes across continents to pitch the IPO, in the face of the pandemic, companies and investors have quickly adopted virtual roadshows – benefits to companies included saving time & money from travel and expanded geographical reach
– The average roadshow shortened from 8 days to 4 days
– The reduction in launch time from roadshow to IPO decreased companies’ exposure to market risk & volatility
– Test-the-waters meetings have lengthened
– Prospective investors are indicating interest earlier, giving greater visibility in pricing
– Companies are providing more sophisticated and detailed disclosures about new developments and the impact of the pandemic
Check out the full report for data on Reg D and Reg A offerings, IPOs, the “small size trap” and the state of the market for small public companies (spoiler: there’s been a 52% decline in the number of public companies since 1997, but only a 5% decline in the amount of corporate assets in the public market). On February 4th, the Office is hosting a “Capital Call” to cover the content of the report and allow the public to ask live questions.
-Liz Dunshee, TheCorporateCounsel.net January 7, 2021
