Rep. Eshoo Passes Bipartisan Legislation To Facilitate the Flow of Capital to Small Businesses

Press Release

Date: Nov. 2, 2011
Location: Washington, DC

Today, Rep. Anna G. Eshoo (D-Palo Alto) voted to pass the Small Company Capital Formation Act, bipartisan legislation she sponsored with Rep. David Schweikert (R-AZ). The bill would increase the offering limit from $5 million to $50 million under SEC Regulation A, which was enacted during the Great Depression to facilitate the flow of capital to small businesses.

"I'm proud to represent the innovation capital of our country, Silicon Valley, where we know if we don't constantly innovate, we will stagnate," said Rep. Eshoo. "In these difficult economic times, it's critical for Congress to facilitate capital formation and bolster American innovation.

"$5 million falls far short of what many companies require to develop the cutting-edge technologies needed in today's economy. It's outdated, it fails to serve its intended purpose and that's why this legislation is needed. What better time than now, when our economy needs this important boost."

"Small businesses are the backbone of job growth in our country. Taking a small business public is an important, but expensive process that requires millions in underwriting costs," said Rep. Schweikert. "This bill relieves companies from these costs and excessive burdens and will assist them in efficiently raising funds to hire new employees. I am glad my colleagues stand with me in unwinding regulation to make our capital markets more vibrant and competitive."

Regulation A was established as part of the 1933 Securities Act and was designed to provide regulatory relief for small firms that want to sell shares of company stock. These "mini offerings" have been used to help small companies raise capital and test the water for future initial public offerings.

Unfortunately the Regulation A threshold has been stuck at $5 million since 1992. At such a low level, the benefit of a Regulation A offering is extremely limited. In fact, only three companies took advantage of it in 2010.