[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]



   BEYOND SILICON VALLEY: EXPANDING ACCESS TO CAPITAL ACROSS AMERICA

=======================================================================

                                HEARING

                               before the

                    COMMITTEE ON FINANCIAL SERVICES
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED NINETEENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                             MARCH 25, 2025

                               ----------                              

                           Serial No. 119-10

       Printed for the use of the Committee on Financial Services
       
      [GRAPHIC(S) NOT AVAILANLE IN TIFF FORMAT
 


   BEYOND SILICON VALLEY: EXPANDING ACCESS TO CAPITAL ACROSS AMERICA
   




                                 

 
   BEYOND SILICON VALLEY: EXPANDING ACCESS TO CAPITAL ACROSS AMERICA

=======================================================================

                                HEARING

                               before the

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED NINETEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2025

                               __________

                           Serial No. 119-10

       Printed for the use of the Committee on Financial Services


                            www.govinfo.gov
                            
                U.S. GOVERNMENT PUBLISHING OFFICE                    
   59-939                       WASHINGTON : 2025                  
                         
                            
                            
                            
                            
                            
                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    FRENCH HILL, Arkansas, Chairman

BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice 
PETE SESSIONS, Texas                     Ranking Member
ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky                  BRAD SHERMAN, California
ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York
TOM EMMER, Minnesota                 DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio                AL GREEN, Texas
JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois
    Carolina                         JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana             JUAN VARGAS, California
RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas
YOUNG KIM, California                SEAN CASTEN, Illinois
BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa                   SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina

                      Ben Johnson, Staff Director
                         C  O  N  T  E  N  T  S

                              ----------                              

                        Tuesday, March 25, 2025

                                                                   Page

                           OPENING STATEMENTS

Hon. French Hill, Chairman of the Committee on Financial 
  Services, a U.S. Representative from Arkansas..................     1
Hon. Maxine Waters, Ranking Member of the Committee on Financial 
  Services, a U.S. Representative from California................     2

                               STATEMENTS

Hon. Ann Wagner, Chairwoman of the Subcommittee on Capital 
  Markets, a U.S. Representative from Missouri...................     4
Hon. Brad Sherman, Ranking Member of the Subcommittee on Capital 
  Markets, a U.S. Representative from California.................     4

                               WITNESSES

Mr. Steve Case, Chairman and CEO, Revolution LLC.................     5
    Prepared Statement...........................................     7
Mr. Bill Newell, Senior Business Advisor & Former CEO, Sutro 
  Biopharma......................................................    11
    Prepared Statement...........................................    13
Ms. Candice Matthews Brackeen, General Partner, Lightship Capital    18
    Prepared Statement...........................................    20
Mr. Joel H. Trotter, Partner, Latham & Watkins LLP...............    23
    Prepared Statement...........................................    25
Ms. Amanda Senn, Director, Alabama Securities Commission.........    65
    Prepared Statement...........................................    67

                                APPENDIX
                   MATERIALS SUBMITTED FOR THE RECORD

Hon. Troy Downing:
    Institute for Portfolio Alternatives.........................   156
Hon. Maxine Waters:
    North American Securities Administrators Association, Inc. 
      (NASAA)....................................................   159

                 RESPONSES TO QUESTIONS FOR THE RECORD

Written responses for the record to Ranking Remember Maxine 
  Waters
    Mr. Steve Case...............................................   165
    Mr. Bill Newell..............................................   167
    Ms. Candice Matthews Brackeen................................   168
    Ms. Amanda Senn..............................................   169

                              LEGISLATION

H.R. ------, the Fair Investment Opportunities for Professional 
  Experts Act....................................................   181
H.R. ------, the Accredited Investor Definition Review Act.......   185
H.R. ------, the Improving Access to Small Business Information 
  Act............................................................   189
H.R. ------, the Small Entity Update Act.........................   192
H.R. ------, the Equal Opportunity for All Investors Act of 2025.   196
H.R. ------, the Encouraging Public Offerings Act of 2025........   200
H.R. ------, a bill to amend the Securities Exchange Act of 1934 
  to specify certain registration statement contents for emerging 
  growth companies, to permit issuers to file draft registration 
  statements with the Securities and Exchange Commission for 
  confidential review, and for other purposes....................   205
H.R. ------, a bill to amend the Federal securities laws to 
  specify the periods for which financial statements are required 
  to be provided by an emerging growth company, and for other 
  purposes.......................................................   207
H.R. ------, the Enhancing Multi-Class Share Disclosures Act.....   210
H.R. 1469, the Senior Security Act of 2025.......................   213
H.R. ------, the Middle Market IPO Underwriting Cost Act.........   222
H.R. ------, the Promoting Opportunities for Non-Traditional 
  Capital Formation Act..........................................   226
H.R. ------, the Improving Disclosure for Investors Act of 2025..   228
H.R. ------, the Helping Angels Lead Our Startups (HALOS) Act of 
  2025...........................................................   237
H.R. ------, the Increasing Investor Opportunities Act...........   242
H.R. 1013, Retirement Fairness for Charities and Educational 
  Institutions Act of 2025.......................................   247
H.R. ------, Remove Aberrations in the Market CAP Test for Target 
  Company Financial Statements...................................   253
H.R. ------, the Helping Startups Continue To Grow Act...........   255
H.R. ------, Public Company Accounting Oversight Board and the 
  Security and Exchange Commission's Auditor Requirements for 
  Newly Public Companies.........................................   257
H.R. ------, Expands Protections for Research Reports to Cover 
  all Securities of all Issuers..................................   260
H.R. ------, a bill to exclude Qualified Institutional Buyers and 
  Institutional Accredited Investors from the Record Holder Count 
  for Mandatory Registration.....................................   262
H.R. ------, a bill to expand Well-Known Seasoned issuers 
  Eligibility....................................................   264
H.R. ------, Smaller Reporting Company, Accelerated Filer, and 
  Large Accelerated Filer Thresholds.............................   266
H.R. ------, Unlocking Capital for Small Businesses Act..........   270
H.R. ------, the Small Business Investor Capital Access Act......   278
H.R. ------, the Improving Capital Allocation for Newcomers 
  (ICAN) Act.....................................................   280
H.R. ------, the Small Entrepreneurs Empowerment and Development 
  (SEED) Act.....................................................   282
H.R. ------, Regulation A+ Improvement Act.......................   287
H.R. ------, the Developing and Empowering our Aspiring Leaders 
  (DEAL) Act.....................................................   289
H.R. ------, Improving Crowdfunding Opportunities Act............   292
H.R. ------, Amendment for Crowdfunding Capital Enhancement and 
  Small-business Support (ACCESS) Act............................   298
H.R. ------, Restoring Secondary Trading Market Act..............   300
H.R. 145, Risk Disclosure and Investor Attestation Act...........   302
H.R. ------, Investment Opportunity Expansion Act................   304
H.R. ------, Accredited Investors Include Individuals Receiving 
  Advice from Certain Professionals Act..........................   306
H.R. 2225, Access to Small Business Investor Capital Act.........   309
H.R. 1190, Expanding Access to Capital for Rural Job Creators Act   312
H.R.----, a bill to amend the Securities Exchange Act of 1934 to 
  establish Offices of Small Business within rule writing 
  divisions of the Securities and Exchange Commission to 
  coordinate on rules and policy priorities related to capital 
  formation......................................................   314
H.R.----, a bill to amend the Investment Company Act of 1940 to 
  encourage startup venture funds, and for other purposes........   316
H.R.----, a bill to amend the Securities Act of 1933 to expand 
  the ability of individuals to become accredited investors, and 
  for other purposes.............................................   319


   BEYOND SILICON VALLEY: EXPANDING ACCESS TO CAPITAL ACROSS AMERICA

                              ----------                              


                       Tuesday, February 25, 2025

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.

    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. French Hill 
[chairman of the committee] presiding.
    Present: Representatives Hill, Lucas, Sessions, Huizenga, 
Wagner, Barr, Williams of Texas, Loudermilk, Davidson, Rose, 
Steil, Timmons, Stutzman, Norman, Meuser, Kim, Donalds, 
Garbarino, Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn, 
McClain, Downing, Haridopolos, Moore, Waters, Velazquez, 
Sherman, Lynch, Green, Cleaver, Foster, Vargas, Gonzalez, 
Casten, Pressley, Tlaib, Garcia, Williams of Georgia, Bynum, 
and Liccardo.
    Chairman Hill. The Committee on Financial Services will 
come to order.
    Without objection, the chair is authorized to declare a 
recess of the committee at any time.
    This hearing is entitled ``Beyond Silicon Valley: Expanding 
Access to Capital Across America.''
    Without objection, all members will have 5 legislative days 
within which to submit extraneous materials to the chair for 
inclusion in the record.
    I now recognize myself for 4 minutes for an opening 
statement.

OPENING STATMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE 
  ON FINANACIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS

    Good morning. I want to welcome our members today to a 
hearing on expanding access to capital, and I really look 
forward to this great panel's testimony. Over my financial 
career prior to entering Congress in Arkansas and Texas, I have 
seen firsthand the incredible entrepreneurial talent that is 
alive and well outside traditional venture and financial hubs 
like New York or San Francisco. Across our country, Americans 
are building companies that can drive our economy forward, yet 
too often, these promising startups lack access to local advice 
and capital that they need to grow scale and succeed.
    Right now, virtually all venture funding pours into just a 
few coastal cities, leaving the innovators and entrepreneurs of 
flyover country often overlooked and underfunded. When capital 
circulates in this geographically concentrated eddy, investors 
in the economy, at large, miss out on big ideas, innovations, 
and economic breakthroughs that can and do emerge from the 
labs, kitchen tables, and garages in Arkansas, Nebraska, or 
Ohio. Talent and ambition do not stop at State borders, and 
neither should investments. In Little Rock, we have seen 
companies like Apptegy which started from scratch and grew into 
a powerhouse by providing communication tools to schools 
nationwide. That is the innovation born in Arkansas, benefiting 
students everywhere. It is proof that when investments are made 
outside of traditional hubs, incredible things can happen.
    At the same time, the number of public companies in the 
United States has declined dramatically from over 7,000 30 
years ago to fewer than 4,000 today. In my view, threatened 
litigation, excessive costs, and regulatory burdens have made 
it much harder for small businesses to go public, shutting out 
entrepreneurs and everyday investors alike. We must ensure that 
local incubators and small business investors have the support 
they need, and that those aspiring risk-taking teams, 
regardless of where they are based, can succeed.
    Our capital markets should work for everyone. That means 
reducing barriers for startups to access funding, incentivizing 
investment in regional businesses, and reforming outdated 
regulations that improve access to growth capital to ensure 
that a public offering is more of a viable option once again. 
By incentivizing investments in regional startups, supporting 
local incubators, and streamlining rules, we can create an 
environment where more companies can scale, thrive, and 
ultimately become public companies. For the means that we are 
ensuring that we are not just creating opportunities for 
companies to grow, but also expanding investment opportunities 
for Americans that want to be part of that growth.
    For too long, investment opportunities, particularly in 
private markets, have been reserved for a select few. By 
broadening access, we create more avenues for wealth creation, 
allowing everyday investors to share in the long-term 
prosperity that comes from innovation. Modernizing our 
securities laws can help break down these barriers so that 
every founder, regardless of background or location, has the 
resources to support and build the next great American success 
story. The policies we are discussing today will not only 
expand across access to capital, they will strengthen our 
economy and create lasting opportunities for millions of 
Americans.
    With that I yield back the balance of my time, and I 
recognize the ranking member of our committee, Ms. Waters, for 
4 minutes for an opening statement.

OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE 
  COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Ms. Waters. Thank you very much, Mr. Hill. Before I begin, 
I want to comment about the outrageous national security breach 
reported yesterday. It is my understanding that the details of 
the attack were shared with someone who was not cleared, 
putting the lives of those involved and the whole mission in 
jeopardy. This latest breach follows unlawful access to the 
critical payment systems and the data of Americans. Mr. Chair, 
I hope you agree that enough is enough. I wish we had more 
positive information to report on, but the incompetence of this 
administration is glaring.
    With that, I appreciate today's hearing on capital 
formation. The reality is that our economic outlook is bleak 
and is entirely of the President's own doing. Mr. Chair, I want 
to take a moment to read excerpts that highlight the magnitude 
of the economic crisis created by Donald Trump. From Reuters, 
``More than $4 trillion in stock market values has evaporated 
since Trump took office.'' From the Financial Times, 
``Economists expect Trump's policies to slow economic growth 
and fuel higher inflation.'' From Inc. Magazine, ``Trump's 
Tariffs Are Causing Some Startups to Scrap Their IPOs.'' From 
Reuters, JPMorgan's Chief Global Economist says the risk of a 
recession will rise to ``probably 50 percent or above when 
Trump's April 2 tariffs kick in.''
    This is the State of our economy. As a result of Trump's 
disastrous policies and dumb trade wars, our stock markets are 
in chaos, and the strong economy he inherited from President 
Biden is no more. Right now, instead of expanding their 
business or investing in their workers, business owners are 
dealing with a Trump-induced recession and are panicking at the 
thought of higher prices for goods and raw materials from 
overseas. All of this is slowing hiring, killing innovation, 
and making it harder for American companies to compete 
globally.
    Trump's economic policies are not just hurting American 
businesses and workers. No, Trump is an equal opportunity 
destroyer of finances. People preparing to retire, people he 
has forced to retire, and the people he has wrongfully fired 
have all seen their nest eggs and hard-earned savings reduced 
to rubble. Instead of displaying leadership, competence, and 
care, Trump has been golfing at Mar-a-Lago, promoting his own 
meme coin, and filming Tesla ads actually on the White House 
lawn for the richest man on earth, Elon Musk. Unfortunately, 
that is not all. This month, Trump signed an executive order 
gutting the Community Development Financial Institutions Fund.
    Mr. Chair, for over 30 years, Community Development 
Financial Institutions (CDFIs) have been strongly supported by 
Democrats and Republicans. We have had them in our districts 
and have all seen firsthand the critical work they do in 
supporting small businesses in underserved communities. 
Eliminating CDFIs because they serve the underserved is a Make 
America Great Again (MAGA) equivalent of cutting off your nose 
to spite your face. The same executive order would also gut the 
Minority Business Development Agency. Make no mistake, these 
cuts to working-class families in underserved communities and 
the small businesses that they serve are all designed to pay 
for the only thing the Trump Administration actually cares 
about: tax cuts for billionaires.
    Chairman Hill. I thank the gentlewoman.
    Ms. Water. I yield back.
    Chairman Hill. She yields back. The chair recognizes the 
Chair of the Subcommittee on Capital Markets, Mrs. Wagner from 
Missouri, for a 1-minute opening statement.

STATEMENT OF HON. ANN WAGNER, CHAIRWOMAN OF THE SUBCOMMITTEE ON 
      CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM MISSOURI

    Mrs. Wagner. I thank you, Mr. Chairman, and you know what? 
I could not be more optimistic about our economy and the 
direction that our country is moving. As the chairman noted, 
talent and innovation are not confined to the coast, and 
investments should not be either. This hearing is about giving 
hardworking, everyday Americans access to the kinds of high-
growth opportunities that for too long have been reserved for 
the wealthy, so Congress can help main street investors invest 
and save for the future. We have done this before, Mr. 
Chairman. The bipartisan Jumpstart Our Business Startups (JOBS) 
Act showed how smart, balanced reforms can open up markets 
without sacrificing investor protections. Now, it is time to 
build on that success by helping more companies go public, 
expanding access to capital for all and creating real wealth 
building opportunities for millions of main street investors in 
our congressional districts, the second congressional district 
of Missouri and the Nation. Let us cut the red tape from the 
rules and strengthen our markets because more opportunity means 
a stronger, better economy for all, and I yield back.
    Chairman Hill. The gentlewoman yields back. The chair 
recognizes the Ranking Member of the Subcommittee on Capital 
Markets, Mr. Sherman, for a 1-minute opening statement.

     STATEMENT OF HON. BRAD SHERMAN, RANKING MEMBER OF THE 
  SUBCOMMITTEE ON CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Mr. Sherman. I join the ranking member in noting that 
everyone on that signal chat knew they were exchanging war 
plans on a signal chat, not a system for classified 
information. Then they added a journalist to the chat. Then the 
Secretary of State lied about it, only to be corrected by 
Trump's National Security Council.
    The Securities Exchange Commission (SEC) oversees the 
largest capital markets in the world, in the history of the 
world. We are dealing with a hundred trillion dollars of 
securities. Our entire economy, the world's economy, is 
dependent upon it, so let us just let some guy, like, big balls 
take a whack at it. Well, he did: $50,000 payout for everybody 
at the SEC who leaves. What gaps does that have in enforcement? 
What gaps does that have in the ability to approve a 
registration of securities? We will not know because we do not 
know who takes that buyout, but we do know that the people 
taking the buyout are the ones that the private sector values 
the most, and they are going to make a lot of money in the 
private sector. I yield back.
    Chairman Hill. The gentleman yields back. Today, we welcome 
the testimony of Steve Case. Mr. Case is the Chairman and CEO 
of Revolution, an investment firm backing entrepreneurs at 
every stage of their development. His entrepreneurial career 
began in 1985 when it co-founded America Online, AOL. Ms. 
Candice Matthews Brackeen is the General Partner of Lightship 
Capital, a Cincinnati-based venture capital fund that invests 
in companies throughout the mid-west. Bill Newell: Mr. Newell 
is the Senior Business Advisor and former CEO of Sutro 
Biopharma, a biotech firm focused on the research, development, 
and manufacturing of next-generation cancer medicines. Joel 
Trotter: Mr. Trotter is the Co-Founder of Latham & Watkins' 
national office. He was the principal author of the Initial 
Public Offering (IPO)-related provisions in the JOBS Act of 
2012. Amanda Senn: Ms. Senn is the Director of the Alabama 
Securities Commission. We welcome all of you. Thanks for taking 
time to be with us.
    You will be recognized for 5 minutes to give an oral 
presentation of your testimony, and without objection, your 
written testimony will be made part of the record. Mr. Case, 
you are recognized for 5 minutes.

   STATEMENT OF STEVE CASE, CHAIRMAN AND CEO, REVOLUTION LLC

    Mr. Case. Good morning, Chairman Hill and Ranking Member 
Waters and members of this U.S. House Committee on Financial 
Services. It is my pleasure to be here to discuss the future of 
entrepreneurship in America. Indeed, it warms my heart to be 
participating in a House hearing titled, ``Beyond Silicon 
Valley: Expanding Access to Capital Across America.'' I want to 
start by acknowledging that for decades, despite party 
differences, legislation to encourage entrepreneurship and 
expand access to capital for entrepreneurs has largely received 
bipartisan support. Today's hearing underscores this 
committee's commitment to prioritizing entrepreneurship and 
innovation, and I thank you for your leadership in making this 
a shared national effort.
    Four decades ago, I co-founded America Online, AOL, a 
company that helped usher in the internet revolution. AOL was 
the first internet company to go public, and at its peak, 
nearly half of all internet users went through the platform. 
After AOL, I dedicated myself to backing the next generation of 
entrepreneurs as Founder, Chairman, and CEO of Revolution. 
Based here in Washington, DC, Revolution's mission is to build 
disruptive, innovative companies that upend age-old industries 
with a unique focus on startups based outside of the coastal 
tech hubs.
    Startups are indeed the lifeblood of our economy, driving 
innovation, creating jobs, and fueling growth in red and blue 
communities nationwide. Indeed, new businesses play a 
significant role in net new job creation, according to data 
from the National Bureau of Economic Research, yet 
entrepreneurs, especially those outside of Silicon Valley, 
Boston and New York, still face significant challenges in 
accessing the capital they need to start and scale. In 2017, 
when Revolution launched our Rise of the Rest Seed Fund, led at 
the time by J.D. Vance, who is now our Vice President, roughly 
75 percent of venture capital flowed to just three States--
California, Massachusetts, and New York--with 47 States left to 
share the remaining 25 percent. We have made some progress, 
but, unfortunately, the split remains largely the same today.
    The Federal Government can help close this gap, and there 
is strong precedent to do so. In 2011, I was part of the 
President's Council on Jobs and Competitiveness with a number 
of leaders from finance and tech. Our proposals eventually 
became the bipartisan Jumpstart Our Business Startups Act, the 
JOBS Act, which passed the House by a vote of 390 to 23. The 
JOBS Act included, as you know, three key goals: first, make it 
easier to launch and invest in startups via crowdfunding; 
second, allow those seeking investment to make general 
solicitation appeals; and third, create an IPO onramp for young 
companies to make going public a little easier.
    Given the success of the JOBS Act, as well as the outsized 
role startups play in job creation and economic growth, it 
makes sense for this committee to explore additional ways to 
expand access to capital for entrepreneurs and enhance the 
ability of more investors to participate in private markets. 
First, on the IPO front, while late-stage companies have had 
access to growth capital in recent years, that funding option 
is not guaranteed, and more companies may need to consider 
going public at an earlier stage in their development, which 
makes having a viable path for IPOs critical. Additionally, 
Revolution, partnering with PitchBook, found that between 2011 
and 2021, more than 1,400 new venture firms emerged from 
smaller ecosystems across the country. These firms are crucial 
because they are much more likely to invest in local and 
regional startups. This committee can take steps to support and 
sustain these regional funds, including by expanding the pool 
of potential investors and by streamlining the regulations that 
apply to up-and-coming venture funds.
    To be clear, none of the reforms proposed should come at 
the expense of appropriate investor protection, which is, of 
course, important, but at the same time, we need to make sure 
we strike an appropriate balance. If we want more capital 
funding more entrepreneurs, we need to make some changes, some 
of which could create some risk. At the same time, if we make 
no changes and we just maintain the status quo, we are, in 
fact, constraining the pool of investors and of entrepreneurs 
that we need to ensure that we continue to have a robust 
innovation economy, not just on the coast, but across the 
country.
    We all know that talent exists everywhere. This committee 
is in a unique position to pass legislation to support the next 
generation of entrepreneurs and investors and create more 
opportunity for places that often feel left behind. I applaud 
the efforts you are taking today to level the playing field 
and, as we approach the 250th anniversary of our Nation next 
year, empower entrepreneurs nationwide to write the next 
chapter of the American story. Thank you for the opportunity to 
join you today. I look forward to your questions.

    [The prepared statement of Mr. Case follows:]
 [GRAPHIC(S) NOT AVAILANLE IN TIFF FORMAT
   
    
    Chairman Hill. Thank you, Mr. Case. Mr. Newell, you are now 
recognized for 5 minutes.

STATEMENT OF BILL NEWELL, SENIOR BUSINESS ADVISOR & FORMER CEO, 
                        SUTRO BIOPHARMA

    Mr. Newell. Chairman Hill, Ranking Member Waters, and 
distinguished members of the House Committee on Financial 
Services, I am honored to appear before you today to discuss 
capital formation in the United States and the need for reforms 
that support entrepreneurs, protect investors, and promote 
innovation. My name is Bill Newell, and I am a Senior Business 
Advisor with Sutro Biopharma. I have been at Sutro since 
January 2009, until recently serving as its CEO. I also serve 
on the board of the Biotechnology Innovation Organization and 
chair BIO's Capital Formation Working Group. I want to commend 
the members of this committee for working on a bipartisan basis 
to improve access to capital through targeted reforms that 
protect investors and rightsize needed regulations. In the last 
Congress, this committee advanced a number of measures, and I 
hope that this Congress will be able to move that legislation 
into law.
    Sutro Biopharma focuses on research, development, and 
manufacturing of next-generation cancer medicines. Our company 
is 22 years old. I was an employee in 19, and until recently, 
we had over 300 employees. In many ways, Sutro's corporate 
journey is a microcosm of the small biotech experience. We were 
initially financed by private investors, including venture 
capitalists. We IPO'd in 2018, benefiting from the JOBS Act of 
2012 that makes it easier for small companies to go public. All 
told, Sutro has raised almost $1.6 billion in the company's 
history. That eyebrow-raising figure and our over 20-year 
company journey is, unfortunately, very typical of the small 
biotech experience in bringing a product to market.
    Bringing a new medicine to approval is very, very expensive 
and risky. In this environment, many companies in our industry 
have had to downsize and end programs because of limited 
capital availability. Unfortunately, Sutro is no exception. It 
takes, on average, 10-and-a-half years for a candidate entering 
phase one to reach approval. The average research and 
development (R&D) cost to progress a new pharmaceutical from 
discovery to launch is $2.3 billion. Drug discovery is 
expensive. That is why access to capital is so crucial. We are 
in a constant race against time to develop a lifesaving drug 
before funding runs out.
    Thirteen years ago, this committee passed the Jumpstart Our 
Business Startups Act. The JOBS Act rightsized regulations for 
small and emerging growth companies, and we need to build off 
the success of the JOBS Act. Private markets play a crucial 
role in the growth and success of small biotech firms. A 
company often starts with just angel investors. Angels are the 
critical first dollars that bridge the valley of death for the 
biomedical innovation ecosystem. We need more angels, not 
fewer. The Equal Opportunity for all Investors Act expands the 
pool of angel investors. The current definition for accredited 
investor is not based on the assessment of investment risks, 
how to evaluate opportunities, or conduct due diligence. 
Rather, the current standard is entirely predicated on wealth 
and the ability to absorb total loss. This bill directs the SEC 
to create a thorough accredited investor exam that allows more 
people who understand investing to participate in the 
marketplace.
    We have the deepest, most liquid, and most competitive 
equity markets in the world, but fewer companies are going 
public these days for a variety of reasons. It is expensive to 
be a public company. Funds must be diverted away from critical 
research and development, clinical development, and scientists, 
and more toward regulatory filings, paperwork, quarterly 
reporting, and accountants and lawyers. The emerging growth 
company (EGC) designation is a critical reason why the JOBS Act 
was so successful at incentivizing IPOs, especially from 
smaller companies. The EGC's status currently lasts for 5 
years. The 5-year timeline is simply too short for small 
biotechs. It is like having a tax system based on age instead 
of income, which makes no sense. The Helping Startups Continue 
to Grow Act allows for an additional 5-year extension of the 
EGC exemption.
    The SEC needs to report on and revise the definition of 
``small business.'' The non-controversial Small Entity Update 
Act does just that. It passed this committee 42 to nothing last 
Congress and passed the House 367 to 8, so we appreciate the 
strong bipartisan support for this legislation. The SEC also 
needs to update their public float threshold triggers. Chairman 
Tim Scott included a provision in his bill, Empowering Main 
Street in America Act, that would require the SEC to revise 
thresholds for smaller reporting companies to account for a 12 
months' rolling average of $700 million or less for their 
public float. By converting public floats to a rolling average 
trigger, it avoids surprise expenses for companies that may 
have a small temporary blip in their stock price.
    In conclusion, I support transparent and reliable capital 
markets, both private and public, that allow companies to 
efficiently graduate or transition from funding structures 
while minimizing overlap and reporting and disclosure burdens. 
Thank you for inviting me to provide my perspective on these 
issues, and I welcome the committee's questions.

    [The prepared statement of Mr. Newell follows:]
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    Chairman Hill. Thanks, Mr. Newell. Ms. Matthews Brackeen, 
you are now recognized for 5 minutes.

   STATEMENT OF CANDICE MATTHEWS BRACKEEN, GENERAL PARTNER, 
                       LIGHTSHIP CAPITAL

    Ms. Matthews Brackeen. Thank you very much. Chairman, 
Ranking Member Waters, and members of the committee, thank you 
for inviting me here today. My name is Candice Matthews 
Brackeen. I am the Founding Partner of Lightship Capital and 
CEO of Lightship Foundation and a native Ohioan. Recently, my 
team and I launched a fund of funds called Anchor, but really 
to understand why we launched that fund of funds, let me first 
start with the journey that brought us here.
    Lightship started as a nonprofit, focused with one goal: 
helping entrepreneurs in communities that often get overlooked. 
While our early work had great successes, we soon realized that 
helping individual businesses just was not enough. The larger 
system around them still needed fixing. To truly support 
entrepreneurs, we had to build something bigger. Through 
acquisition, we expanded our work by bringing together three 
nationally recognized programs: NewMe Accelerator, Black Tech 
Week, and FounderGym. Each had strong educational resources in 
support of communities. Black Tech Week, in particular, has 
been running for 11 years as a major tech conference that is 
now located in Cincinnati, Ohio.
    By combining these organizations under the Lightship 
Foundation, we gave them the resources and structure needed to 
grow and support even more entrepreneurs around America. We 
could not do this alone. However, we have been supported by 
amazing public and private partners like JobsOhio, who share 
our vision for economic development and growth. We then created 
our own venture fund to invest directly in talented 
entrepreneurs who were overlooked by traditional investors, but 
even as we saw success, we discovered an even bigger problem. 
Venture capital is still mostly focused in coastal cities like 
New York and San Francisco. Talented founders like us in the 
Midwest and South and other regions are just still left out, 
and that is why we started Anchor.
    Anchor originally began with a series of meetings around 
the country with groups of experienced fund managers who were 
frustrated by the barriers we were all facing. Even though we 
had proven ourselves, we struggled to raise money because we 
were not from traditional venture capital markets. This created 
what we call emerging manager redlining, an unintentional bias 
against new and regional funds, particularly outside of the 
major coastal cities. By blocking first-time and emerging 
funds, we unintentionally support geographic bias, limit 
opportunities for promising managers, and miss out on 
potentially great returns. Anchor directly tackles this market 
failure. Our fund of funds help support promising new managers 
across the Heartland, Midwest, and South. We provide resources 
they need to succeed and generate strong returns for their 
investors.
    We have introduced three key innovations at Anchor. First 
of all, Anchor has recently received an Small Business 
Investment Company (SBIC) green light from the Small Business 
Administration, a crucial first step that signals confidence 
that the Small Business Administration (SBA) is our anchor 
investor, and it helps attract further investment. Second, our 
fund structure helps investors benefit from successful startups 
while reducing the risk of large losses across the entire 
portfolio. Last, we eliminated the double fees that are common 
in traditional fund of funds, making Anchor more affordable and 
more attractive to institutional investors like pension funds 
and endowments.
    However, there are still policy barriers that we need to 
address. Right now, venture capital funds benefit from certain 
exemptions under the Investment Advisers Act, but fund of funds 
like ours do not. We have to register. Extending these 
exemptions equally to all venture funds, including fund of 
funds, would remove unnecessary hurdles and modernized 
investment rules. Second, current law also limits venture funds 
to just 250 investors, and with inflation, this just does not 
work. So for a $2 billion fund like ours, that means each 
investor must contribute around $8 million on average, 
effectively excluding 99 percent of Americans. Increasing the 
investor cap from 250 to something like 2,000 as proposed by 
the Developing and Empowering our Aspiring Leaders (DEAL) Act, 
would dramatically lower the entry point, allowing more 
Americans to participate.
    Finally, we suggest one more policy improvement. Public 
investment funds, like public pensions and endowments, should 
be required to review proposals from first-time and emerging 
managers. They do not have to invest, but they should not be 
allowed to have rules to automatically exclude new managers, 
many of those managers being in the middle of the country. This 
simple change would significantly reduce geographic bias and 
democratize access to venture capital across the country. 
Building and supporting fund of funds like Anchor is the key 
solution to addressing capital inequality in America's 
underserved regions. Reducing barriers to these funds is not 
just helpful, it is essential. It is how we ensure economic 
growth and innovation in every part of our country.
    Thank you for your time, and I look forward to your 
questions and continuing the conversation.

    [The prepared statement of Ms. Matthews Brackeen follows:]
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    Chairman Hill. Thank you very much. Mr. Trotter, you are 
recognized for 5 minutes.

    STATEMENT OF JOEL TROTTER, PARTNER, LATHAM & WATKINS LLP

    Mr. Trotter. Chairman Hill, Ranking Member Waters, and 
members of the committee, it is good to be with you here today. 
Based on my experience as a leader at the IPO Task Force, I am 
pleased to share my perspectives on reforms to expand access to 
capital across America.
    The JOBS Act of 2012 is a bipartisan success story and a 
model for the innovative solutions you are now considering. 
Thirteen years ago, Congress enacted our IPO onramp proposal by 
an overwhelming bipartisan majority, and President Obama signed 
it into law. Title I has been called the most successful title 
in the JOBS Act, and academic research has concluded that the 
IPO onramp provisions significantly increased IPO volume. The 
JOBS Act succeeded, and the proposals under consideration today 
bear the same hallmarks of that success.
    I fully support the committee's efforts to enact balanced 
reforms in Federal securities regulation, and I urge your 
support for the proposals listed in my written remarks. These 
proposals represent measured, carefully calibrated solutions to 
facilitate capital formation. With that said, I would like to 
make three points.
    First, the JOBS Act changed none of the robust antifraud 
provisions of the Federal securities laws, and neither would 
any of the proposals before you today. I cannot overstate the 
importance of this point. There is a long list of liability 
provisions and compliance obligations that apply to all public 
companies. They are extensive and rigorous, and they will 
remain in full force and effect, undiminished by any of the 
proposals before you.
    Second, the JOBS Act used a balanced approach that scales 
the regulatory burden to a company's size and maturity. The IPO 
onramp concept allowed the regulatory burden to scale to the 
size of the company, a simple but powerful concept borrowed 
from SEC rules. In the debate over more versus less regulation, 
this is a compelling way forward. Rather than more versus less, 
balanced regulation that scales over time, this approach 
encourages capital formation while maintaining a much greater 
level of securities regulation for mature public companies. 
That greater regulation includes the internal controls audit of 
Sarbanes-Oxley Section 404(b), which will continue to apply to 
larger public companies.
    Critics of scaled regulation overlook this point when they 
cite the high-profile accounting scandals that led to the 
enactment of the Sarbanes-Oxley Act. It is important to 
remember those companies were huge, mega-cap Fortune 50 
companies that would never have been eligible for any of the 
relief from Section 404(b) of Sarbanes-Oxley. Neither the JOBS 
Act nor any of today's proposals would give regulatory relief 
to companies of that size. Even if you pass every proposal 
before you today, every public company must undergo audit by a 
Public Company Accounting Oversight Board (PCAOB)-registered 
auditing firm and comply with all of the robust antifraud 
provisions of the Federal Securities laws. Also, all of the 
largest U.S. public companies representing nearly all of total 
U.S. market capitalization would remain subject to Section 
404(b) of the Sarbanes-Oxley Act.
    That brings me to my third and final point. Of the 
proposals before you, two in particular stand out: extending 
the IPO onramp and expanding the category of well-known 
seasoned issuers. I discussed both of these proposals at length 
in my written remarks. They build on decades of successful 
experience promoting capital formation without compromising 
fundamental investor protections. They would have the greatest 
impact of the proposals before you, and I urge you to adopt 
them, along with the many other excellent proposals under 
consideration today.
    You have the opportunity to build on the success of the 
JOBS Act and its lessons. Given the direct connection between 
capital formation and job creation, the opportunity is 
compelling. I welcome your questions. Thank you.

    [The prepared statement of Mr. Trotter follows:]
    
    
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    Chairman Hill. Thank you, sir. Director, you are recognized 
for 5 minutes.

    STATEMENT OF AMANDA SENN, DIRECTOR, ALABAMA SECURITIES 
                           COMMISSION

    Ms. Senn. Good morning, Chairman Hill, Ranking Member 
Waters, and distinguished members of this committee. Thank you 
for inviting me to share with you the perspective of State 
securities regulators or regulators if you are from the South. 
It is a privilege for me to be here today, and I hope that you 
will consider our important roles as you continue deliberations 
on the legislation before this committee. My testimony will 
focus on preserving the role of States in overseeing our local 
markets, in facilitating responsible capital formation, and I 
will underscore our critical role in protecting investors.
    The States are proud to be part of a team of regulators 
responsible for promoting stability in our financial markets 
and protecting investors. This heavy responsibility grew out of 
a recognized need by a State legislature over a century ago to 
promote transparency and honesty in our markets. Many of the 
principles first crafted by States were adopted at the Federal 
level to address the abuses that led up to the stock market 
crash of 1929. In the decades since, the U.S. capital markets 
have flourished, both providing extraordinary capital for 
businesses and safe opportunities for investors to build sound 
financial futures.
    For the past 100 years, the United States of America has 
stood out before all other nations as the greatest economy and 
strongest engine for growth in history. There has never been 
anything like it before, and, in my opinion, never will be 
again. This, while being subjected to reasonable regulation, it 
is the foundation of our success. History has also shown us 
that we must constantly examine our regulatory framework and, 
where needed, adjust. Again, States have been leaders in this 
effort, including by developing new regulatory frameworks for 
capital formation, while also serving as the early warning 
detectors for new and emerging threats to investors.
    As Congress examines further revisions to the Federal 
securities laws, including legislation aimed at capital 
formation in rural areas, we urge you to strongly consider and 
embrace the State's important role in capital formation and 
continue to promote our ability to oversee local markets. This 
ensures that smaller offerings, the kind most likely to reach 
main street investors, are being reviewed by us, that we are 
able to exclude bad actors from our markets, and that we can 
keep supporting our entrepreneurs and small businesses, all so 
that investors can continue to trust the local markets in which 
they invest.
    It is hard to talk about capital formation, though, without 
mentioning the potential for fraud and abuse. I have witnessed 
firsthand the aftermath of the devastation brought about by bad 
actors. My first few cases as a young lawyer followed the 2008 
financial crisis, triggered by the collapse of the subprime 
mortgage market. During the course of the investigation, I met 
with defrauded investors from all walks of life. I heard their 
stories, and their pain was palpable. I knew these people. They 
lived in our communities, and they turned to us for help. Many 
of our victims were small business owners that had turned to 
private markets for funding when lenders were pulling back.
    Fraudsters exploit every opportunity. Through the years, I 
have met with thousands of investors across Alabama and the 
U.S. I have sat with them in their living rooms as they 
tearfully shared the details of bad investments that ultimately 
caused them to lose their life savings. The 2008 crisis left 
investors distrustful of our markets and our regulators, and we 
have worked hard for years to rebuild that trust. While States 
responded to the concerns of investors, Congress worked hard to 
provide stronger regulatory frameworks to re-strengthen our 
markets and restore the trust of Americans.
    Over 2,000 years ago, Euripides said, ``They say the gods 
themselves are moved by gifts, and gold does more with men than 
words.'' While I still believe, and I know you do, too, that 
people are good, we are not infallible, and missteps can have 
major consequences. History has shown us over and over again, 
but it has also shown us that strong oversight and 
accountability have a significant deterrent impact, and that is 
why I urge you to consider the States' critical role in 
ensuring that our financial industry players are subject to 
some level of oversight and that they can be held accountable 
when the public demands they should be.
    In closing, I want to emphasize that we do understand and 
share the same goals as the Members of Congress who support our 
robust public markets, and as we seek ways and opportunities 
for investors to strengthen these public markets, consider the 
States' important role. Thank you again, and I look forward to 
your questions.

    [The prepared statement of Ms. Senn follows:]
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    Chairman Hill. Thank you very much, Director. We will turn 
to member questions, and I will yield to myself 5 minutes for 
starting that process.
    Ms. Matthews Brackeen, from your experience, I really 
enjoyed your testimony about small, first-time fund managers. I 
know that firsthand, and I know how the consulting system is 
biased against first-time managers going to institutional 
investors, so I really appreciate your testimony. I think that 
is informative to the committee. You talked about your priority 
on regional diversity as well, and you talked about two 
principal reforms you thought that would be helpful for smaller 
funds: the fund of funds approach and the limitations there and 
then the limitation on total number of investors. Would you 
just reiterate that point and compare it to the work you are 
doing?
    Ms. Matthews Brackeen. Yes, absolutely. The minimum viable 
fund size is really around $50 million, right, and so in order 
to kind of get to that number, you have to bring in a group of 
investors that can write a certain size check. The bigger the 
check, the easier it is to kind of chunk that down. For a fund 
of funds, it is a much bigger fund, so for us, we are raising a 
$2 billion fund. Even if we are raising a $1 billion or $500 
million, it is a pretty significant check size that you need in 
order to kind of close the fund.
    For us, what we are asking here as we are talking about the 
DEAL Act, in particular, is to kind of shrink that number down. 
If we are raising, like I just said, $2 billion, we need people 
to write $8 million checks or lots of people who can write $100 
million or $200 million checks. I would bet almost every person 
in this room who has fundraised knows exactly who those people 
are in this country. It is a very small number of people. What 
we are looking to do is to give more people that opportunity.
    Beyond that, I know we kind of both talked about kind of 
the number of investors, but I also kind of mentioned pension 
funds and public investment funds. Right now, our universities, 
our teachers' unions, they are sending their dollars to the 
coasts, and each time they do that, they are building wealth on 
the coasts, and that money stays there long term. Now, does 
some of the money come back with returns? It absolutely does, 
but those fund managers make money. The families then grow 
there in those individual cities. We find angel investors 
growing there and then spending more money on companies there. 
We are also seeing those tech companies grow and thrive, and it 
is not coming back to the center of the country.
    Chairman Hill. Thank you very much for your views on this 
important set of measures. Mr. Case, she makes the case that 
you have been talking about in terms of the bias toward the 
Rise of the Rest, of the halo effect, the gravitational pull 
back to the coast, despite your best efforts on mentorship, 
availability of directors, coaching, and funding from the work 
you have done over the past 2 decades. What are we missing? 
What incentive system do you think that we should change?
    Mr. Case. As I said in my testimony, it is a mix of things, 
but some of it is creating a sense in these communities and all 
the country that they really have an opportunity to participate 
in the innovation economy. A lot of people, as you well know, 
in places like Arkansas and others, feel like they need to 
leave. They go to Silicon Valley or some other place. One great 
story I mentioned in my written testimony is an entrepreneur 
who was actually at a hedge fund in San Francisco when he came 
up with an idea for a platform called AcreTrader, and he moved 
back to Arkansas, to Fayetteville, to start that company. He 
left Arkansas to go to the coast because he did not feel like 
he could kind of find his way if he stayed. He was an exception 
that came back to start the company there.
    How do we create more of those where fewer people are 
leaving? There is less of what some have called a brain drain 
of people leaving different cities in all the country to go to 
the coast, and how do you create a boomerang of people 
returning? It requires time. It does not happen overnight. But 
having venture capital in those communities to back the next 
generation of companies, having some of those companies 
graduate to be successful enough to go public and create wealth 
for all the investors, but also the employees, some of whom 
then want to start other companies, some of whom then will 
become angel investors in other companies. It creates this 
ecosystem and sort of a positive cycle. That is what we are 
trying to do. I think we have made some progress in some of 
these cities, but I do think we need to continue to build on 
it. The 37 different bills that have been proposed by this 
committee are--I have read through some of them--I think are 
steps in the right direction.
    Chairman Hill. Thank you. I have certainly seen that with 
the work of Startup Junkie and the small business incubators. 
The Kauffman Foundation's work has been dramatic, both in 
Fayetteville and in Little Rock, in creating an angel investor 
cohort and a startup environment. Mr. Newell, I want to 
conclude by just asking you to submit for the record your views 
on the lack of participation in the Reg A proposals from the 
work you did in JOBS Act and more bias toward Reg D. I mean--I 
am sorry--Mr. Trotter, but I am going to yield back and call on 
the ranking member for her 5 minutes of questions.
    Ms. Waters. Thank you very much, Mr. Chairman. Mr. Case, I 
appreciate your leadership with the Rise of the Rest and your 
work during the JOBS Act. Through your investments across the 
country, you have been seeing firsthand what works for small 
businesses in underserved communities. Democrats on this 
committee have consistently delivered results for small 
businesses. During the pandemic, I worked with Ranking Member 
Velazquez to secure $60 billion in Paycheck Protection 
Program--that is, the PPP program--loans specifically for 
community financial institutions to reach small businesses left 
behind by big banks.
    We also worked with Republicans during Trump's first term 
to secure a historic $12 billion for community development 
financial institutions and minority depository institutions in 
2020, which is projected to support more than $130 billion in 
new financing for underserved communities over the next decade. 
Additionally, committee Democrats worked with the Biden 
Administration to renew the State Small Business Credit 
Initiative, which is already providing billions of dollars in 
new capital access for small businesses. As I said today and at 
the prior hearing, I look forward to working with Chairman Hill 
to advance sensible reforms that support small businesses and 
our public markets while keeping investors and consumers top of 
mind.
    Nevertheless, Mr. Case, no doubt you have seen reporting 
that the Trump-Musk Administration is trying to shut down the 
Community Development Financial Institution Fund and the 
Minority Business Development Agency. Based on your extensive 
work with entrepreneurs and overlooked communities, what 
specific economic damage would occur if the current 
administration eliminates these and other small business 
support programs through your Rise of the Rest bus tour? I 
understand you have traveled 11,000 miles across the country. 
Which regions and demographics would be most severely impacted 
if these critical capital sources disappeared? You know what 
the CDFI Fund is.
    Mr. Case. Thank you, Ranking Member Waters, for your 
leadership on these issues over, obviously, a long period of 
time. We have, with Rise of the Rest, traveled quite 
extensively around the country, and we have ended up making 
investments now in over 200 companies in over a hundred 
different cities, so it is fairly broad. I think it is 38 
States, so we have seen a lot. We have impacted a lot of 
entrepreneurs, which is a reminder that there are great 
entrepreneurs building great companies everywhere. It just 
takes a little more effort to identify them and back them and 
mentor them and support them.
    In terms of your specific question, I am on the side of 
more capital going to more entrepreneurs in more places, and 
programs like CDFI and others, I think, are helpful in that 
regard. I have not seen the specific proposals to modify that 
or change that but in general, at this juncture, I think we 
need to be kind of reaching out, trying to level the playing 
field in as many ways as we can.
    Ms. Waters. Okay. If you do not really know what is going 
with CDFI, if you find out that it is going to be eliminated, 
would you support CDFI?
    Mr. Case. I do support CDFI.
    Ms. Waters. Thank you very much. On to Mr. Trotter. Elon 
Musk is currently being sued by the Securities and Exchange 
Commission for allegedly swindling Twitter's investors of over 
$150 million and previously was penalized for $40 million for 
misleading Tesla investors. Now through Department of 
Government Efficiency (DOGE), he potentially has access to the 
SEC's confidential information and have already demonstrated 
their utter disregard for data privacy, including gaining 
access to the data of Musk's competitors at the Consumer 
Financial Protection Bureau. Also it is alarming that Mr. Musk 
cannot even secure his own website, which has been hacked. The 
SEC possesses nonpublic information about pending IPOs, 
mergers, whistleblower complaints, and ongoing enforcement 
actions, including against Musk-owned companies and 
competitors.
    You have long advised public and private companies that 
engage in capital-raising activities. Could you discuss the 
sensitivity of the information shared with SEC, and what would 
happen if that information were to fall into the hands of 
competitors or leak prematurely into the markets, and could, 
for example, there be a conflict of interest with someone 
accessing the internal deliberations of the SEC if that person 
also is pending litigation? Mr. Trotter.
    Mr. Trotter. The SEC has, in recent years, been very 
focused on its own cybersecurity. One way in which I have seen 
as a practitioner, their approach has changed on confidential 
information that comes into the SEC, the confidential treatment 
request process during SEC registration. The SEC has worked to 
make that self-executing so that information does not go to the 
SEC unless and until they request it. That is one example that 
comes to mind when you raise this issue of cybersecurity at the 
Agency.
    Chairman Hill. Thank you, sir. Now we call on the gentleman 
from Michigan, the vice chair of the full committee, Mr. 
Huizenga, who is the sponsor of the Accredited Investor 
Definition Review Act and Improving Disclosures for Investors 
Act. Mr. Huizenga, you are recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman, and I want to echo 
on a sentiment that I have heard from many already about that 
Congress should further expand the accredited investor 
definition to include a wider range of potential investors. 
According to the SEC, 19 percent of U.S. households qualify as 
under the definition of an accredited investor in 2022--19 
percent. That is locking out 81 percent of our population from 
ever having the opportunity to invest in those small 
businesses.
    This was brought really to the forefront that we had a 
witness at the last Congress. Her name was Omi Bell, and if I 
recall, she was here from D.C., who founded an organization 
that assists African-American female founders in securing 
funding to develop and grow their businesses. Ms. Bell spoke 
about the challenges she faced as a young entrepreneur 
receiving her first investment from her mother, who was not an 
accredited investor, and how updating that accredited investor 
definition would actually expand the opportunities for those 
businesses who are trying to raise capital.
    I see Ms. Matthews Brackeen nodding her head quite a bit. I 
am going to go to you first then. How would expanding this 
accredited investor definition to include criteria besides 
wealth and income, how would that expand opportunities for both 
prospective investors and for those entrepreneurs, especially 
in those underrepresented communities?
    Ms. Matthews Brackeen. Yes, absolutely. Right now anyone 
over 18 can sports bet. They can go and play the lottery. They 
can go on to lots of apps and buy cryptocurrency with very 
little education. What they cannot do is go and invest in 
companies that have years and years of documentation and 
financials because they have been blocked out by rules and 
regulations against them. What would that change? It would 
bring in new investors, new angel investors because right now 
you have to have such an incredible amount of net worth. There 
are lots of people that work for my team that are not able to 
be investors. They are not accredited investors, but they know 
much more than the general American public.
    Mr. Huizenga. What you will hear from critics of expanding 
this is that, well, see, there is not going to be any sort of 
safety net. There is not going to be any sort of review. These 
people are just going to be caveat emptor. They are going to 
get hosed. We know it is going to be there, and it is only the 
Federal Government's definition of who should not be investing 
that is saving them from themselves. Do you buy that?
    Ms. Matthews Brackeen. I think that we could probably set a 
rule around the percentage of money that you are using every 
year. I think that could be fairly simple. That is something we 
could do for all of those things that I mentioned in the past.
    Mr. Huizenga. Some reasonable things that are----
    Ms. Matthews Brackeen. Very reasonable.
    Mr. Huizenga. The assumption that bothers me, Mr. Chairman, 
is that if we were to change this Federal definition of what an 
accredited investor is, that means there is no definition or no 
guardrails to any of this investing, which simply is not the 
case. Actually, Mr. Case and Newell, if you could really super 
quickly answer this. I am curious how the current investor 
definition, as Ms. Matthews Brackeen was talking about, how 
that really limits private capital for entrepreneurs, and what 
does that mean for the economy and society.
    Mr. Case. There are a lot of people who have ideas in terms 
of starting companies. Many do not have the commitment to 
follow through.
    Mr. Huizenga. It is hard.
    Mr. Case. It is definitely very hard and definitely risky, 
and you put your career often at risk, but there are many who I 
have found who do have the desire to go farther but do not have 
access to the capital to get going. They do not have the money 
themselves. They do not necessarily have in their network 
friends and family who can write the checks, which is why it is 
so important to open it up. Yes, we need to protect people, but 
we also need to enable people who have ideas and want to pursue 
the American Dream, start a company, to have a path to do that. 
Investors have a path to also invest, so it is not just 
essentially because of the current income rules, other rules 
related to credit investors. It is kind of the rich getting 
richer. How do we kind of level the playing field for investors 
as well?
    Mr. Huizenga. That is a problem, the rich getting richer on 
this. Sorry, I have 22 seconds left, and I have to move on to 
Mr. Trotter very quickly. Current law, issuers using Rule 
506(c) are permitted to engage in general solicitation before 
filing a Form D, as long as they verify that all purchasers are 
accredited. If the SEC were to mandate advanced Form D filings 
before any general solicitation, how does that affect 
materially delaying capital raises and deter issuers like 
AngelList, Carta, others, from using that Rule 506(c)?
    Mr. Trotter. Given the amount of time to comment, I will 
just say, it is not a good idea. I would not support it.
    Mr. Huizenga. Okay. Maybe we can expand that in writing.
    Mr. Trotter. I appreciate it.
    Mr. Huizenga. With that, Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back. The chair 
recognizes the gentlewoman from New York, the Ranking Member of 
the Small Business Committee, Ms. Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. Ms. Matthews, I 
would like to remind you and everyone in this room that the 
funds to funds dynamic you are speaking so highly of was a 
proposal proposed and finalized by the SBA under the Biden 
Administration, and I am very proud to support it. I am the 
Ranking Member of the House Small Business Committee as the 
chairman referred to, and I am here to tell you that expanding 
our private markets and engaging in private market offerings is 
not the only way for small businesses to acquire equity 
capital. The SBA's SBIC program, as of 2024, have deployed more 
than $130 billion of capital to more than 194,000 small 
businesses. The CDFI Venture Capital Fund also responsively 
invests equity capital to underserved and undercapitalized 
small businesses, yet the Trump Administration's executive 
order does exactly the opposite. We need to be discussing ways 
to strengthen, not destroy, these type of programs.
    Ms. Senn, the title of today's hearing is, ``Beyond Silicon 
Valley: Expanding Access to Capital Across America.'' While the 
title is certainly correct, the actions by the Trump 
Administration and congressional Republicans tell a different 
story. President Trump recently issued an executive order that 
aims to curtail the non-statutory work of the CDFI program. If 
we are going to broaden the reach of capital beyond Silicon 
Valley, is not this exactly the type of public-private program 
we should be promoting?
    Ms. Senn. Thank you for the question. I am glad you guys 
included Alabama beyond Silicon Valley. You cannot get much 
further. While our office does not directly administer CDFI 
programs, I did reach out both locally and nationally to my 
colleagues in banking and credit unions, and they discussed at 
length the impact that those programs have had on their 
communities. As a matter of fact, in Alabama alone, there are 
10 CDFI credit unions--were fairly rural--40 percent, that 
serve over 300,000 members, supporting $2.9 billion in loans 
and $3.7 billion in deposits. They have extended nearly $18 
million in total financial benefits to the underserved 
communities in Alabama. Our credit union friends are here, too, 
and they can provide further information to me if they would 
like.
    Ms. VVelazquez. Thank you very much. Ms. Senn, the U.S. 
capital markets have seen tremendous growth over the past 
decade, with a disproportionate share of the growth seen in 
private markets. Some of us are concerned that large private 
companies and private funds have misused securities exemptions 
to effectively stay private indefinitely, avoiding the 
transparency and accountability obligations to which many 
similarly situated public counterparts must adhere. Is this a 
concern you share?
    Ms. Senn. It is a concern in every industry that some bad 
actor is going to exploit some opportunity to defraud somebody. 
In Alabama, we have a law enforcement agency, and I am mindful 
of the fact that I am here for all 50 States, and I talk to my 
colleagues at least twice a week. We do see fraudsters 
exploiting the Form D and the regulatory offerings, the forms 
that are provided to investors, and they use those to create an 
appearance of legitimacy at times. We want to preserve the 
integrity of those exemptions while also deterring fraud. On 
the State level, we see so much, and we see the people that are 
engaged in the transactions within our borders, and it is so 
critically important because we are able to help prevent some 
of that, and those bad actors that are misusing those forms to 
defraud our main street and retail investors, we are in a 
position to be able to put a stop or at least deter that 
conduct.
    Ms. Velazquez. Thank you. In your opinion, how do we 
appropriately balance the need for small businesses to have a 
less expensive method for raising equity capital through a 
private offering with the transparency needs of investor? Do 
you feel these balances are currently tailored appropriately?
    Ms. Senn. We are always going to advocate for more investor 
protections. Exemptions are a privilege, and these businesses 
that are able to take advantage of it, it is because we believe 
that those mechanisms are trusted or there is some oversight 
generally by another agency, for example, a banking authority. 
On a local level, though, many of these opportunities are, at 
least on the Form D for the States side, in favor of the 
businesses. Just in Alabama, as a reference, and I know my 
colleagues in other States, we offer programs to help small 
businesses get started.
    With our guidance on a State level, and we connect each 
other, we have a huge network of resources in Alabama, but we 
are able to help them to build a foundation that enables them 
to be successful as they do continue to grow. Many of our 
communities, we are beyond Silicon Valley, but we have so many 
people that are excited about investing within their 
communities, and so we help at the Securities Commission to 
facilitate those resources and get them on a good level ground.
    Chairman Hill. Thank you.
    Ms. Velazquez. Thank you. I yield back.
    Chairman Hill. The gentlewoman yields back. I like that, 
you all, and I like the Alabama accent. I can understand it. 
Mr. Sessions from Texas, you are recognized for 5 minutes.
    Mr. Sessions. Chairman, thank you very much. Chairman Case 
and Ms. Matthews Brackeen, I am going to primarily ask your 
opinion in just a few minutes. The entire panel here are 
champions of capitalism, and this committee appreciates and 
respect not only the words that you bring to us, but really the 
ideas about us getting stronger. I note, Chairman Case, in your 
conversation with the committee and your testimony, you talk 
about a Texas company, Anduril, that added 4,000 jobs because 
you got in and became an investor and helped them. I also note 
that in your testimony, Chairman Case, you talk about 75 
percent of venture capital flowed to three States--California, 
Massachusetts, and New York--with 47 States left to share the 
remaining 25 percent, and your data is up to last year, 2024, 
which means that it would be current.
    I want to ask your opinion about the things that we have 
been attempting to do to meet the challenge in Texas. We know 
that we have enormous growth and opportunity, that we have to 
meet the challenge in Texas, not only from the promise of these 
companies, whether it be large data centers, chip manufacturers 
that probably already have the funding or sources that they 
need, but maybe the hundreds of small companies that might be 
suppliers and add to that robust development.
    Our Governor, Greg Abbott, has convened two champions of 
capitalism and influence in the State of Texas--Ross Perot, 
Jr., and Harlan Crow, both of Dallas, Texas--and they have 
started a strategic Texas fund. It has the balance of the 
support of government through the Governor of the State of 
Texas, and then the entrepreneur leaders. We have always heard 
if business leaders lead, others can follow. Can both of you 
take in the 2 minutes and 40 seconds left and give us perhaps a 
1-minute analysis about things that you have learned about 
doing this that may help them be successful, things that might 
be important for me as a member, and give us your viewpoint 
about Texas trying to break into that outside of the 25 percent 
with 47 other States? Chairman Case?
    Mr. Case. Sure. First of all, thank you for the question 
and the insights around what is happening in Texas. We have now 
done a number of things, investing in a number of different 
cities in Texas, and there is a lot of momentum, but there is 
still a lot of work to do. I think the last number I recall 
seeing is the State of Texas, which, as you know, is a pretty 
big State with pretty big cities, was getting somewhere between 
2 percent and 3 percent of venture capital. California was 
getting over 50 percent. The reason for that is because you 
create this positive cycle I talked about earlier. People want 
to be there, so people move there. The investment then backs 
companies there. The success of those companies then ripples 
through the economy there. I saw this even in Northern 
Virginia. AOL started in Tysons Corner, Virginia, and we went 
public in 1992. That created kind of wealth in the community. 
You saw the benefits of that backing other startups in the 
corridor toward Dulles Airport.
    Momentum begets momentum, and the leadership of people in 
the community, successful entrepreneurs, successful business 
leaders, is very important. Actually, when we were there with 
our Rise of the Rest bus in Texas, Harlan Crow hosted us for an 
event, and we have also spent time with Ross Perot, Jr., people 
like that stepping up to say we need to do more to support 
entrepreneurs in our communities. We do not want them to leave, 
to go someplace else. We want them to stay, and if they did 
leave, we want them to come back, and we want to create a sense 
of possibility in our communities so people really do believe 
they can start and scale a significant company here.
    Mr. Sessions. Thank you. Ms. Matthews Brackeen?
    Ms. Matthews Brackeen. Yes. In the State of Ohio, we have 
done the same thing, public-private partnerships to help our 
venture capital industry grow. First, through Ohio Third 
Frontier, that helped to seed multiple funds around the State, 
part of it being seeded by State Small Business Credit 
Initiative (SSBCI) more than 10 years ago. We have also 
launched a new fund, the Ohio Fund, which is kind of just what 
you are talking about in Texas, primarily focused in our State, 
bringing together lots of our larger research and development 
organizations around the State and seeding lots of new funds 
and new innovations. We also have an Ohio Growth Fund that is 
funded by JobsOhio. That comes from a bond issue as well as 
dollars that come in from Ohio Liquor and beyond. That is a way 
for our State to kind of create new jobs, bring in new revenue, 
and attract new dollars into the State and really spur growth.
    Mr. Sessions. Thank you very much. Mr. Chairman, it is my 
hope that every member of this committee will listen and learn 
that economic growth and development is good for their people 
back home, that capitalism works, and we are at a time now that 
can be a golden age for America. Mr. Chairman, I yield back my 
time.
    Chairman Hill. Thank you, Mr. Sessions. The chair 
recognizes the gentleman from California, the Ranking Member of 
the Capital Markets Subcommittee, Mr. Sherman, for 5 minutes.
    Mr. Sherman. Ms. Matthews Brackeen, I think you are right 
that The Federal Deposit Insurance Corporation (FDIC) insurance 
limit ought to be higher, at least for checking accounts that 
are used for operations by small business. Mr. Trotter, you 
tell us that we can rely on these antifraud provisions, but we 
are offering $50,000 buyout for every SEC employee that 
enforces those provisions. Then we are closing all the regional 
offices, including the one in Los Angeles, that enforces those 
provisions. We cannot relax the rules in reliance on the basic 
antifraud provisions if we will not enforce the antifraud 
provisions. Crime in the suites will grow if we follow the rule 
of DOGE and defund the police.
    Mr. Huizenga, you are right, the accredited investor 
definition is crazy. It is based on the idea, several ideas, 
each of which are stupid. One is that a couple with $300,000 is 
rich, $300,000 income, and second, that rich people should be 
the ones that are accredited. We should, as Ms. Matthews 
Brackeen points out, look at the percentage of the assets that 
the person is investing in that investment and perhaps in all 
private offerings combined. I think, Mr. Huizenga, there are a 
number of bills that look at what knowledge the investor has, 
and we ought to look at the truly independent advisors 
available to the investor.
    Another definition that we have that makes no sense is that 
we say that you become a public company when you have 2,000 
holders of record, okay? Two thousand investors, that is a 
public company, but in counting to 2,000, we count all Merrill 
Lynch customers as one. I am a Merrill Lynch customer. They got 
hundreds of thousands of people. I have not met them. They are 
not part of my family. We have this weird math where 2,000 can 
mean 200,000.
    One of our witnesses says that when you make an accredited 
investment, you have years and years of financial information, 
sometimes, but not necessarily. Look, I have been on the 
business side of this, helping companies raise capital. Last 
century, I realized every investor protection is experienced by 
the business people involved as a hassle and a barrier, but if 
we do not have investor protections, we will not have vibrant 
capital markets. If capitalism worked best without investor 
protections, then Uzbekistan, with no capital investor 
protections, would be doing better than Wall Street. I want to 
thank Chairman Hill for including in the list of bills that we 
are dealing with today the Access to Small Business Investor 
Capital Act. I introduced this bill in the 116th, 117th, 118th, 
and now the 119th Congress. I believe the 4th time is the 
charm. I am honored to be joined by Mr. Huizenga, Mr. Garbarino 
and Ms. Bynum in that effort.
    Mr. Trotter, why is it important that we have vibrant 
Business Development Companies (BDCs) and that we not have this 
peculiar provision in calculating their expenses that keeps 
them out of the indexes?
    Mr. Trotter. My area of focus is really on corporation 
finance and the part of the SEC that registers IPOs. I do not 
really have much to say about that question. If I may, I would 
say on your enforcement question, the private securities 
litigation is very active.
    Mr. Sherman. I recognize that, but an awful lot of times 
the person you are suing is bankrupt, but certainly by the time 
you get the private securities regulation. Mr. Trotter, what do 
we do so that we have public and private capital markets at 
every stage? Is private capital part of that effort?
    Mr. Trotter. I would say, absolutely, yes, private capital 
is certainly a part of that effort. I think Regulation D is an 
important part of that regulation environment. One other thing 
is, on your issue of a major broker-dealer, accounting is one 
holder of record. That really only happens once a company has 
already gone public, and that method of accounting usually does 
not come into play.
    Mr. Sherman. I would disagree with you and look forward to 
talking to you about it.
    Mr. Trotter. Sure.
    Chairman Hill. The gentleman yields back. The gentleman 
from Oklahoma, the Chairman of the Task Force on Monetary 
Policy, Mr. Lucas, is recognized for 5 minutes, and he is also 
the sponsor of H.R. 1013, the Retirement Fairness for Charity 
and Educational Institutions Act.
    Mr. Lucas. Thank you, Mr. Chairman, and thank you to our 
witnesses today. I, too, want to express my appreciation to the 
chairman for attaching that very bill, the Fairness Retirement 
for Charities and Educational Institutions Act to this hearing. 
My bill would allow teachers, charity workers, and other 
nonprofit employees participating in 403(b) retirement plans 
access to the same investments available to workers with 401(k) 
plans or 457(b) plans. This bipartisan bill provides fairness 
investment opportunities for non-profit employees, so I am glad 
to see that noticed today.
    Shifting my focus, I would like to discuss the disturbing 
trend we have seen in recent decades of fewer and fewer 
companies entering public markets. When I came to Congress, 
there were over 8,000 public company listings in the United 
States. Today, there are fewer than 4,000. Healthy public 
markets allow companies to receive lower cost funding while 
giving investors opportunities to deploy their capital and seek 
a return. We should make sure our companies have the option to 
go and stay public without burdensome prohibitive regulations. 
Mr. Trotter, can you talk about the regulatory barriers that 
companies face when looking to raise capital through public 
markets?
    Mr. Trotter. They are extensive. Again, I think one of the 
big problems in this area is that if you think of how total 
market capitalization is distributed, you have only half of 
U.S. market cap represented by about 50 companies. If you 
extend it to the largest 500, that is the vast majority of 
market capitalization, and you have regulations that are 
designed to apply to all public companies as if they are each 
the same size. They are simply not, so the great thing about 
the JOBS Act and the Emerging Growth Company definition was to 
provide that kind of onramp relief, which should be extended.
    Mr. Lucas. Thank you. All of those barriers that you 
mentioned are particularly challenging for businesses who do 
not have access to all this capital early on, or for those with 
high input costs, like agriculture (AG) and energy, in my home 
State. This is also a challenge in our private markets. If you 
cannot raise Series A capital, it is difficult to secure Series 
B or C or D funding. Private markets have experienced sustained 
growth for the past decade, but that growth is concentrated in 
places like California and New York. Ms. Matthews Brackeen, why 
is it important that private markets are accessed in 
geographically diverse areas? Why do we all need to be able to 
tap these resources?
    Ms. Matthews Brackeen. Yes, I am actually going to answer 
that by also saying 44 percent of our kind of U.S. economy is 
generated by small businesses, right? So these tech companies 
are those companies. If we are concentrating all of the capital 
in three major cities, as Mr. Case said, then we cannot grow 
businesses. Not all businesses are started in a garage. Some of 
them are started in laboratories. One of those was an 
antihistamine at the University of Cincinnati, and they made 
Benadryl. Those things are made other places, and we have to 
have the capital to put into those firms.
    Mr. Lucas. Mr. Case, would you like to comment on that as 
well? Why is it important that companies across a broad array 
of diverse experiences and industries have access to funding, 
not just those with Ivy League founders?
    Mr. Case. For a couple reasons, one is, as we have all been 
discussing and you all know, these new companies, these 
startups are the big job creators, the big economic drivers, so 
we have that only happening in a few places. We do not have a 
diverse innovation economy. We have a lot of communities that 
feel like they are being left behind. We have a lot of 
communities where they are seeing job loss due to disruption 
without getting any of the job gains that can also come from 
new companies, so that is a key part of it.
    Another key part of it, though, is entrepreneurs 
fundamentally see a problem and decide to do something about 
it, create a company to do something about it. The problems you 
see in rural America are different than the problems you see in 
New York City, for example. In the area of agriculture 
technology, ag tech, you are likely to find an entrepreneur 
with an insight into the future of farming in Nebraska more 
than you are in Silicon Valley, and so we need to make sure we 
get all of those ideas on the table. We have more shots and 
goal, if you will, as a country, and that requires getting more 
people from more places into the innovation economy.
    Mr. Lucas. Clearly, we need to modernize our security laws 
with incremental reforms to make capital formation through 
public and private markets so it is attractive to business of 
all types, all sizes, all locations. Thank you for this very 
important hearing today, Mr. Chairman. I yield back.
    Chairman Hill. The gentleman yields back. The gentleman 
from Massachusetts, the Ranking Member of the Digital Assets, 
Financial Technology, and Artificial Intelligence Subcommittee, 
Mr. Lynch, recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman and the Ranking Member, 
and thank you to our witnesses for your willingness to help 
this committee with its work.
    When I talk to most business leaders today in the current 
environment, I find that the greatest obstacle that they talk 
about to capital formation and launching new development is 
actually President Donald Trump and his $1.4 trillion in 
chaotic on-again, off-again tariffs on steel, on aluminum, on 
lumber. As a former construction manager, it makes it very, 
very difficult for banks and finance companies to quantify risk 
on a loan when you have this threat out there of 25 percent to 
50 percent tariffs on some of these basic building products. It 
creates a lot of uncertainty, which is problematic in lending. 
Mr. Case, do you agree this uncertainty is a problem?
    Mr. Case. Yes. I think business looks for clarity, and 
uncertainty and when there is confusion, they are less likely 
to invest.
    Mr. Lynch. Thank you. That is all I need. All right. Yes, 
there you go. Thank you. I appreciate that. As far as private 
versus public markets, I have some data here from Citizens 
Bank. Since 2001, the number of private equity-backed companies 
grew from 2,000 U.S. companies to 11,500 companies, and that is 
a 400-percent increase. On the other hand, at the same time, 
the number of publicly listed companies declined sharply from 
7,000 to only 4,500.
    Director Senn, while 9 out of 10 new ventures fail, I mean, 
two-thirds of new private equity investments come from pension 
funds, 30 percent are hedge funds investors, and 23 percent of 
venture capital investors are pension funds. This means that a 
substantial portion of pension funds, retirement savings of 
teachers, firefighters, police officers, nurses, government 
employees, construction workers, and other main street middle-
class folks are invested in private funds. I understand the mix 
that pension fund managers are seeking, and I understand they 
are searching for yield. Why is it important that we maintain 
adequate regulatory requirements to keep investors safe, and 
could lowering requirements, like changing the accredited 
investor definition, endanger pension funds and other 
investors?
    Ms. Senn. Based on the information you provided from 
Citizens Bank, it sounds like our private markers are doing 
exceptionally well with the funding that they have now.
    Mr. Lynch. Right.
    Ms. Senn. The States do support modifications, some reforms 
to the accredited investor definition, but what we are asking 
for is also more transparent disclosures on these private 
offerings. The public markets are out there for the entire 
world to see, all of their financial records, and people are 
able to scrutinize them across the globe. With the private 
markets, it is important for all investors. I know some of 
these are high-risk businesses that are given access to retail, 
not just retail given access to the high-risk businesses. Many 
of them are startups, nascent stage, but having those 
disclosures on the other side as well are critically important 
to allowing these people to invest and mitigate the risk.
    Mr. Lynch. So that shift of investment, the flow of 
investment to private equity, there is a lack of transparency 
on that side when compared to public companies. Is that right?
    Ms. Senn. It is a more opaque market than the public 
market, certainly because all of the filings are out there for 
the world to see. On the private side, what we see, and I 
emphasize again the States' roles in all of this, especially 
the smaller businesses and smaller offerings, when you have 
somebody within the State, within those local markets helping 
review documents with these companies that are getting off the 
ground. This information, financials are not available to 
everybody. Business plans are not available. They are filed 
confidentially with us, and so, yes, investors do not have as 
much information, near the information they have as they do 
with public companies.
    Mr. Lynch. One incident that we were faced with last year 
was when Silicon Valley Bank failed. When we looked at the list 
of investors in that company, CalPERS, California Pension Fund 
was a significant investor. Do you have any thoughts on that?
    Ms. Senn. I know in Alabama we do have a pension fund, and 
we have a phenomenal team of advisors that do a great job of 
keeping that fund healthy. I mean, pension fund, they can weigh 
their own respective risks, but I know each State has an 
opinion.
    Mr. Lynch. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman Hill. The gentleman yields back. The chair 
recognizes the gentlewoman from Missouri, the Chair of the 
Capital Markets Subcommittee, Mrs. Wagner of Missouri. She is 
sponsoring, attached to this hearing, the Small Entity Update 
Act, the Encouraging Public Offerings Act, the Increasing 
Investor Opportunities Act, and the Developing and Empowering 
Our Aspiring Leaders Act, the DEAL Act. Mrs. Wagner, you are 
recognized for 5 minutes.
    Mrs. Wagner. I thank you, Mr. Chairman. Mr. Case, I am 
going to get right to it here. You have spent years championing 
entrepreneurship beyond Silicon Valley through the Rise and 
Rest Fund. Can you explain why current capital formation 
policies are failing entrepreneurs in rural areas and how the 
proposed reforms could change that?
    Mr. Case. Thank you for your question, and we have had 
great success across the country, including Missouri. One of 
the companies we backed in St. Louis, Summersalt, is doing 
extremely well. The challenge for entrepreneurs in these Rise 
of the Rest cities, in these places outside of the major 
coastal tech hubs, is they generally do not have access to the 
capital they need to get started. They do not have the friends 
and family, and there is not enough local venture funds to 
really give them that first start, and then as they expand, 
they do not have the capital they need to grow the company. 
Creating more opportunities for more entrepreneurs in more 
parts of the country to get that initial capital is critically 
important.
    The kinds of things this committee is discussing, including 
making it easier for accredited investors and encouraging more 
angel investors and support. As I mentioned in my testimony, 
the 1,400 regional funds that would start in the next 10 years, 
how do we make sure the majority of those go forward and ways 
to make it easier for them to raise capital so they can then 
invest that capital in entrepreneurs in their backyards?
    Mrs. Wagner. To that point, Mr. Case, venture capital 
networks are often built on elite university ties and personal 
relationships. How could allowing larger venture capital (VC) 
funds to invest in smaller regional funds help break down these 
barriers and distribute capital to more areas of the country?
    Mr. Case. I agree with your hypothesis that in places like 
Silicon Valley, it is obviously a very robust, very successful 
ecosystem, but often it is sort of insular or maybe even a 
little bit elite. They are generally focused on backing 
entrepreneurs in Silicon Valley that came from Stanford or 
worked at Google or some other company, and so getting some of 
that capital focused on other parts of the country is 
important. As you say, making it easier for them to invest in 
some of these regional funds to support those funds, but also 
to have some insights into what is happening in those markets, 
some deal flow. Some of those small companies may then expand 
and need the capital that they could then use their core funds 
for.
    Mrs. Wagner. Allowing a fund investment into these smaller 
firms would not just benefit the venture capital firms and 
their investors, correct?
    Mr. Case. Correct.
    Mrs. Wagner. Okay, what would the impact be on the 
underfunded startups throughout the country?
    Mr. Case. More capital going to more entrepreneurs and more 
places will then result in more companies starting, more of 
them getting to the point where they are scaling and can be 
successful, which will drive, obviously, job growth and 
economic growth.
    Mrs. Wagner. Mr. Case, according to the SEC Small Business 
Advocate, Rule 506(c), as created by the JOBS Act, is 
disproportionately used by first-time and diverse fund managers 
because it allows issuers to broadly solicit and advertise an 
offering. Do you see a risk that an advanced Form D filing 
requirement could create hesitation among entrepreneurs and 
fund managers toward using this exemption out of concern they 
might inadvertently run afoul of technical requirements?
    Mr. Case. I think that is a concern. I did work on the JOBS 
Act more than a decade ago, and as I said in my testimony, I 
was delighted that it passed but also delighted it passed in a 
bipartisan way. I think it did strike the right balance in 
terms of enabling good things to happen, while also protecting 
bad things from happening, and continuing to strike that 
balance is obviously critically important.
    Mrs. Wagner. Ms. Matthews Brackeen, what would be the real-
world impact on founders, particularly underrepresented ones, 
if general solicitations had to be delayed due to a pre-filed 
Form D requirement, and would that chill the use of the 
exemption entirely?
    Ms. Matthews Brackeen. Yes, it would have a chilling 
effect. I do not see a reason to file a form before you have 
gotten it done. It just would create another barrier that is 
completely unnecessary.
    Mrs. Wagner. I would tend to agree. Mr. Trotter, many 
retail investors lack access to high-growth private companies 
because they are not accredited. We talked about this, I am 
sure, with lifting the cap on private investments within 
closed-end funds, will provide a practical, regulated pathway 
for broader retail exposure to private markets without 
undermining investor protection.
    Mr. Trotter. Yes, I think that is a fair inference and a 
sensible approach.
    Mrs. Wagner. Great. Thank you. I think we are all in 
agreement. I appreciate you all being here, and we look forward 
to it. We have up to 40 capital formation bills that the 
Capital Markets Committee is advancing, and I look forward to 
getting to a markup so that we can advance those to the floor. 
Hopefully, get some support in the Senate, too. I thank you, 
Mr. Chairman. I yield back.
    Chairman Hill. I thank the Chairwoman. The chair recognizes 
the gentleman from Missouri, the Ranking Member of our Housing 
and Insurance Subcommittee, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. Ms. Senn, I do not 
know. Maybe you or some of the other panelists are familiar 
with the butterfly effect; that a little butterfly could alight 
on your shoulder, and you take a bad step and the bad step 
causes you to fall, and you fall and tear an ACL and then you 
have to go to the hospital, and it goes on. Essentially, the 
butterfly effect is that something seemingly inconsequential 
can happen, but it could have significant impacts along the 
way: the butterfly effect.
    On March 14 of this year, the President issued an executive 
order entitled, Continuing the Reduction of the Federal 
Bureaucracy, in which President declared that certain agencies 
are part of the Federal bureaucracy that is ``unnecessary'', 
and the executive order (EO) eliminates non-statutory functions 
and reduces the statutory functions of agencies that the 
President calls unnecessary governmental entities. That is 
seemingly just something happens, and they barely mention it on 
the news, but one of those impacted agencies was the United 
States Interagency Council on Homelessness. And all of us, my 
experiences and life impacts my present attitude, my views, and 
so I am convinced that maybe in second and third place, the 
most significant domestic challenge we have is housing, 
accommodating the people of this country in affordable and 
decent housing.
    One of the problems, that move by the President, is that it 
impacts the MBDA, the Minority Business Development Agency, and 
it also impacts the CDFI Fund. I represent an urban area 
mainly, and this is going to help devastate an already 
devastating problem impacting the country. Can you or somebody 
tell me how we get rid of this? I mean, how can we undo the 
butterfly effect? Is it possible in the real world, not the 
political world where people try to say something to hurt 
somebody else? This is a real problem. Can anybody help me?
    Ms. Matthews Brackeen. Congressman, I am not sure if we can 
undo it, but as I said earlier, if 44 percent of the U.S. 
economy is generated by small business, we would not get rid of 
funding for farmers because we need to eat, and we would not 
get rid of funding for the military because we need to keep 
each other safe. We should not make it more difficult to run a 
small business in the middle of America because that is how we 
drive the American economy. How do we undo it? It is with 
conversations like this and making certain that we do not 
defund the things that are running the U.S. economy.
    Mr. Cleaver. Anybody else agree with that?
    Mr. Case. I do agree with that, and I also would echo what 
you said around the housing situation. I think it is a national 
challenge to build more homes for more people at different 
price points and with an eye toward affordability, that there 
is much that can be done at the Federal level and a lot that 
can be done at the local and State level to unleash really a 
revolution in housing. I agree in the last several decades, we 
have not really seen the innovation in that sector. That is 
critically necessary, and there are a mix of things. Some of it 
is regulatory policy, including some of the things at the local 
level. Some of it is innovations around construction 
technologies, but we have to figure out ways to get more people 
in homes and get the affordability down. That is an issue in 
almost every part of this country.
    Ms. Senn. Yes, I will just add that as 40 percent rural 
State here in Alabama, and our colleagues, we are boots on the 
ground. These people are in our backyards. We see them across 
our communities, and so by helping empower and grow our small 
businesses, they can create jobs within our States, and we are 
able to do that. With regard to your CDFI statement, I have 
talked with our local banks and credit unions, and they have 
very much so experienced the impact in those communities, 
especially in rural Alabama.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman Hill. Thanks, Mr. Cleaver. The gentleman from 
Kentucky, the Chairman of the Financial Institution 
Subcommittee, Mr. Barr, is recognized. He is the author of the 
Small Business Investor Capital Access Act. Mr. Barr, you are 
recognized for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman. Mr. Case, excessive 
compliance burdens should not prevent the flow of capital into 
main street businesses, the driver of economic growth in our 
country, and your testimony that roughly 75 percent of venture 
capital flowed to just three States--California, Massachusetts, 
and New York--with 47 States left to share the remaining 25 
percent, that is alarming. It is alarming for Kentucky startups 
that in flyover country do not have access to capital. The 
Private Fund Investment Registration Act of 2010 exempts 
private fund investors with less than $150 million in assets 
under management from SEC registration, but that requirement 
has not been changed in 15 years since it was enacted. As the 
chairman pointed out, I introduced the Small Business Investor 
Capital Act to address that issue, adjust it for inflation. 
Would tying the exemption threshold for certain private fund 
advisors to inflation help right size regulation for smaller 
funds?
    Mr. Case. Yes, I believe it would be a step in the right 
direction. More capital going to more entrepreneurs and more 
places, I think, will be helpful to those communities and 
helpful to the country.
    Mr. Barr. Talk a little bit more, and you have already 
answered my colleagues' questions about this, but what are some 
of the things we can do to build on the JOBS Act to attract 
more capital to those other 47 States, like Kentucky, where you 
do have startups that do not have access to a lot of capital? 
We have a few private equity firms that focus on manufacturing. 
That is great but does not really address those venture-stage 
firms. We have a Bluegrass Angels group that does great stuff, 
helping commercialization out of University of Kentucky. What 
are some of the things that we can do to add to the JOBS Act to 
attract capital to those startups in places like Kentucky?
    Mr. Case. I would say mixed news on this front. The Big 
Data in terms of how much capital is going to the 47 States, 
the 25 percent, is still a little bit troubling, a little bit 
sobering. At the same time, over the last decade, 1,400 new 
venture firms have started in different parts of the country. 
Part of the challenge is how do you get more funds like that 
and how do you maximize the number of those funds to succeed to 
their second fund and their third fund. Opening up more groups 
of investors, including modifying the credit investor language 
and rules, would be helpful in that regard.
    Anything that could get more capital into more fund 
managers in these communities because they are much likelier to 
find the entrepreneur in their own backyard, back those 
entrepreneurs, mentor those entrepreneurs, and then when they 
scale, connect them to the other entrepreneurs in other regions 
and other parts of the country. It really has to start locally. 
If people cannot raise that capital locally, they often decide 
they have to move to the coast, places like Silicon Valley, to 
really have a shot at the American Dream.
    Mr. Barr. Thank you for that testimony, and, Ms. Matthews 
Brackeen, I want to ask you about the SBIC licensing process 
and the experience you had with Lightship. We have some folks 
in Kentucky who want to start SBICs. They have private capital 
to help put up, but the licensing process seems to be very 
cumbersome at the SBA, and when you talk about getting capital 
to parts of the country that need it and do not have it, this 
is a big impediment at the Small Business Administration. Do 
you think that the licensing process is a barrier to new SBICs 
being formed in the Heartland of our country? I am told by some 
of these folks that want to start an SBIC that it is like in a 
black box over there. People apply and then hear nothing. Until 
they do, it could be months and months before they even get a 
response on whether their application has any issues.
    Ms. Matthews Brackeen. I would say that we had the opposite 
situation. I feel as if there was a lot of transparency around 
the process from start to finish, from deadlines to when we 
would hear back on certain portions of the application. It is 
an arduous process. There are Federal Bureau of Investigation 
(FBI) background checks. There are background checks with lots 
of different people. I will say step by step, that SBIC team 
was equipped to say yes if they could, if we had the experience 
necessary.
    Mr. Barr. My experience with my constituents is that you 
have to have experience with an SBIC in order to be approved, 
and it is a chicken or the egg. How are we going to get more 
SBICs if the SBA will not approve them for people who have 
never done them before? We need to work on that with 
Administrator Loeffler.
    Finally, a quick question for Mr. Trotter. I introduced the 
Regulation Advancement for Capital Enhancement Act that would 
streamline Reg A, reducing the waiting period for offering 
statements filed with the SEC under Reg A, expediting small and 
medium enterprises like in the horse racing industry, 
innovative companies that securitize thoroughbred racehorses, 
democratizing horse racing so that all Americans can invest in 
helping capital formation. When done in a manner that maintains 
robust investor protection, Mr. Trotter, what are the benefits 
of streamlining SEC filings under Reg A?
    Mr. Trotter. I think your proposal is a great step in the 
right direction. The difficulty in my mind with Reg A has 
always been not necessarily the limitation on the amount that 
you can offer, although that is certainly a factor. The 
difficulty is that to do a Reg A offering, you are doing almost 
all of the work of a regular way IPO, and so if you are going 
to do almost all of that work, you might as well do a little 
extra work and have a real IPO. That is the challenge that Reg 
A has always faced, in my experience.
    Mr. Barr. Thanks, Mr. Trotter. Thank you. I yield.
    Chairman Hill. Thank you, Chairman Barr. The chair 
recognizes the gentleman from Illinois, Mr. Foster, the Ranking 
Member of our Financial Institutions Subcommittee, for 5 
minutes.
    Mr. Foster. Thank you, Mr. Chairman. I guess I would like 
to start by congratulating the Trump Administration on 
delivering from its campaign promise of using technology to 
make the most transparent administration ever, that they are 
really doing very well on that.
    I want to say a little bit about trying to get geographic 
diversity into investments because I guess I have a little bit 
of seniority on Mr. Case since it was 5 decades ago that I 
started my company with my little brother and 500 bucks from my 
parents, and now manufactures the majority of the theater 
lighting equipment in the U.S., about 1,500 employees. We 
manufacture in Middleton, Wisconsin, and Mazomanie, Wisconsin, 
and you are forgiven if you do not know those, but it strikes 
me that there are two barriers to trying to make businesses 
work in the heartland. One of them is capital, which we have 
discussed a lot. The other one is access to people, and that 
depends a lot on the nature of the business.
    If you are trying to scale a chain of doughnut stores, you 
have all the people you need in any city in the United States. 
If it is a really high-tech firm, then there is trouble because 
you often have to recruit both spouses, and this is a classic 
part. It is called the two-body problem in academics, and it is 
a huge thing. If you have a top-of-the-line software developer 
or a biotech person, you can get them to move to Chicago or to 
Madison or to Austin. You cannot get them to move to Dixon, 
Illinois and it is a huge problem. Mr. Case, you have been 
struggling with this, and I think that is part of the reason 
why we have made so little progress on this. What is your 
thinking on that second barrier?
    Mr. Case. No, I totally agree with your assessment. Capital 
is important, but in some ways, talent is more important. You 
need the talent to get started, you need the talent to scale, 
and it is more difficult to get that talent in certain parts of 
the country. We have seen examples of successes, including in 
Illinois, cities like Chicago, bigger cities, but even----
    Mr. Foster. Oh yes, Chicago has been the number 1.
    Mr. Case. I was going to say, as you well know, in normal 
Bloomington Rivian has done quite well in scaling quite 
rapidly. You need to find the opportunity that leads people to 
not want to leave and creates a boomerang of people who want to 
return because they really believe that is happening. Then you 
start building that ecosystem and leveraging the national labs, 
which are spread around the country, and the research 
universities that are spread around the country. One company, 
back in Atlanta called Hermeus is working on Mach 5 engine, is 
in Atlanta because Georgia Tech is turning into a feeder of 
talent, young engineers and others who can be part of that, so 
the talent exists in these cities. It then tends to go to the 
coast. We need to keep more of that from leaving and get more 
of it to return.
    Mr. Foster. Yes, I think we should just pay more attention 
to that second issue and understand if that is something that 
can really be overcome or just something we ought to design 
around.
    Now, the issue of accredited investors, it strikes me that 
there are sort of two dimensions here, one of which is the 
wealth, the ability to bear losses, and that is important. The 
other one is the knowledge, and it strikes me there are 
multiple dimensions to that knowledge test because there is the 
knowledge of just the nature of investment, and there is a big 
spread in the sophistication of investors. There is the 
accuracy of the auditing of the financials, all right, and then 
there is the understanding of the actual business model.
    Mr. Newell, in the history of your company that you went 
through in your testimony you had very sophisticated initial 
investors from which you raised the first couple hundred 
million bucks, and then you went public, and then you described 
a big bubble in the valuation when a bunch of, frankly, dumb 
money came sitting around during coronavirus disease (COVID), 
sitting on the couch saying, biotech is interesting, I will 
invest in biotech firms. I imagine most of those public 
investors did not know the difference between an antibody drug 
conjugate and a hole in the ground, but they just wanted to 
invest in biotech.
    Most of those investors, the money they put in has been 
wiped out because now the sophisticated investors know you were 
doing something that had a low probability of success and a 
huge payout, and they provided a valuation. The public 
investors had no idea. I was just wondering is there a reason 
why we should maybe look at that second dimension of the sector 
that you are investing in and have different thresholds in 
different sectors, so that a chain of doughnut shops have a 
very low threshold because everyone can understand it, and for 
complex sectors, maybe a different set of qualifications?
    Mr. Newell. Congressman, thank you very much for that 
question, and I think that is an astute observation. The 
biotechnology industry, which I have been in for over 25 years, 
was not something that came to me naturally because I did not 
take science in school, so I had to learn progressively, year 
over year, what the industry is about, what the science is 
about. I already had the business fundamentals because my 
background is a corporate lawyer. I understood the business 
aspect of it, and it is a unique issue where you see in the 
capital markets, public, people who do not know anything can 
invest, but in the private markets, people who do not know 
anything can invest if they have a lot of money.
    Mr. Foster. I am afraid my time is up, but if any of you 
have thoughts on that, about having sort of different 
thresholds for different sectors based on the complexity, I 
would be interested in hearing.

    [The information referred to was not submitted prior to 
printing.]

    Chairman Hill. The gentleman yields back. Thank you so 
much, Mr. Foster. The chair recognizes the gentleman from 
Texas, the Chairman of our Small Business Committee, Mr. 
Williams, who is also the author of Expand the Protections for 
Research Reports Covering All Securities of All Issuers. Mr. 
Williams, you are recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. Thank you 
all of you for being here today. The JOBS Act made it easier 
for broker-dealers to issue reports about small, growing 
companies planning to go public by exempting these reports from 
being treated as an offer to sell securities. This exemption 
has been instrumental in facilitating access to research 
coverage for small and emerging companies, helping them attract 
investor interest in the IPO process. However, the current 
provision is limited to emerging growth companies, leaving out 
a vast number of potential issuers who could also benefit from 
increased transparency and market insight. My bill would expand 
the research report exemption to include reports about any 
issuer that undertakes a proposed public offering of 
securities. This would enhance market efficiency, providing 
investors with more comprehensive information, ultimately 
helping to level the playing field.
    Mr. Trotter, could you explain how such an expansion would 
benefit the marketplace without compromising investor 
protection, especially as research analysts remain subject to 
robust SEC and Financial Industry Regulatory Authority (FINRA) 
regulations?
    Mr. Trotter. Yes, this is a perfect example of how the IPO 
onramp provisions can be extended, so you are building on an 
existing exemption that is available for emerging growth 
companies relating to their equity securities. Your bill would 
expand that to all companies, regardless of their size, 
regardless of whether they are emerging growth companies, 
larger companies, and would apply not only to equity 
securities, but also to debt securities. We have 13 years of 
experience with the exemption. It has been very helpful for 
emerging growth companies to have uninterrupted research 
written on their companies, and it would be beneficial for all 
companies to benefit from that as well. It is also based on an 
SEC rule that is a little bit more limited than your provision, 
but your provision would be very helpful.
    Mr. Williams of Texas. Okay. Thank you. Access to capital 
remains a critical challenge for many small businesses across 
the country, particularly those in rural areas, and I represent 
a lot of rural area in Texas, and many rural entrepreneurs are 
still struggling to secure funding they need to grow and 
survive, primarily because of regulatory and compliance 
burdens. Despite the legislative efforts to ease these 
barriers, there are still significant gaps when it comes to 
ensuring small rural businesses have plenty of options to 
access crucial capital. Ms. Matthews Brackeen, can you 
elaborate on what challenges rural small businesses are 
currently facing in assessing capital?
    Ms. Matthews Brackeen. Absolutely. We service lots of 
entrepreneurs and founders around the State of Ohio, especially 
in rural areas. The capital is not there. They are many times 
having to leave their cities or enter programs that are offered 
by our State or the Federal Government so that they can access 
capital. It is incredibly difficult, but it is possible. We 
have met people in Youngstown, Ohio, building $14 million 
companies, but it is possible, but incredibly difficult. I 
think if left to our own devices, capital markets are really 
going to go to concentrated areas here in the country, and 
those people will be left out.
    Mr. Williams of Texas. Okay. Now, small businesses are 
facing an increasingly difficult environment when it comes to 
securing capital. We have talked about, particularly, given the 
rise in regulatory compliance costs, the concentration of 
venture capital funding in States like California, New York, 
and Massachusetts. For many small businesses outside of these 
traditional investment hubs, the lack of capital resources and 
difficulty of meeting regulatory requirements creates 
significant obstacles to growth and sustainability. This 
situation not only limits the small business growth potential, 
but also hampers economic development in communities that could 
greatly benefit from entrepreneurial investment. Mr. Case, from 
your experience, or I am sorry, would any of the capital 
formation policies discussed today make it easier for 
unrepresented entrepreneurs or those from flyover States to 
raise capital?
    Mr. Case. Yes, it is always going to be a challenge to 
start a company anywhere. It is a bigger challenge if you are 
not in one of the major coastal tech hubs, and the legislation 
that is being considered by this committee will be a step in 
the right direction to make it a little bit easier for 
entrepreneurs in places that are not where most of the capital 
is right now to have access to capital to get started and scale 
their businesses. I think there is some constructive 
conversation. I have read every single one of the 37 bills that 
have been proposed, but the summaries I have read have been, I 
think, helpful and build on the work of the JOBS Act more than 
a decade ago.
    Mr. Williams of Texas. All right. Thank you very much, and, 
Mr. Chairman, I yield my time back.
    Chairman Hill. The gentleman yields back. The chairman 
recognizes the gentleman from California, the Ranking Member on 
our Task Force on Monetary Policy, Mr. Vargas, for 5 minutes.
    Mr. Vargas. Thank you, Mr. Chairman. Again, I appreciate, 
very much, this hearing. I want to thank all of the witnesses 
here today. I have two lines of questioning today. I would like 
to ask about risk and investors' protection and also about the 
diversity of access to capital around the country. Mr. Trotter, 
welcome back, by the way. Good to see you again.
    Mr. Trotter. Thank you.
    Mr. Vargas. I am tempted to give you more time to answer 
the ranking member's question on Elon Musk's conflict of 
interest, but I think I will skip that one for you, give you a 
break, but I do want to ask about this. On page 3 of your 
testimony and also your testimony today, you say a few things. 
None of the proposals would alter any of the robust antifraud 
provisions of the Federal Securities laws, then you go on to 
the two key proposals. On the list of proposals, two are by far 
the most important: extending the IPO onramp based on 13 years 
of successful experience, just talked about that, and expanding 
eligibility for well-known seasoned issuer status based on 
decades of successful experience. You did mention the 500 
largest companies, the market cap that they control, and I do 
agree with much of what has been said, but how do you make sure 
that these small investors, these new people coming into the 
market, do not get screwed?
    Mr. Trotter. Again, I would begin with the antifraud 
provisions of the Federal securities laws, which are very 
rigorously enforced by the private securities bar, frankly. 
Class action litigation is a real thing. When your stock drops 
significantly, you do get sued.
    Mr. Vargas. We had Bill Lerach in San Diego, and very 
familiar with that.
    Mr. Trotter. Yes.
    Mr. Vargas. You get Lerach'd.
    Mr. Trotter. That is by far and away the most significant 
source of discipline in our capital markets, and none of these 
provisions before you, just like the JOBS Act, alter the 
liability matrix under the 34 Act or the 1933 Act. It is very 
robust, and that is----
    Mr. Vargas. I mean, you talk about the 404(b) that you do 
not have the independent auditor give them a little more time 
for these small companies to onramp. How does that not get more 
risk?
    Mr. Trotter. Yes. The 404(b) is an internal controls audit. 
It is separate and apart from the financial statements audit. 
Every public company has an independent auditor that is PCAOB 
registered, every single one. The JOBS Act did not change that. 
The JOBS Act extended an onramp that already existed under SEC 
regulations for new public companies that got a little more 
time before they had to do 404(b) compliance. Again, my point 
on that is, it is directly targeting the top of the market, the 
high end, largest----
    Mr. Vargas. just scaling.
    Mr. Trotter. Exactly, scaling that regulatory burden.
    Mr. Vargas. Okay. Thank you. Mr. Case, you are talking 
about diversity of access to capital and entrepreneurship, and 
thank you again for your efforts. One of the things we talked 
about briefly here, is housing. I asked artificial intelligence 
(AI) what is the price differential in homes from Silicon 
Valley and Arkansas. In Silicon Valley, it is over $2 million 
now. In Arkansas, it is $299,500. I mean, it seems to have a 
natural opportunity there in Arkansas versus Silicon Valley. 
Why you do not just have naturally reoccurring or the 
occurrence of these investments in places where people can 
afford to live?
    Mr. Case. I do think there are some significant cost-of-
living advantages in many parts of the country, including, and 
as you mentioned, in Arkansas. That is one of the reasons 
people might consider staying where they are or moving back to 
some place, but you still need to have that innovation engine 
in that community. You still need to have enough startups, 
enough critical mass to be able to have venture funds, have 
enough venture fund success, so you can do kind of follow-on 
investing, which then leads people growing up there, going to 
school there, to stay there. Maybe even some of the people who 
left for what they thought were greener pastures to return. 
There are huge advantages all across the country in terms of 
the cost of living, cost of doing business, huge advantage in 
terms of understanding some of the legacy industries. Now that 
we are moving into the third wave of the internet, agriculture 
and many other sectors are being reimagined. Manufacturing is 
being reimagined. The skill set around that does exist for the 
most part.
    Mr. Vargas. One of the things that you did not talk about, 
though, is cultural also. It is interesting that on the coast 
that everybody likes to beat up on. I live on the coast. I live 
in San Diego. We are rather progressive in how we look at young 
entrepreneurs, and also we have different types of 
entrepreneurs. You have a lot of people from different 
countries that have come to our State, and we do not 
discriminate. Our gross State product now is over $4 trillion. 
It is the 5th largest economy in the world if it was a country. 
You go to some of these other States, they do not want 
immigrants. They beat up on them all the time. These 
universities, they go after them. They make fun of Ivy Leaguers 
here and all of a sudden say, well, why these young smart kids 
do not come to these States? Well, I wonder why. Anyway, with 
that, I will yield back.
    Mr. Steil [presiding]. The gentleman yields back. The 
gentleman from Georgia, Mr. Loudermilk, is recognized for 5 
minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. Thank you all for 
being here to discuss this important topic, and, Mr. Trotter, I 
want to ask you about the decline in initial public offerings 
over the past decades. As you have mentioned, while the JOBS 
Act of 2012 helped lower IPO barriers from a compliance 
perspective, and we have seen some recovery in the IPO market 
driven by large companies, small companies continue to see a 
decline in IPO activity. To what extent is the underwriting 
cost for IPOs a barrier to entry for would-be public companies?
    Mr. Trotter. My focus is on the regulatory burden, which I 
think is very significant, and I think Mr. Newell hit it on the 
head when he said the easiest way to fix this is to extend that 
IPO onramp concept that we already have.
    Mr. Loudermilk. Okay. You brought up the regulatory 
burdens, and how have they reduced a new company's willingness 
to help take smaller companies public, or underwriters to take 
small companies public rather?
    Mr. Trotter. Sure. By reducing the regulatory burdens 
associated with going public, and then by extending the 
regulatory relief that you get as a new public company, you 
make the whole process more streamlined.
    Mr. Loudermilk. Okay. My understanding is underwriting fees 
are the largest single direct cost associated with an IPO. Has 
the current regulatory environment driven those fees up, and 
could rightsizing a particular regulation help bring those fees 
down?
    Mr. Trotter. Again, I tend to think that those fees are 
market driven, and the way that you can most effectively help 
the system is, in terms of especially with IPOs, simply extend 
the IPO onramp. We have 13 years of success. Make it a longer 
period, not just limited to 5 years, but 10 years post IPO.
    Mr. Loudermilk. Okay. Thank you. I want to kind of follow 
up on something that my colleague, Mr. Vargas, had brought up, 
and you have spoken before and here today, about the need to 
extend the IPO onramp from the JOBS Act. One of the benefits of 
onramp and emerging growth companies designation from JOBS is 
that exemption from the Sarbanes-Oxley 404(b), as you were 
discussing earlier. Can you expand on what is the provision in 
Sarbanes-Oxley and why it is so difficult to comply with for 
new companies?
    Mr. Trotter. It is a provision that originally comes from 
banking regulation, so it is focused more on the internal 
control process that a company would have, and it is related to 
ultimately safety and soundness concerns of a particular 
company. What happened with Sarbanes-Oxley is that system was 
imposed on the entire public company ecosystem, notwithstanding 
the fact that what the best way to target that regulation would 
have been to target it at the companies that pose the most 
systemic risk. Again, total market capitalization is almost 
exclusively much, much larger companies, so you can readily 
give significant relief to newcomers, new entrants into the 
system, and without any offsetting increase in systemic risk to 
total market cap.
    Mr. Loudermilk. Okay. Something else I would like for you 
to elaborate on, you have made it clear in here that an 
exemption from 404(b), an extension for EGC is safe. Why do you 
feel that is safe?
    Mr. Trotter. I would point you to 13 years of successful 
experience with new IPO companies, and again, the IPO onramp 
concept was borrowed from SEC rules. Even under SEC rules, 
regardless of the size of a company, as a new IPO company, you 
get until your second annual report before you have to comply 
with section 404(b). That is just a recognition of the fact 
that it takes a lot of time to put all those processes in 
place. With companies that satisfy the EGC definition, as long 
as they continue to do so, they have that relief. Again, Mr. 
Newell's point, spoken like a CEO, that relief can and should 
be extended based on 13 years of successful experience. It is 
no longer experimental. We have the data. You have done it. It 
succeeded fabulously. You should extend this concept.
    Mr. Loudermilk. At that stage of a company's growth, 404(a) 
is adequate as far as the internal management assessment?
    Mr. Trotter. Yes, absolutely. Management is required to 
maintain effective internal control over financial reporting. 
They are required to assess the effectiveness of it and certify 
to it. Mr. Newell has signed his name on the dotted line as to 
that effectiveness. This is a very significant enforcement 
mechanism on its own, but then to have, in addition to the 
financial statement audit, which is a big undertaking, a 
separate internal controls audit is a significant cost.
    Mr. Loudermilk. Okay. Thank you. I yield back.
    Mr. Steil. The gentleman yields back. The gentleman from 
Illinois, the vice ranking member of the committee, Mr. Casten, 
is recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chair. Thank you all for being 
here. I think, and I am sure my colleagues will correct me if I 
have this wrong. I think Dr. Foster and I are the only two 
members of this committee who actually have entrepreneurial 
experience in terms of taking a business from an idea, through 
attracting talent, fundraising, making it into something that 
was cash-flow positive, and ultimately selling on the back end. 
I say that not to brag, but to say that it is important that 
our Nation's CEOs have representation in Washington. They often 
do not have a loud enough voice. Speaking as one myself, our 
Nation's CEOs desperately would like more access to capital 
without constraints. Certainly in my own expert experience, it 
was a nuisance having young, whip-smart MBAs rifling through my 
books and questioning my wisdom from the local private equity 
fund. I also did not particularly want to get involved in all 
the nuisance of public disclosure that the SEC would require 
for investor protection.
    If you are fortunate enough to have someone of Dr. Foster's 
and my temperament and wisdom, you do not need investor 
protection. All you need is our wisdom as entrepreneurs. Not 
everybody has that, of course, and I say that because the 
United States economy is the envy of the world because 
historically we have balanced that tension between access to 
capital for entrepreneurs and making sure we have deep capital 
markets. We have the deepest capital markets in the world. We 
also have robust investor protections.
    If we have learned anything from the first 65 days of the 
Trump Administration, arsonists can work a lot faster than home 
builders do. Things take lifetimes to build, from our 
relationships with our European allies, to basic decency, to 
basic national security protocols, can be destroyed overnight 
and take a long time to rebuild. We have seen, what, $4 
trillion of collapse in equity values. We have seen a collapse 
in mergers and acquisitions (M&A) activity. We have seen a 
large number of private equity firms who are now raising debt 
in order to pay dividends, which I think is banker speak for 
let us kick the can down the road and hope that a future 
administration will fix what just got broke. It feels to me in 
this moment that we need to be doubling down on investor 
protection because that is who is going to get hurt if we are 
not careful.
    To that end, Mr. Trotter, I would like to chat a little bit 
about some of these fund-to-fund structures. My understanding, 
and correct me if I am wrong, is that right now, if you are 
going to set up a registered fund-of-funds, you have a 
registered investment advisor (RIA) who has a fiduciary 
obligation to the fund. Got that right? If you were to bring 
retail investors into that structure, would that RIA have 
provided investor protection for the retail investors, or would 
that be treated as a separate class?
    Mr. Trotter. That is outside of my area, so I would have to 
get back to you on that.
    Mr. Casten. Okay. Does anybody know the answer to that 
question because the concern is you do not want to have like 
multiple tiers in the capital structure that could run down. 
Let me stay with you, Mr. Trotter. Right now it is also my 
understanding that SEC staff positions have generally said that 
fund of funds should not have more than 40-percent investment 
in any fund to maintain diversity, but that is not a formal 
rule. It is sort of general guidance. Do I have that right?
    Mr. Trotter. I am sorry. My area is in the 1933 and 1934 
Act, and that is my area of expertise. I am probably not the 
right person to comment on 1940 Act----
    Mr. Casten. Okay. I guess what I am asking is, it seems to 
me like there is a benefit in diversity, and I think there is a 
bipartisan agreement of increasing access to these vehicles. Do 
retail investors have protections in those under current 
structure? Do we have to add additional rules? I guess, Mr. 
Case, I would turn to you. Do you think if we were to make this 
expansion, that we should ensure that those fund of funds have 
some kind of mandated diversity of funds or some additional 
protection for retail investors who do not have the 
sophistication that the fidelities of the world or the pension 
funds do?
    Mr. Case. A couple of points. First of all, I think in 
terms of retail investors who might become able to invest in 
companies or funds if there is a change in the rules around 
accredited investors, actually investing in funds for most of 
them might be the smarter way to go. It is a little bit why 
investing in a stock market you can pick stocks so you can 
invest in a fund manager who will manage it for you. You might 
not get the full upside than if you pick them, but you also 
sometimes can hedge some of the downside. So actually making it 
easier for people to invest in more diversified funds that are 
investing in multiple funds or multiple companies, I think, is 
important.
    Mr. Casten. I guess the concern, unless we put in the kind 
of disclosures that public companies have, you have retail 
investors who may not have the sophistication, do not 
understand the liquidity issues, do not understand the way the 
capital structure was set up, where they are going to be 
underwater in most likely scenarios. How do we get that 
protection if we do not have the kind of disclosures that we 
have in a SEC environment?
    Mr. Case. I do think the process of deciding what an 
accredited investor should be and what kind of test should be 
put in place other than just wealth. I think there are a number 
of proposals being considered. I am sure the SEC can figure out 
an appropriate way to strike that balance. Now having----
    Mr. Steil. The gentleman's time has expired.
    Mr. Casten. I am out of time but welcome any continued 
comments. Thank you. I yield back.

    [The information referred to was not submitted prior to 
printing.]

    Mr. Steil. The gentlemen yields back. The gentleman from 
Ohio, the Chairman of the National Security, Illicit Finance, 
and International Financial Institutions Subcommittee, and the 
sponsor of H.R. 145, the Risk Disclosure and Investor 
Attestation Act, Mr. Davidson is recognized.
    Mr. Davidson. I thank the Chairman. I thank our colleagues 
and our committee. To Mr. Casten, he and Mr. Foster may be the 
only two Democrats with private sector experience, but, 
thankfully, that is not true of the Republican side of the 
aisle. I hope he gets to know some more of us better.
    The witnesses do have lots of private sector experience. I 
appreciate you guys being here, and, frankly, for some of you, 
I have really admired what you have done, Mr. Case in 
particular, who did not notice the rise of AOL and a lot of the 
work you have done since, but I noted that you have ties back 
to Cincinnati with Procter & Gamble, and, of course, Ms. 
Matthews Brackeen, based out of Cincinnati. So great to see our 
slice of America so well represented here today, and that is 
part of the goal is America does so well. With less than 5 
percent of the world's population, we have roughly 25 percent 
of the world's Gross Domestic Product (GDP) but over 50 percent 
of the world's invested capital.
    Unfortunately, that capital is not all invested in 
Cincinnati and Western Ohio and Ohio as well as it is in some 
other slices of America, and I think it is great that we have 
this hearing today to highlight how we can help see some of 
that capital flow invested differently. Frankly, one of the 
concerns I have had is for small and mid-market firms, in 
particular, when they want to raise capital, they do not really 
have as big of an offering. They do not even intend to build an 
enterprise that is going to attract the kind of valuations that 
do well in IPOs. You have to raise pretty substantial capital 
to cover the regulatory barrier, and then if you want to even 
solicit an offering, often that offering is shaped by rules 
that are fundamentally, they say, to protect investors.
    The reality is, we know it is really protecting deal flow 
for a lot of people that are already wealthy and they get first 
looks at some of the deals, and that is why I have introduced 
the bill Mr. Steil referenced, which is the Risk Disclosure 
Attestation Act, which is, since it is my money, let me 
acknowledge the risks and make my own investments. While here 
in Congress we might not have a path to do that, my hope is 
that we could do that in Ohio. Ms. Matthews Brackeen, if we 
could simply have that Act pass in Ohio with the limitation 
that you are soliciting investment from Ohioans and not across 
State lines, what would that do for a fund like what you are 
operating in terms of the ability to raise capital and deploy 
it in Ohio?
    Ms. Matthews Brackeen. It would definitely help our fund 
but also entrepreneurs around the State. The gentleman from 
Kentucky earlier today referenced the Bluegrass Angels. That 
group was formed from Kentucky tax credits, allowing investors 
to invest and into companies from Kentucky. That was an 
incredible program for them, and they saw lots of other new 
angel groups pop up around the State. With what you are saying, 
I think that Risk Disclosure Attestation Act would definitely 
be helpful in the State of Ohio.
    Mr. Davidson. Yes. We can hopefully do that for the whole 
country, but if not, I have been talking with our lawmakers 
that are State-based and saying, why cannot we do some of these 
nice things for our own State, make Ohio a better destination 
for capital. Mr. Case, in your opinion, what kinds of 
opportunities are being missed by places like Ohio as so much 
capital is flowing to three States that you highlighted in your 
opening testimony?
    Mr. Case. Mr. Davidson, my first job was in Cincinnati. I 
enjoyed my time there. My second job was in Wichita, Kansas. I 
enjoyed my time there. I was born and raised in Honolulu, 
Hawaii, and then started AOL in Northern Virginia. Maybe that 
helps inform some of my empathy and passion around the rise of 
the entrepreneurs building companies in other places. I think 
it is also worth noting that venture capital is a relatively 
new concept. It did not exist 60, 70, years ago, then if you 
had an idea, you went to the bank and got a loan, but banks 
usually do not loan to risky startups unless there is a 
personal guarantee, which also creates some risk. Venture 
capital becomes a path for people to start companies if they do 
not have capital or easy access to capital, and some of the 
things that this committee is considering that will make it 
easier for new venture funds to start and scale in places like 
Ohio and other parts of the country, I think, is a step in the 
right direction.
    As these companies scale, making it a little easier to 
consider going public as a young emerging growth company also 
is important. That is obviously a key part of the JOBS Act that 
I worked on more than a decade ago, I think. We have made 
progress. We continue to be the most innovative, 
entrepreneurial Nation in the world, but we can continue to 
build on that and try to create a more inclusive innovation 
economy so it is not just the coast. It is everybody 
everywhere.
    Mr. Davidson. Thank you for that. One area that I hope we 
get to is debt, because whether companies want to do an initial 
public offering or not, their ability to solicit debt outside 
of bank debt because there are risk classifications that are 
different, could really help capital formation. My time has 
expired, and I yield.
    Mr. Steil. The gentleman yields back. The gentleman from 
California, Mr. Liccardo, is recognized for 5 minutes.
    Mr. Liccardo. Thank you, Mr. Chair. Thank you all for your 
testimony. It has been very informative.
    Mr. Case, I really want to thank you for your pioneering 
work in our innovation economy and for your work with Rise for 
the Rest. It is important. I think we all recognize him from 
Silicon Valley, but it is important that opportunity be broadly 
distributed in our country. I appreciate your great work there, 
as well as with President Obama's Council on Jobs and 
Competitiveness, which ultimately resulted in the 
recommendations we see that form the JOBS Act in 2012, which I 
think has spawned great progress, though, obviously, we have 
much more work to do.
    In page 4 of your written remarks, as well as a little bit 
in your testimony, we have heard a bit about your view of 
talent that is not just about capital flows. In fact, talent 
can be more important than capital. Specifically in page 4, you 
talk about high-skill immigration, and I agree with your 
assessment. Talent is evenly distributed in this world and 
across the globe, and as we think about the imperative for 
ensuring access to talent in our country. You mentioned 
certainly the Heartland Visa, which is promising. Would not it 
be true, also, that, generally, lifting the lid on immigration, 
particularly high-skill immigration, would be a great boon for 
the entire country? For example, if at the University of 
Arkansas they could staple a green card to every diploma, a 
graduate in science or tech, would not that do great wonders 
for Arkansas?
    Mr. Case. Yes. No, I have been vocal about this for 2 
decades, testified in the Senate around immigration reform over 
a decade ago. I believe part of the secret sauce that has 
powered the American economy is being a magnet for talent, 
people coming here from all around the world, which does not 
mean we, of course, do not want to develop our own talent and 
improve our education system and teach smart skills around 
creativity, communications, collaborations, the things that are 
critical for entrepreneurial success. We need to continue to 
remain that magnet that attracts people because about 40 
percent of our successful companies that are going public were 
started by immigrants or children of immigrants.
    I understand it is tied up in a much more complicated and 
very sensitive, highly politically charged discussion around 
immigration, but I think we do run the risk of losing our edge 
now that we have seen a globalization of innovation, a 
globalization of entrepreneurship, a globalization of the 
capital markets. I think it is very important that Congress 
continue to focus on this issue and figure out how to strike 
the right balance so we can continue to attract people when 
they graduate from our universities. As you say, staple green 
card, make sure that we are keeping as many people here as 
possible, attracting as many people to come here as possible 
because the data is pretty compelling that these are not job 
takers, but job makers. Having more entrepreneurs building more 
companies that are creating more jobs and driving more economic 
growth and doing it in more parts of the country, I think, is 
essential as we think about this next chapter for America.
    Mr. Liccardo. Thank you, Mr. Case. I appreciate that. As 
you know, I come from a region of the country where more than 
40 percent of our adults were born in a foreign country. I 
think that has something to do with the secret of our success, 
and more than half of our venture-funded startups, in fact, 
have a foreign-born founder. I would like to see that happen 
elsewhere in the country as well.
    Mr. Newell, I really want to thank you for your leadership 
in the Bay Area as a business leader, and certainly with BIO, 
which is an incredibly important organization for biotech 
industry. I agree with your fundamental notion that we need to 
expand the definition of ``accredited investors'' to really get 
a more sophisticated definition that focuses on the competence, 
the capacity of the investor, not simply their wealth. You seem 
to acknowledge that Mr. Foster's recommendation was not a bad 
one of having actual sophistication applied to industries or 
sub industries, but we are currently facing an administration 
that is essentially defunding the financial police at the SEC. 
How can we do that in a world in which we have fewer and fewer 
folks to actually implement?
    Mr. Newell. That is the conundrum, to be honest. In order 
to expand access to capital, you need to expand the people who 
we think are rightly able to assess the risk of an opportunity. 
At the same time, as Mr. Trotter talked about, there are 
fundamental laws that are necessary to protect the integrity of 
the capital markets and to protect investors as well. If we 
have lawyers leaving the SEC, we will have less enforcement, 
and that allows for more fraud to occur. If we have reviewers 
leaving the SEC who are not replaced, then your process of 
actually getting your registration statement filed, processed, 
and approved is going to take longer. It presently takes about 
90 to 150 days in order to do that, so making it longer would 
be harder.
    Mr. Liccardo. Thank you, sir. I yield my time.
    Mr. Steil. The gentleman yields back. The gentleman from 
Tennessee, Mr. Rose, is recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Steil, and I want to thank 
Chairman Hill and Ranking Member Waters for holding this 
important hearing, and thank you to our witnesses for taking 
time to be with us today. I know it is a sacrifice when you 
come to do this, and we appreciate it.
    Most venture capital funding is concentrated, as we have 
heard discussed today, in California, Massachusetts and New 
York, despite these States having high individual income tax 
rates. Meanwhile, my home State of Tennessee proudly boast no 
State-level individual income tax, yet Tennessee lags behind 
these other States in venture capital funding. Mr. Trotter, 
what factors contribute to this disparity? I know we have heard 
some of that today, and why States like Tennessee do not, which 
would seem to foster interest from investors because of the tax 
treatment, why do they have a significant economic advantage 
over Tennessee and attract more venture capital funding?
    Mr. Trotter. I think you are going to the heart of a lot of 
what Mr. Case has spent a long time trying to solve. I would 
defer to his insights on the answer to that question. My 
perspective is simply to foster IPO activity. You want to 
streamline that process and make it less burdensome, and you 
want to make it less burdensome for a company, once it is 
public, to begin life as a new public company, and extend the 
period of relief that is available for those companies based on 
13 years of successful experience.
    Mr. Rose. I will take you up on your challenge, and, Mr. 
Case, you might speak to that. It would seem it is, at least to 
me, and as my friend, Mr. Davidson, pointed out, many of us on 
this side of the aisle were successful in starting businesses, 
and I certainly was and thankful to be in a State like 
Tennessee, where we got favorable tax treatment. Speak to that, 
if you will.
    Mr. Case. There is a lot going on in Tennessee. I know it 
pretty well. I actually have a couple grandkids growing up in 
Nashville. We have investments in Chattanooga and other parts 
of the State. Actually our first Rise of the Rest tour was over 
10 years ago. Nashville was part of that visit, so the momentum 
there and the cranes building, they are showing real momentum 
in that city. As you say, though, a lot of it is attracting 
bigger companies, in part, because of tax, but also the talent 
pool and other kinds of things to be there. The question is, 
how do you get more of the entrepreneurs staying there and 
starting there, and that ties in with some of the things we 
have been talking about today, having more regional venture 
funds that are based in Tennessee matters. Having people focus 
in the area, including things like the Startup Tennessee 
efforts and having the National Entrepreneurship Center, helps 
enable more momentum there. I think the momentum is building in 
Nashville and Chattanooga and other parts of the State, but it 
can go higher.
    Obviously, Tennessee is a big State with a lot of 
opportunities, but still, relative to other places like 
California, New York, Massachusetts, are not getting access to 
the capital. That does lead some of the people growing up in 
Tennessee to decide to leave, to go the coast. We have to stop 
that or at least slow that.
    Mr. Rose. Is it about that critical mass? Is that really 
the factor, or are there things that Tennessee and other States 
are not doing that they should be doing to foster that?
    Mr. Case. Well, a number of things. We have talked about 
capital access. That is critically important. If you do not 
have the ability to start the company, it is obviously not 
going to get started. We have talked about talent, how do you 
make sure you have a critical mass of talent, which is why 
clustering in different cities makes sense. It does not just 
have to be a few cities, though. We want it to be dozens and 
dozens of cities. There are some cultural aspects. I think 
Tennessee is doing a good job of this, but how do you make sure 
entrepreneurs in your community recognize that you are 
celebrating their risk taking, and if they fail, encourage them 
get up again, try again in some communities that people would 
then be branded to failure?
    One of the great things about Silicon Valley is that it is 
just viewed as a part of the process of becoming an 
entrepreneur. Sometimes including me, I got it wrong the first 
time before I got it right with AOL. So creating that culture 
where people recognize the importance of entrepreneurs, 
recognize they are the innovators, they are the pioneers, it 
does take a lot of risk and be supportive of them, I think, is 
critically important, but Tennessee is doing well.
    Mr. Rose. You mentioned, Mr. Case, in your written 
testimony, highlights of the importance of competing globally 
with China by boosting investments in research and development 
at our universities, and little time left here, but in my own 
business startup, we eventually had to abandon the Chinese 
market because they stole our intellectual property. We 
ultimately decided there just was not enough upside there. In 
the 10 seconds left here, how do we confront that? We make 
these investments in developing IP, but do we really cash in on 
them as a country if we do not protect our innovators?
    Mr. Case. We do need to protect our IP, no question, with 
other countries now competing in the variety of technologies, 
AI, robotics and other kinds of things, and we need to continue 
to invest in that R&D. My company, AOL, would not have been 
possible without the government creating the internet through 
the investments in Defense Advanced Research Projects Agency 
(DARPA), so we need to make sure we are planting that seed corn 
of new innovation.
    Mr. Rose. Thank you. My time has expired. I yield back, Mr. 
Chairman.
    Mr. Steil. The gentleman's time has expired. Ms. Talib, the 
gentlewoman from Michigan, is recognized for 5 minutes.
    Ms. Tlaib. Thank you, Mr. Chair. Many people think that the 
primary purpose of the stock market is to raise funds for 
companies, but that is not actually the case. When companies 
want capital for investment, they rely on retained earnings, 
bank loans and corporate bond market, and then maybe the stock 
market. Take the difference between primary and secondary 
markets. Ms. Senn, I do not know if you know. Can you explain 
the difference between primary and secondary stock markets?
    Ms. Senn. Yes, if you are speaking about our very publicly 
traded markets, National Association of Security Dealers 
Automated Quotations (NASDAQ) versus over-the-counter type 
markets, some of them over-the-counter markets have penny 
stocks and higher-risk type investments versus our public 
markets, who have to adhere to massive disclosures and other 
requirements. Our smaller secondary markets also face the 
investors. Their risk tolerances are different on the secondary 
markets, I guess----
    Ms. Tlaib. In 2022--I think that is why it is important--
the value of stocks traded in the United States was about $44 
trillion, and then the value of new securities issued by U.S. 
corporations that year--that is, the primary market--activity 
was just at $71 billion. So mostly the stock market is where 
early investors cash out and the wealthy speculate.
    Ms. Senn. Okay.
    Ms. Tlaib. Yes. I say that because the bottom 50 percent of 
households in our country, ranked by wealth, corporate equities 
and mutual funds share only 1 percent. The wealthiest 10 
percent of those households, on the other hand, own 87 percent 
of all corporate equities and mutual fund shares. I think it is 
just really important to see, when we talk about this, where 
the real impact is, but there are institutions whose sole 
mission is to provide access to capital for the households and 
companies that they need most.
    For instance, I do not know if you are familiar with 
CDFIs--community development financial institutions--providing 
financial services and access to capital to low-income 
individuals and communities, especially around affordable 
housing. That is their purpose. That is the purpose of CDFIs. 
However, earlier this month, the President issued executive 
order eliminating much of the CDFI Fund. As the law allows, it 
is being challenged. Can you explain what the CDFI Fund does 
and what the impact in eliminating might be right now?
    Ms. Senn. The State securities regulators do not directly 
administer those funds. I did reach out to my colleagues in the 
banking and credit union world, and they all were emphatic 
about the impact that CDFIs have had on their communities. 
Especially, I will speak for Alabama and the rural communities. 
I know there was upwards of $18 million in financial impact in 
our community, so they provided me success stories about the 
program.
    Ms. Tlaib. Yes. I know it is both rural and urban, but most 
of it is even around addressing the housing crisis that we have 
in our country right now. Many of the communities, the one in 
your community, in your backyard, one in my backyard, in 
Detroit, are starved for investment, and that is why CDFIs have 
played an incredibly important role in providing that capital, 
and the fund is effective. I think, on average, recipients 
leverage each dollar awarded by the fund into $8 of funding 
from the sources. It is important for my colleagues, the last 
10 years CDFI Fund has helped finance over .5 million units of 
affordable housing, 42,000 commercial real estate projects, 
$17.9 million in personal loans, and $1.3 million in small 
business loans. I do not know how we can talk about access to 
capital in this committee when the President is trying to take 
away from the very people it helps the most. CDFIs are 
critical.
    One last question for you, Ms. Senn. Last week, the new 
director of the Federal Housing Financial Agency--FHFA--maybe 
Bill Pulte. Is that Bill Pulte? Are you familiar with that new 
director? He appointed himself the Chair of Fannie Mae and 
Freddie Mac. Now the FHFA is the regulator of both agencies. Do 
you understand? Is this a conflict?
    Ms. Senn. Those decisions that were made at the executive 
level are----
    Ms. Tlaib. But we have a regulator that sits now on the 
board, the very Agency he is supposed to regulate.
    Ms. Senn. Those are decisions that are made at the 
executive level from the States.
    Ms. Tlaib. Is that not a conflict?
    Ms. Senn. You know, I am not sure.
    Ms. Tlaib. Common sense tells you it is a conflict of 
interest. Those are decisions----
    Ms. Senn [continuing]. make no sense.
    Ms. Tlaib. Okay. Thank you, Mr. Chair. I yield back.
    Mr. Steil. The gentlewoman's time has expired. I now 
recognize myself for 5 minutes for questions. I want to start 
with you, Mr. Newell, if I can.
    In your opening testimony, you told the story of Sutro on 
the evolution from startup to public company, and navigating 
that is a challenge and something that we want more companies 
in the United States to do, and making sure that those startups 
have access to the public markets is essential. It was just 
referenced that maybe they could use retained earnings. Can 
startups use retained earnings? Maybe we just knock that 
question out of the gates. Do you have retained earnings in 
your startup?
    Mr. Newell. We have no retained earnings. We have----
    Mr. Steil. Of course not because it is a startup, right?
    Mr. Newell. That is exactly right.
    Mr. Steil. You are looking for figuring out where you have 
finance in the capital markets are really, really important, in 
particular in our startups, and you took advantage of the 
emerging growth company status in that startup. Is that 
accurate?
    Mr. Newell. That is correct.
    Mr. Steil. Would you have been able to go public in the 
manner and the time frame that you did without the EGC status 
that was available to you, and if not, why not?
    Mr. Newell. It would have been much more challenging for us 
to do that because the amount of financial resources that we 
would have needed to front-end load to meet the requirements of 
full disclosure under 404(b) would have been prohibitive. We 
would have had to quadruple our accounting function and hope 
that we still go public.
    Mr. Steil. You would have had to triple it. Then the 
reverse question would be, what happens when you lose EGC 
status? Would you have to triple that then?
    Mr. Newell. We lost EGC status because we went over the 
public float threshold for a brief period of time, and it cost 
us a million dollars in extra fees for accounting purposes.
    Mr. Steil. So great. Would your view be that we should then 
reexamine the current time limit on EGC status?
    Mr. Newell. Yes, sir, and thank you for your leadership on 
that.
    Mr. Steil. I appreciate that. I am going to jump to you, 
Mr. Trotter, if I can. Some have claimed that extending EGC 
status have put investors at risk. We heard actually comments 
from one of my colleagues here, but nothing in the JOBS or the 
EGC bill would alter the application for existing antifraud 
provisions, correct?
    Mr. Trotter. Exactly right.
    Mr. Steil. It would have no impact on EGC disclosures and 
reporting obligations. Is that correct?
    Mr. Trotter. Correct.
    Mr. Steil. It would have no impact on corporate governance 
standards. Is that correct?
    Mr. Trotter. Yes.
    Mr. Steil. It would have no impact on the reporting 
obligations of officers, directors, and significant 
stockholders, correct?
    Mr. Trotter. That is right.
    Mr. Steil. And so are investors at risk if we allow an 
extension of the EGC status?
    Mr. Trotter. Not at all.
    Mr. Steil. So why should we have the EGC status then in the 
first place?
    Mr. Trotter. Again, it is about allowing the system to 
scale the regulatory burden to the size of the company being 
regulated, and the EGC definition shows you that there is an 
opportunity to extend that.
    Mr. Steil. I appreciate that. I just think it is so 
important that we look at allowing startups to have an avenue 
and access into the public markets, that we are encouraging 
U.S.-domiciled U.S. employers to have access to those public 
markets so that they can grow and grow here in the United 
States, so that people can get good-and better-paying jobs than 
they already have.
    In my limited time left, I want to stay with you, if I can, 
Mr. Trotter, and dig into the WKSI issue. Companies that 
qualify as well-known seasoned issuers--WKSI--are granted more 
flexibility in accessing U.S. public markets through automatic 
shelf registrations. I have a bill that would expand the WKSI 
status by updating the definition to apply to all companies 
that otherwise satisfy the WKSI definition with a public flow 
to $75 million instead of $750 million, again, driving that 
access further down into the market. Can you discuss briefly 
why expanding the WKSI eligibility would promote capital 
formation while maintaining investor protections?
    Mr. Trotter. Yes, and I am strongly supportive of this 
measure that you have introduced. This is a category of issuer 
that has been around now for more than 20 years. The SEC 
introduced it in 2005. It has been incredibly successful. It 
has been very helpful for companies going to market to take 
advantage of opportunistic timing and to be able to control 
more of their capital formation destiny as they go to market. 
The eligibility for short-form registration was based in 1992. 
The SEC looked at what companies have an efficient market in 
their security. That was before the modern internet, and that 
was before Electronic Data Gathering, Analysis, and Retrieval 
(EDGAR), the SEC filings even became available online. 
Obviously technology has drastically accelerated the 
efficiencies there, and your bill merges those two categories. 
It is a great step forward.
    Mr. Steil. Thank you very much. I thank you all for being 
here today. I think it is so important that we are making sure 
that we have capital access available to startup companies 
across the United States of America in big cities like New 
York, that is fine, but also in States like mine in Wisconsin. 
We are jumping over. I was going to say Indiana, but I will 
yield back. We will come to you in a moment, my colleague from 
Indiana. We now recognize the gentleman from Texas, the Ranking 
Member for Oversight and Investment Subcommittee, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and, of course, we want 
access to capital in Texas as well. I thank the witnesses for 
appearing and would associate myself with the ranking member's 
opening statement and would agree that what I am about to talk 
about is beyond Silicon Valley. It is about expanding access to 
capital, but it takes a slightly different twist because I 
received this communique and it indicates within that you are 
holding a real check for $1,250. Sure enough, there is a check 
for $1,250, and it goes on to indicate that if I accept this 
promissory note, then I should keep it for my records. I can 
understand why because on the reverse side of this page, there 
is information about what the consequences are of accepting 
this promissory note. One of the items indicated that I will be 
agreeing to is this: this has an annual percentage rate. I 
assume all the witnesses are familiar with the term, ``annual 
percentage rate.'' If you are not, would you raise your hand? 
[No response.]
    Mr. Green. Okay. Let the record reflect that they are all 
familiar with it. It says the annual percentage rate would be 
91.27 percent--91.27 percent. I see you all looking in dismay, 
and I was, too. In fact, I was thunderstruck when I received 
this: 91.27 percent, $1,250 loan, finance charge $700, total 
repayment $1,950, says I will be paying $100 for an acquisition 
charge, $600 for installment account handling charge, and by 
the way, can be accelerated without notice. I think that this 
is egregious, and I think that while we are concerned about the 
businesses, and I am--I have many small businesses in my 
district--I am also concerned about the consumers. This type of 
loan, in my opinion, epitomizes what predatory lending is all 
about, to receive this check, a live check, that I can cash, 
and then receive this loan, or I might add this: it was sent to 
me in English and in Spanish, the offer, but the actual 
information concerning the contract, all of that is in English, 
bait you in the language that you speak, and then have you sign 
a contract in a language that you may not be as familiar with.
    This causes me a good deal of concern because we have a 
CFPB that is now wounded, and I am curious as to what consumers 
who receive this type of predatory offer will do once they 
conclude that they have been in some way harmed. Who do they 
turn to without a Consumer Financial Protection Bureau, which 
leads me to what I plan to do. I am going to ask the chair of 
the committee to hold a hearing on predatory lending. It would 
seem to me that this is very important to the consumer. I 
appreciate what we are doing for the businesses, but the 
consumer is also of paramount importance, and I will be making 
this request, again, $1,250 loan, annual percentage rate 91.27 
percent.
    Just for edification purposes, would any of you accept a 
loan that had an annual percentage rate in excess of 90 
percent? If you would, raise your hand. [No response.]
    Mr. Green. Okay. Let the record reflect that no hands have 
been raised, and I will understand why. I will not put you on 
the spot and ask you why you would not. I would simply say, for 
me, it is quite egregious, and I do plan to ask the chairman to 
convene a hearing on this type of predatory lending. This is 
something that concerns my constituents. This is a kitchen 
table issue. Some of these other issues that we confront, they 
may be kitchen table issues, but they are not for the people 
that I represent, for the most part. Perhaps for the 
plutocrats, these are kitchen table issues, some of these other 
things, but this is bread and butter for a lot of people in my 
district. Mr. Chairman, I yield back the balance of my time.
    Mr. Timmons [presiding]. Thank you. I now recognize myself 
for 5 minutes for my questions.
    First, I want to begin by thanking the witnesses for being 
with us today, and before I get on to my thoughts, my mortgage 
I am about to sign is 6.5 percent, and that is the annual 
percentage rate. If I were to get a payday loan because I 
needed money for a week at 2 percent, that would be 104 percent 
APR, so it all depends on the length of time and the need of 
the money. I think that we have to stop using Annual Percentage 
Rate (APR) because it is not a good reflection of the value of 
access to capital for shorter duration periods of time.
    On to the topic at hand. Expanding access to capital for 
American entrepreneurs, specifically venture capital funds, is 
an important issue, not only for the startup ecosystem, but for 
the economic environment in general. While venture capital 
plays a vital role in fueling innovation and economic growth, 
the reality is that most VC funding is concentrated in just a 
few States, leaving many promising entrepreneurs across the 
country struggling to secure the capital they need to scale. 
This imbalance has real consequences. Entrepreneurs outside of 
major tech hubs face significant challenges, particularly when 
it comes to raising early stage funding, which is essential for 
growth. Without access to Series A and B funding, many startups 
never get the chance to reach their full potential. By reducing 
regulatory hurdles and expanding opportunities for capital 
formation, we can help create a more comprehensive and dynamic 
startup landscape, one that supports innovation and job 
creation in every corner of the country, not just in a handful 
of cities.
    Mr. Case, Section 3(c)(1) of the Investment Company Act of 
1940 exempts funds with fewer than a hundred beneficial owners 
from registration as an investment company. It also includes an 
exemption for qualified venture funds with fewer than 250 
beneficial owners and $10 million in aggregate capital 
contributions and uncalled capital commitments. Can you 
explain, based on your experience, the difficulty in complying 
with these thresholds?
    Mr. Case. Thank you for your question and your preamble 
talking about the importance of, obviously, entrepreneurship 
and making sure capital is available to entrepreneurs 
everywhere. In terms of some of the specific rules on venture 
funds, I think limitations, such as you talked about, would 
result in, as venture firms start scaling, they would not be 
able to accept new investors. I think opening up to a broader 
range of investors, including re-looking at the accredited 
investor roles, would be a step in the right direction to help 
those venture funds that can then help invest in companies, 
hopefully, in their regions.
    Mr. Timmons. Thank you for that. Ms. Matthews Brackeen, 
would raising the cap for the qualifying venture capital fund 
exemption to $150 million and increasing the number of 
allowable beneficial owners to 2,000 help VC firms, especially 
smaller firms in underserved regions, to better support 
entrepreneurs and drive investment?
    Ms. Matthews Brackeen. Yes, it absolutely would. It would 
open up a brand-new market for us. For a smaller firm, as I 
said earlier, kind of like a $50 million minimally viable firm, 
that would open up a lot of kind of smaller-dollar checks and 
allow us to grow new funds across States in the middle of 
America.
    Mr. Timmons. Thank you for that. I am proud that my bill, 
the Improving Capital Allocation for Newcomers, or ICAN Act, 
was included in the chairman's Expanding Access To Capital 
package last Congress and was once again considered in the 
Capital Markets Subcommittee this session. The ICAN Act makes 
it easier for South Carolina investors to support local 
startups and entrepreneurs by raising the cap on qualifying 
venture capital funds from $10 million to $150 million, and 
increasing the investor limit from $250 to $600. We are 
removing barriers that have held small businesses back for too 
long. These changes will give overlooked entrepreneurs the 
capital they need to grow, create jobs, and strengthen our 
economy.
    Ms. Matthews Brackeen, based on your experience, how 
frequently do small businesses and entrepreneurs face exclusion 
from the investment landscape due to excessive regulatory 
hurdles or high barriers to entry?
    Ms. Matthews Brackeen. Every day. It is an everyday thing, 
especially in my State, the State of Ohio. We have, my 
goodness, less than 20 large venture capital funds in our 
State. If you are thinking about going to each of those 
individual funds, some of them are only making five to 10 
investments a year, and there are thousands of startups that 
need support in capital.
    Mr. Timmons. Thank you for that. The last 4 years, we have 
gotten very out of balance with our regulatory schemes, and we 
are not keeping up with the legal frameworks for businesses to 
thrive. This country needs to be the best place to start a 
business, to grow a business, and we are working here in 
Congress with the administration to get us back in line so we 
can continue to be competitive in the global economy. That is 
what is driving a lot of the legislation. That is what is 
driving all of the current administration's decision making, 
and I think things are going very well, and I am very 
optimistic for the future. With that, I yield back.
    I now recognize the gentleman from Indiana, Mr. Stutzman, 
for 5 minutes.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you to all 
for being here. This is a topic that I always enjoy discussing. 
As an entrepreneur myself and have the experience of raising 
capital over the last 8 years in the private sector, it is a 
thrill, and sometimes it is not. It is an interesting time, 
especially with all of the macroeconomics, not only here in the 
United States, but around the world as well. There is the old 
saying that capital is cowardly, and there are times that, I 
mean, every project is a worthwhile project, but we also know 
that not every project works out. In fact, the majority of them 
do not work out, and so, we do have to be careful in that it is 
not just loose and that there are people that are taken 
advantage of, but at the same time, this is also what makes 
America the greatest Nation on earth.
    I have a bill that I would like to ask Ms. Matthews 
Brackeen a question about. My bill is the Investment 
Opportunity Expansion Act, which would allow an individual to 
qualify as an accredited investor if their aggregate investment 
is an unregistered securities offering if it is not more than 
10 percent of the individual's net assets or the individual's 
annual income, whichever is greater. How would expanding the 
accredited investor definition, while limiting an investor's 
risk exposure, benefit main street investors and ultimately 
strengthening our capital markets?
    Ms. Matthews Brackeen. It would give people an incredible 
opportunity. I mentioned earlier there are lots of other things 
that we can spend our money on. We can spend our money on 
cryptocurrency, sports betting, you name it, but not 
necessarily things that we can really generate wealth from. 
That would be a wealth-generating opportunity for people across 
the country. I think putting guardrails, to the earlier 
Congressman's point, is necessary to protect people because we 
are in a moment where consumers need to be protected.
    Mr. Stutzman. Yes. Would anybody else on the panel like to 
comment on accredited investors, the increase?
    Mr. Newell. I think the way the accredited investor 
definition works today, it really does not allow for 
individuals who can understand and financially afford the risk 
to take it. If you happen to be born rich, then you are 
presumed to be a brilliant investor, but really, you were born 
rich.
    Mr. Stutzman. Yes. No. Well, and one of the things that I 
often see is that a lot of folks in the Midwest, in Indiana, 
where I am from, they want to invest in Indiana. It is also 
nice to be able to see, wherever you place your money, that you 
can drive down the street and go visit and ask questions, and I 
think that is an important component to it as well.
    Ms. Matthews Brackeen, I have another question as well 
related to crowdfunding. We had a really good subcommittee 
hearing on Capital Markets last month, in which we heard 
several witnesses on how we can expand access to capital for 
businesses, but many diverse founders and small businesses 
outside the traditional capital hubs have found funding 
opportunities through regulation crowdfunding. Why is this an 
important tool? Is it an important tool moving forward, and is 
there any particular comments you have to raising capital as a 
crowdfunding mechanism?
    Ms. Matthews Brackeen. No, crowdfunding definitely fills a 
gap for folks that have difficulty around raising friends and 
family rounds, so it gives that new opportunity. I will say 
that it does not necessarily signal to professional investors, 
however, that investment is a good investment, so there are a 
lot of learning that have to be had around crowdfunding as 
well. It is one thing to go out to the crowd, but likes do not 
necessarily generate revenue for a company. It is all about 
whether or not that company is sustainable over time, beyond 
that moment of the big push of the crowdfunding campaign.
    Mr. Stutzman. There was kind of a spike there in popularity 
with it. Is it settling, or is it still a popular option? Where 
do you think it is going right now?
    Ms. Matthews Brackeen. I would say a year ago, it was much 
more popular. I would say we are living in a moment right now 
of volatility where people are not spending their extra cash on 
crowdfunding campaigns.
    Mr. Stutzman. Yes, I think the economy is really tight 
right now. People just do not have disposable income because 
either they could not spend it in investments, or they could 
spend it on going out to eat, and I think we are seeing that it 
is not happening in either one. Mr. Trotter, I would like to 
ask you, I have a bill that is called the Regulation A+ 
Improvement Act, which would increase the amount that companies 
can raise under Regulation A from $50 million to $150 million. 
Any thoughts or comments, good, bad, indifferent?
    Mr. Trotter. Step in the right direction. I think it is a 
helpful move.
    Mr. Stutzman. Okay. Very good. Thank you again to all of 
you, and this is interesting times. Of course we have a lot of 
decisions to make here in Washington that will affect our 
economy, but those decisions do affect startups, affect growth, 
and hopefully we make the right decisions that people will feel 
confident that they can invest again and with certainty that it 
is a good investment. Thank you, Mr. Chairman, I yield back.
    Mr. Timmons. Thank you. The gentlewoman from Massachusetts, 
Ms. Pressley, is now recognized for 5 minutes.
    Ms. Pressley. Thank you. For today's hearing on the subject 
matter, expanding access to capital, we do not need to search 
far and wide for a new solution, and we do not need to start 
reducing transparency requirements, loading up on investor 
risks by deregulating. Instead, we should focus on improving 
the institutions and regulations that help protect investors 
and to support businesses. For example, venture capitals funds 
play a significant role in directing capital to startups. Mr. 
Case, you are a billionaire businessman who operates a venture 
capital firm, so I am sure you would agree that VC funds can 
provide an array of necessary supports for businesses from 
monetary investments to technical assistance, et cetera.
    Mr. Case. Yes. Venture capital firms can back entrepreneurs 
and help start and scale the companies and create jobs and 
drive economic growth.
    Ms. Pressley. There is room for improvement. The venture 
capital ecosystem is not perfect, and I do not want you to take 
this personally, Mr. Case, but far too many VC firms look just 
like you, and they mostly invest in startups by white men. 
According to Forbes, 98 percent of venture capital goes to 
white men, despite the fact that diverse-run businesses have a 
25 percent higher return rate.
    Mr. Chair, I would like to enter into the record this 
September 2024 article titled, ``Building Venture Capital That 
is More Inclusive Than The Boy's Club.''
    Mr. Timmons. Without objection, so ordered.

    [The information referred to was not submitted prior to 
printing.]

    Ms. Pressley. I believe it is time to start supporting 
venture capital funds that are investing in diverse businesses. 
For example, in my district, the Massachusetts' 7th, Mendoza 
Ventures is a firm that is raking in profit in AI, 
cybersecurity, and financial technology (fintech), with 90 
percent of its portfolio consisting of startups led by 
immigrants, people of color, and women. Now, this is one VC 
doing this, but we need a hundred more. The status quo works 
great for white men, but we need to expand capital access to 
all entrepreneurs regardless of their race and gender. The 
responsibility of recognizing and confronting the disparities 
in capital access should not fall only on the shoulders of 
venture capital funds. There are other organizations that are 
designed to help underserved populations that this committee 
should be uplifting.
    Ms. Senn, can you talk about why Community Development 
Financial Institutions, CDFIs, were created and what exactly 
they do?
    Ms. Senn. Thank you. While the State securities regulators 
do not directly administer those programs, I have consulted 
with my colleagues in the depository institution world, and 
they have expressed and been emphatic about the impact that 
CDFIs have had on communities. I know in Alabama, we are 40 
percent rural. They cited several examples of where they have 
been able to help those underserved areas.
    Ms. Pressley. Thank you. Essentially, CDFIs invest capital 
in businesses that would otherwise be neglected and under-
resourced. In the Commonwealth of Massachusetts, we have more 
than 30 CDFIs, but I want to highlight one that is 
headquartered in Boston, investing in the businesses in my 
district. OneUnited Bank is the largest black-owned bank in the 
country. It helps create economic opportunity for entrepreneurs 
in chronically, economic-distressed neighborhoods. At the 
height of the pandemic, many of the large and popular banks 
were denying PPP loans to small businesses, but OneUnited and 
other CDFIs made sure that local entrepreneurs and their 
workers were able to make ends meet. I am firmly and proudly 
pro-CDFI.
    Unfortunately, Donald Trump is not. Trump signed an 
executive order attacking the Community Development Financial 
Institutions Fund, despite the fact that it is fully authorized 
by Congress. He is doing the exact opposite of what this 
hearing is about. Instead of expanding access to capital, 
Trump's executive order will make it harder to access for all 
businesses--urban, rural, from mom-and-pop shops to tech 
startups--whether they are in Massachusetts or Alabama. This 
committee cannot have a serious hearing about solutions to help 
businesses succeed while Trump destroys the agencies that they 
rely on, chokes off their capital funding, and then puts 
tariffs in the way. I was hearing about these fears and 
anxieties from small business owners throughout my district at 
town halls this past week. It is time for my Republican 
colleagues to grow a spine and obstruct these efforts, and 
recognize that the real problem here is Donald Trump. I yield 
back.
    Mr. Timmons. The gentleman from Pennsylvania, the Chairman 
of the Oversight and Investigation Subcommittee, Mr. Meuser, is 
now recognized for 5 minutes.
    Mr. Meuser. Thank you, Chairman. Thank you all very much 
for being here and providing us with this information. 
Appreciate it.
    According to Forbes, the number of publicly traded 
companies in the U.S. has dropped considerably since 1997. 
During the Trump years, it was a 50-percent increase. Under the 
Biden years, there was a decrease, although a slight decrease. 
Meanwhile, the cost of going public now exceeds $12 million, 
pricing out, obviously, small businesses and everyday 
investors. President Trump, Secretary Bessent, and incoming SEC 
Chair, Paul Atkins, are working to reprivatize the economy and 
put capital back in the hands of the American people by 
leveraging both public and private markets, making it simpler 
to raise capital so everyday investors can have access to the 
markets.
    Mr. Trotter, Americans rely on closed-end funds for 
retirement investing, yet SEC staff, a number of years back, 
limited these funds to investing just 15 percent of assets in 
private securities unless they are sold only to accredited 
investors. Do you believe lifting this arbitrary cap safely can 
expand access for everyday investors to high-growth private 
companies?
    Mr. Trotter. Yes, I do.
    Mr. Meuser. Okay. What do you think it should be lifted to?
    Mr. Trotter. I think expanding access is a good step.
    Mr. Meuser. I agree. Is this typical for the SEC staff to 
provide guidance? Again, it was back in the 1990s, but is that 
something that is typical or do you think should be atypical?
    Mr. Trotter. There are a number of areas where the SEC 
staff provides its interpretive guidance, and that becomes an 
important benchmark for private industry in figuring out how to 
apply either the statute or a rule that the SEC has adopted.
    Mr. Meuser. Okay. Hopefully the new administrator keeps an 
eye on that. I think he will. Crowdfunding, issuers raising 
$100,000 or less, provide independently viewed financial 
statements, current law does not require crowdfunding under 
$100,000. I plan on introducing the Augmenting Compatibility 
and Competition by Enabling Service Switching (ACCESS) Act of 
2025, which increases that amount to $500,000. I see you are 
nodding your head. You think that is a good idea?
    Mr. Trotter. I do.
    Mr. Meuser. Ms. Matthews Brackeen, your thoughts?
    Ms. Matthews Brackeen. No, absolutely. That is one of the 
kind of biggest barriers to entry on the crowdfunding campaigns 
is that those independent audits. Small firms do not have the 
capital to do those each and every year to fundraise.
    Mr. Meuser. Great. Primarily, you think that would be 
beneficial to small business?
    Ms. Matthews Brackeen. Yes.
    Mr. Meuser. Great. Thank you. Mr. Case, nice to see you 
again. Venture capital goes to businesses in large metro areas, 
far more than rural areas, California, New York, Massachusetts, 
et cetera. If we made it easier for venture capital funds to 
operate, for example, by raising the $10 million limit, what 
qualifies as a small fund, do you think that would help more 
money reach startups in rural areas?
    Mr. Case. Yes, it would.
    Mr. Meuser. Okay. Good. That sounds easy enough, right? 
Good on that one as well. Mr. Trotter, back to you. The average 
cost of going public, $12 million. Do you think expanding the 
current onramp relief for emerging companies, like requiring 2 
years of financial statements instead of 3, would make it 
easier for more companies to go public?
    Mr. Trotter. Yes, I do. I am strongly supportive of that.
    Mr. Meuser. Okay. We think just making things easier, 
simpler, less regulations will be beneficial to businesses, to 
our economy, to overall growth of small businesses and large 
businesses?
    Mr. Trotter. Yes, all of the above.
    Mr. Meuser. That is very logical and makes a lot of sense. 
The CFPB is going to go under reform. Many of us do not believe 
that CFPB has been constructive. We think it has been the 
opposite of constructive, perhaps destructive. Mr. Trotter, I 
will go back to you. What are your thoughts on reforms to the 
CFPB?
    Mr. Trotter. I will have to leave that to others. That is 
not my area.
    Mr. Meuser. Okay. Not your area. Mr. Newell?
    Mr. Newell. Sorry, Congressman, it is not my area.
    Mr. Meuser. Okay. Ms. Matthews Brackeen?
    Ms. Matthews Brackeen. No.
    Mr. Meuser. No? Mr. Case, no comment on CFPB? All right. We 
got plenty of comments on it, so we can handle minimal comments 
there. Access to capital during the Biden Administration, these 
reforms will create a great deal of improvement. Ms. Matthews 
Brackeen, would you agree with that?
    Ms. Matthews Brackeen. I would prefer not to comment on 
that.
    Mr. Meuser. Okay. Understood, but what we just discussed, 
of course, would be reforms, improvements to what has existed 
before, so that would create access to capital, so that is 
really where I was going with that. I yield back, Mr. Chairman.
    Mr. Timmons. Thank you. The gentlewoman from California, 
Mrs. Kim, is now recognized for 5 minutes.
    Mrs. Kim. Thank you, Chairman. I want to thank our 
witnesses for testifying and appearing before our committee 
today. You have heard that small businesses are the backbone of 
our economy, and it is especially important for the 
constituents and the businesses that I represent in Orange 
County, Southern California. That is why last Congress, I 
introduced the Improving Access to Small Business Information 
Act with my colleague, Congressman Josh Gottheimer from New 
Jersey. That bill would ensure that the process for collecting 
public feedback from small businesses is streamlined and more 
efficient at SEC.
    Let me ask you a question, Mr. Newell. During your tenure 
at Sutro, what struggles did you identify that small companies 
had in getting the SEC to take their feedback into account?
    Mr. Newell. Thank you, Congresswoman, for your question. I 
think there are a number of ways in which we as a small company 
interact with the SEC, from the initial stages of doing Reg D 
offerings through public offering in and of itself. In a public 
offering process, you do your level best to try to write your 
registration statement so that it passes muster quickly and 
that you can raise the capital as quickly as possible. I will 
say that the regulatory response time frames are excessively 
long, and the public capital markets do not wait for anyone. If 
money is available, you take it, and if you take too long going 
through a registration process, money that might have been 
available may no longer be there. We are just a small cog as a 
small company in the wheel, and we are all treated the same, 
whether it is a public offering of General Motors or a public 
offering of Sutro Bio, the same rules and regulations apply. I 
do not think people understand their differences, and those 
differences need to be taken into consideration.
    Mrs. Kim. Thanks for that. I think the goal is if we want 
our businesses, especially small businesses, to grow and become 
more public, then we need to ensure that the SEC has no 
difficulty in hearing back or feedback from the businesses. Let 
me move on.
    It is my fear that when venture capital firms engage in 
pattern matching, I think we discussed that probably before, 
but they overlook talented entrepreneurs who do not fit the 
typical mold that have innovative ideas. Ms. Matthews Brackeen, 
how often are you seeing these nontraditional founders 
overlooked by venture capital firms because the founders do not 
do the pattern match for stereotypical factors for success?
    Ms. Matthews Brackeen. Yes. People have a tendency to 
invest in people that they know, like, and trust, and sometimes 
that is in the region that they live in. According to the Angel 
Capital Association, women and their angel portfolios tend to 
invest at a 70 percent rate in other women, right? If we apply 
that to other markets, if we are able to diversify the 
investors that are investing around the country, I think we 
will see less pattern matching.
    Mrs. Kim. How can we adjust our capital market regulation 
to incentivize more venture capital investment in very diverse 
founders?
    Ms. Matthews Brackeen. I think it is still important to 
make certain that we are funding and having programs like 
SSBCI. I know that has helped our State incredibly in Ohio, and 
those regulations and those have really helped to grow in 
certain areas of the State that would have never had any 
venture capital at all.
    Mrs. Kim. Your firm, Lightship Capital, how have you 
capitalized or utilized the enrichment programming to mentor 
those founders?
    Ms. Matthews Brackeen. We offer programming in 16 cities 
around the country, and we help companies to grow the amount of 
revenue that they are attracting, and, oh my gosh, $500 million 
in capital has been attracted to our portfolio of companies.
    Mrs. Kim. Thank you. Since COVID-19, we have seen a decline 
of number of companies going public because economic conditions 
have been unstable throughout the Biden-Harris Administration. 
I want to ask the question to Mr. Case. Do you believe that the 
long-term stable economic growth that we are seeing under 
President Trump, who is aiming to deliver, will result in 
increased initial public offerings?
    Mr. Case. I continue to stay out of politics and focus on 
policy. That has been my approach for 40 years and will 
continue, but I do think figuring out ways to open up the IPO 
market to more companies so when they have a need for capital, 
if it is not available in the private market, they have a path 
to go public makes sense. Some of the things that this 
committee is considering, I think, are steps in the right 
direction.
    Mrs. Kim. Thank you. Thank you, all the witnesses, for 
answering.
    Mr. Timmons. The gentleman from Florida, Mr. Donalds, is 
now recognized for 5 minutes.
    Mr. Donalds. Thank you, Chairman. Witnesses, thanks for 
being here. Really appreciate it. As we are having this 
discussion on capital flow in the United States and really 
trying to find ways to open up that flow, for people who 
traditionally are not your accredited investor, I think it is 
important to take a step back and realize something. When we 
made this rule decades ago, it was the understanding that this 
was to help protect your small net worth retail investor; but 
if you look at just technology over the last generation and a 
half, two generations, every American is walking around with a 
supercomputer in their pocket.
    Your average American has more information about companies 
and more information about markets than they ever could have 
possibly had at any other point in American history. Yet we 
still have, in my view, a very archaic rule around what we 
would designate to be an accredited investor to protect the 
American people from the hardships of capital markets, and, 
listen, capital markets are not a guarantee. They are never a 
guarantee, but they do provide real opportunities for people to 
build wealth in this country, especially as asset ownership 
continues to be the driver of how people build wealth. Mr. 
Newell, how detrimental has the current definition of 
``accredited investor'' been to capital formation?
    Mr. Newell. There is no question that if you limit the 
number of people who can provide capital to a business, you are 
making it much more difficult for that business to grow and 
thrive and survive. I am in favor of a much broader statement 
of accredited investor that really empowers individuals, as you 
have suggested, to be making their own investment decisions, 
and that is not what the current standard allows.
    Mr. Donalds. What would be the economic benefit of 
eliminating the accredited investor rule altogether?
    Mr. Newell. Again, it democratizes, if you will, the 
opportunity to invest in earlier-stage companies and 
technologies, ones where you may have some acute insights as to 
why that technology is going to be beneficial, not only to the 
company, but to growing in the community in terms of jobs and 
also growing your own personal wealth. If you are not 
satisfying the current accredited investor decision, you are 
locked out of that investment opportunity.
    Mr. Donalds. Mr. Trotter, what are the regulatory 
restrictions that have caused the recent shift away from public 
offerings and toward private markets?
    Mr. Trotter. There are many, and many of them are long-term 
issues, but, again, I would say that the success of the JOBS 
Act and 13 years of experience with the IPO onramp can and 
should be extended, and you can significantly increase, expand 
the category of emerging growth companies, and help IPO 
activity.
    Mr. Donalds. What are the factors contributing to the rise 
of costs associated with going public?
    Mr. Trotter. The disproportionate regulatory burden on 
smaller companies trying to go public is definitely a factor. 
The JOBS Act was an attempt to address that. I think it has 
made a meaningful difference, but it could make a bigger 
difference.
    Mr. Donalds. Mr. Case, what are some of the unique 
challenges entrepreneurs outside of the coastal venture capital 
hubs? What are they really facing when it comes to capital 
formation? Ms. Matthews Brackeen, if we have time, I would love 
for you to answer the same question.
    Mr. Case. As we have been talking about today, there are 
big challenges. If you have an idea and you do not have capital 
yourself, you do not necessarily have friends and family that 
have capital to back you, many people will never start that 
company. That company could have been the next big idea that 
could have changed the world and created a lot of jobs and 
driven a lot of economic growth. Access to capital, exactly 
what this committee is focused on, is critically important in 
making it easier for entrepreneurs who have ideas to take those 
into the market, make it easier for them to raise capital, make 
it easier for the venture funds, particularly regional venture 
funds, to raise capital. All will contribute to trying to level 
the playing field and create more opportunity for more people 
in more places.
    Mr. Donalds. Ms. Matthews Brackeen.
    Ms. Matthews Brackeen. Yes, I would say we are seeing more 
cities grow. In your great State of Florida, Miami is seeing a 
lot of growth right now in the venture capital space, and that 
is because the dollars came there kind of right around COVID 
and sometimes in really a little bit before that. You have 
dollars there, you have had the universities double down on 
computer science so that the talent is there, and we have a 
very diverse community of people from Latin and South America 
who have come and helped to grow all of those companies.
    Mr. Donalds. Thank you for mentioning that. I have been 
talking a lot the last couple of weeks about Florida, in a lot 
of respects becoming the financial capital of not just the 
United States, but of the world, with a lot of the, whether it 
is venture, digital assets, et cetera. The one thing I would be 
remiss in not pointing out is that it is going to be critical 
for the future of our economy and our Nation that people who 
are at the bottom end of the economic ladder have real 
opportunities to invest in some of these fledgling companies. 
Imagine if a local waiter was able to invest in Snapchat, and 
Snapchat became Snapchat.
    Chairman Hill [presiding]. The gentleman's time has 
expired.
    Mr. Donalds. I yield.
    Chairman Hill. I thank the gentleman from Florida. The 
gentleman from New York is recognized. Mr. Garbarino is the 
author of a bill to exclude qualified institutional buyers and 
qualified accredited investors from the record holder account 
for mandatory registration, a modestly named bill and the Small 
Entrepreneurs Empowerment and Development, the SEED, Act. Mr. 
Garbarino, you are recognized for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman. Thank you for that 
wonderful shout-out about these two wonderful bills that I am 
lucky to sponsor. Thank you all to the witnesses for being here 
today.
    For more than 80 years, closed-end funds have provided 
nearly 4 million investors, including many retirees, with 
steady diversified income. As registered funds, closed-end 
funds are subject to rigorous safeguards such as protections 
related to valuation, disclosure, and conflicts of interest. 
Thanks to Chair Wagner's leadership, the bipartisan Increasing 
Investor Opportunities Act would allow retail investors to 
easily access a more diversified pool of private investments 
through strong protections of a registered fund. Mr. Trotter, 
do you believe that closed-end funds could be a viable option 
for retail investors looking to increase access to private 
investments?
    Mr. Trotter. Yes, I believe they could.
    Mr. Garbarino. Why?
    Mr. Trotter. I would support more open access to retail 
investors generally on different products.
    Mr. Garbarino. Thank you. As fewer companies go public, 
there have become fewer investment opportunities for most 
Americans. In recent memory, alternative investments have shown 
value by facilitating capital formation and helping provide 
more uniform investment returns for individual investors. I 
asked this exact same question at a Cap Market Subcommittee 
hearing last month, and I am going to ask it again because I 
think it is important to get it on record. Mr. Case, can you 
speak to what role alternative investments can play in capital 
formation?
    Mr. Case. First of all, on a personal note, I agree with 
the nature of your question. When I took my company, America 
Online, public in 1992, we raised $10 million, and the value of 
the company that day was $70 million. That is why most 
companies were able to access the growth capital they needed 
because of the growth of the capital markets and more late-
stage capital being available as well as some of the challenges 
of going public and being public. That does not happen anymore, 
and so, as a result, the people who saw my company go from $70 
million in value, at its peak, $160 billion, those were retail 
investors who got the benefit of it. They have been deprived of 
that for most of the innovation companies that exist today, so 
figuring out ways to get companies on that path to being a 
public company, if they choose to. Some prefer staying public, 
staying private because they can take a longer-term strategy, 
and some have access to that late-stage growth capital, but the 
ones who want to go public, we need to make it just a little 
bit easier for them to do it, a little less burdensome, a 
little less costly.
    Mr. Garbarino. That was my next question. You would agree 
that regulatory modernization is necessary to provide greater 
options to qualified and accredited investors than just the 
public?
    Mr. Case. Absolutely.
    Mr. Garbarino. Wonderful. Thank you. Speaking of a 
company's decision of whether to go public or stay private, it 
is often one of the most significant inflection points in a 
company's growth. In the case when companies deem that costs 
associated with going public are too high and that regulatory 
burdens of staying public are not worth it, we should ensure 
that there is a private market framework that supports 
companies throughout their lifecycle. I have a bill, as the 
chairman mentioned, that would exclude qualified institutional 
buyers and institutional credit investors from the mandatory 
registration threshold of 2,000 or more holders of records. Mr. 
Trotter, should these institutional investors be counted toward 
this threshold, and if not, can you explain to us the benefits 
that their exclusion could have in a company's ability to 
remain private?
    Mr. Trotter. I support your bill. I believe they should not 
be. I think it is an important step in allowing a private 
company to maintain flexibility on whether and when it becomes 
a public company, and your bill would be an important step 
toward that.
    Mr. Garbarino. I think so as well, so I hope we have a 
markup soon. I hope it passes unanimously. My last question as 
I have some time left, small businesses and entrepreneurs 
experienced significant losses during the first half of the 
2020s, which are beyond their control. Microlending has a 
demonstrated track record around the world for providing much-
needed capital to entrepreneurs, often women and minorities in 
underbanked communities. This, in turn, helps them start and 
grow their businesses. The proposed SEED Act includes micro-
offering exemption that allows companies to raise up to 
$250,000 without any disclosure requirements, but subject to 
antifraud and bad actor disqualifications. Ms. Matthews 
Brackeen, can you explain how small businesses would benefit 
from this exemption?
    Ms. Matthews Brackeen. Today, many people across the 
country do not have access to friends and family rounds. If you 
do not come from a wealthy family, you do not have someone to 
help you to get started. While I do not come from a wealthy 
family, my father helped me to start my first business with a 
$10,000 loan, and so being able to access up to $250,000 would 
allow us to grow companies across the country.
    Mr. Garbarino. Wonderful. I appreciate that, and I think 
you are absolutely right, and we should pass the SEED Act as 
quickly as possible. With that, Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back. The gentleman 
from Wisconsin, Mr. Fitzgerald, is recognized for 5 minutes.
    Mr. Fitzgerald. Thank you, Mr. Chair, and thanks to the 
witnesses for hanging in there. I know it has been kind of a 
long morning. Mr. Newell, you have seen firsthand the 
regulatory burdens, and I know you spoke about this earlier. Do 
the compliance costs and disclosure requirements push companies 
to seek alternative paths, like mergers, private funding, or 
even overseas markets?
    Mr. Newell. The compliance costs of going public are 
substantial. I think we have talked about it today. I know we 
spent about $5 million in accounting just to satisfy the 
accounting requirements to go public. When you know that money 
is going to go out of pocket with no real benefit to you and 
your business, you naturally think about alternative strategies 
to finance the company and move it forward, and the ones that 
you have suggested are things that happen. There is a process 
called a dual track process that exists where oftentimes 
companies will look to either raise capital through an initial 
public offering or, at the same time, look to sell or merge 
their company into another company, and that is because they do 
not necessarily want the burdensome consequences of going 
public and may be able to actually continue their journey as a 
company, but in a different fashion.
    Mr. Fitzgerald. Do you think if Congress extended kind of 
the onramp period, what changes would be necessary to ensure 
kind of that the companies themselves not only go public, but 
also kind of thrive in the public markets long term?
    Mr. Newell. Yes. Thank you, Congressman, for that question. 
I think it is important that we have ways in which not only 
companies avoid excess of costs that really do not contribute 
to the growth of the company and are not necessary for investor 
protections, but then look at ways in which we can expand the 
access to capital to those companies. Oftentimes, just because 
you go public, it does not mean you have all the capital in the 
world that you need, and so you continually have to look for 
new sources of capital. That is certainly very true in our 
biotechnology industry. You need to keep going back and finding 
new investors, and that means any limitation on who can invest, 
the amounts they can invest, all of that is a barrier to your 
being able to continue and succeed with your business.
    Mr. Fitzgerald. Very good. Thank you. Mr. Case, expanding 
and diversifying the pool of individuals who qualify as 
accredited investors, as we know, is essential to unlocking new 
funding opportunities, especially for entrepreneurs, right, and 
founders in really small companies across the whole Nation. 
Some of those current regulations as been discussed this 
morning and this afternoon still pose significant challenges. I 
mean, that is why we are here today, I think. How do current 
regulations around accredited investors create barriers for 
both the investors and the entrepreneurs. I know you have 
discussed this again earlier, but what are some of the reforms 
that would help expand access to capital while maintaining the 
protections that investors are looking for?
    Mr. Case. Obviously, we have to strike the right balance, 
giving people the opportunity to invest, but in a way that is 
safe and makes sense. It goes back to what I said before and 
probably should have emphasized it more earlier. There has sort 
of been a structural change in the capital markets in the last 
several decades. In my era, when companies like my company, 
AOL, was going public, but also when Microsoft was going public 
and Amazon was going public, and many other companies were 
going public in the 1990s, they generally raised capital much 
earlier in the cycle. For example, the valuations at the time 
were in the few hundred-million-dollar range.
    Now nobody goes public until there are many billions of 
dollars of valuation. What that essentially means is those 
retail investors who believed in Microsoft or believed in 
Amazon and were able to get in kind of on the ground floor, not 
at the first venture capital level, but kind of on the ground 
floor, were able to see the benefit of that, and it benefited 
their families in terms of the appreciation of wealth. That has 
largely been taken away because companies are not going public 
until it is much later, and that is not entirely because of 
regulation.
    Some companies choose not to go public because they want to 
take a longer-term attitude, but most of it is because they 
have access to capital now to grow without going public, which 
is different than 3 decades ago, and they are just worried 
about the costs and complexities of being public. As a result, 
the individual investors are being deprived of the opportunity 
to participate in some of that upside, modifying the accredited 
investor rule so they can invest in these high growth companies 
when they are private would be a step in the right direction.
    Mr. Fitzgerald. Very good. Thank you very much. I yield 
back.
    Chairman Hill. The gentleman yields back. The gentleman 
from Nebraska, the Chairman of our Housing and Insurance 
Committee, Mr. Flood. Let me just yield to Mr. Flood for 5 
minutes.
    Mr. Flood. Thank you, Mr. Chairman. This hearing topic is 
near and dear to my heart. How to drive access to capital 
outside of Silicon Valley and outside of the cities on the 
coast is something I have worked on since I entered public 
service in partnership with great State groups, like Invest 
Nebraska. One of the elements that makes Silicon Valley the 
pinnacle hub of entrepreneurial activity and investment in the 
country is networks. If you are an aspiring entrepreneur with 
an idea for a new project, you want to be in the same place as 
the venture capital firms that could serve as a funding source 
for you and the talented software engineers that could help you 
build your project. In other words, a good hub provides both 
the capital and the labor to make that dream a possibility. The 
challenge for communities that are not already in that kind of 
a hub is, to a certain degree, the name of the game. You can 
have great schools that are graduating talented young people, 
but if there is not the capital available near them, in many 
cases, they will leave town and go to a hub that has it all in 
the same place.
    What we see is enormous value created in these hubs, vast 
sums of wealth and opportunity driven in part by the best and 
brightest young people that have left behind smaller 
communities where they grew up. Lots of times, these hub 
communities rebel against the very growth activity that they 
enjoy. In some parts of the country, gentrification has become 
a bad word used to reference out-of-towners who have driven up 
the cost of goods and housing.
    The great irony is that there are communities across the 
country yearning for a fraction of the kind of investment in 
economic activity that a hub like San Francisco enjoys. In the 
past, I have been interested in how to build one of these hubs 
in Nebraska. Folks like Brad Feld and Ian Hathaway's, ``The 
Startup Community Way, Evolving an Entrepreneurial Ecosystem,'' 
serve as a potential blueprint on how to get that done, and I 
have read them with great interest.
    I think there is an even bigger picture question underlying 
the entrepreneurial hub concept: at what point is a geographic 
hub no longer necessary? Technology has broken down many of the 
barriers that makes geography such a strong barrier between 
people. You can hop on a plane to San Francisco and be there 
within a day. You can communicate with people all across the 
country and world easily through messaging and video 
applications.
    This question is really for all witnesses. I would like to 
hear from all of you. I would be curious to hear from you 
regarding your thoughts on this topic. Is there a point where 
these entrepreneurial ecosystems would no longer be necessary 
at all or they would not necessarily need to be located in one 
geographic place? We will start with you, Mr. Case.
    Mr. Case. I think we certainly want to build out dozens and 
dozens of ecosystems, and there is still something even in a 
world where there is more virtual, more remote, to having 
clustering of talent. It is just unfortunate that the 
clustering is only happening in places like San Francisco and 
New York. There is progress in places like Lincoln and Omaha, 
and even an effort around creating more of a regional hub, so a 
couple of mid-sized cities can work together to create a 
broader entrepreneurial zone. I think that is a step in the 
right direction.
    Mr. Flood. I would add that Lincoln, Nebraska, which is the 
largest city in my district, has seen some success here, but 
building upon that success is really a question.
    Mr. Newell. The thing that I learned in the pandemic was 
that it was difficult to get the richness of ideas by remote 
linking to people. There is something valuable about being able 
to meet a friend at a coffee shop and talk about an idea with 
them that you cannot replace with a Zoom meeting. Now, Zoom 
meetings can be necessary supplements to it, but I do think the 
success of Silicon Valley, Boston, San Diego, other communities 
has to do with the proximity of people, and that is an 
important thing that we need to remember. We lost it in the 
pandemic, and thank God, it is coming back.
    Ms. Matthews Brackeen. The critical mass is necessary. I 
would say that 10 years ago when I got into the tech community, 
Steve brought the bus through Cincinnati, At that point our 
network really exploded, and we understood what the playbook 
looked like. I think it is necessary as we build out innovation 
hubs, as you are saying, in Nebraska. We are doing that in Ohio 
with innovation hubs in our 3C cities, and the critical mass 
and us being next to each other is important.
    Mr. Flood. Thank you.
    Mr. Trotter. I agree with all these comments. You are never 
going to replace face-to-face interactions, but I also think 
that technology changes things and makes it more efficient.
    Ms. Senn. Yes. I am excited. We have Innovate Alabama much 
like Invest Nebraska, and our State has innovation hubs across 
the State and we reach all geographic regions of our State. I 
think it is critically important we have economic incentives 
and non-economic incentives, and having people collaborate is a 
key to prospering our Alabamians. Our community wants to invest 
in Alabama. We have attractive geographic incentives, the 
beaches, the coast, so we highlight that, and we are excited 
about bringing entrepreneurs into the State. I think you guys 
are in a unique position to be able to go back to your States 
and help prosper them through those economic hubs. They are a 
big success in Alabama.
    Mr. Flood. I would be remiss if I did not also recognize 
Little Rock. Thanks to our chairman and his efforts at 
innovation and growing jobs and entrepreneurial activity. With 
that, I yield back.
    Chairman Hill. The gentleman yields back. The chair 
recognizes from New York, Mr. Lawler, the vice chair for 
communications of the committee and also the author of the 
Helping Angels Lead Our Startups, HALOS, Act. Mr. Lawler, you 
are recognized for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman. Small businesses are 
now facing these turbulent economic times, having to contend 
with many regulations that the previous administration put into 
place, which could stifle economic growth, prevent 
entrepreneurs from retrieving their full potential, and 
frankly, prevent folks from living out their American dream. 
Entrepreneurs and small businesses drive the American economy. 
In 2019, the Small Business Administration calculated that 
close to 44 percent of our GDP was a result of small 
businesses. We should be doing everything we can to promote 
investment, promote entrepreneurship, and foster small business 
growth, whether it be cutting red tape, providing additional 
access to capital or simply getting government out of the way 
of entrepreneurship. That is why I introduced the Helping 
Angels Lead Our Startups Act or the HALOS Act, last Congress, 
and reintroduced it again.
    The HALOS Act will promote access to investment capital for 
small companies and ensure that startups can continue to 
generate interest and connect with investors. It will do this 
by ensuring that demo days, pitch competitions, and community 
economic development events where there is no specific 
investment offering are not considered general solicitation 
under Reg D. In doing so, companies will be able to engage with 
a wider audience of investors and spread word of the products 
and services that they can offer to help develop a thriving and 
diverse economy. In addition to driving economic force, angel 
investors provide by supporting tens of thousands of small 
companies per year, long-term impact can be seen as companies, 
such as Amazon, Costco, Facebook, Google, and Starbucks, were 
all initially funded by angel investors.
    We have seen many successes since the passing of the 
bipartisan JOBS Act over a decade ago, which helped reduce 
barriers to investment. By alleviating burdens on businesses, 
cutting red tape, and making capital raising in our public 
markets easier and less costly for emerging companies, not only 
will we be clearing the way for businesses to expand and 
develop, but we will also be helping to build a more diverse 
and inclusive universe of entrepreneurs and founders by 
expanding opportunities to underrepresented entrepreneurs and 
communities facing capital formation challenges. The HALOS Act 
will simply allow folks to get eyes on their businesses and 
potentially find the vital investor they need to succeed. Think 
``Shark Tank.'' I look forward to reintroducing the HALOS Act, 
which passed out of this committee last year and to seeing it 
signed into law.
    Mr. Case, in 2020, the SEC adopted amendments to Reg D to 
allow for certain demo day communications to be exempt from 
being considered general solicitation or general advertising. 
The amendment also defined ``angel investor group'' for the 
purpose of Federal securities laws. These changes were made to 
support startups discussing their products and business plans 
demo day events without it being considered an initial 
investment offering. How critical are the changes made in 2020 
to capital formation, and should Congress solidify these 
changes by codifying them into law?
    Mr. Case. I support the principles you mentioned. We need 
to figure out more ways for entrepreneurs who have ideas to 
talk about those ideas, including demo days and other 
gatherings of startups, educating people about the potential of 
a particular market, and modifying some of the rules or perhaps 
the legislation you are proposing, the bill you are proposing, 
that would make it easier for angel investors, make it easier 
for entrepreneurs, would be a step in the right direction.
    Mr. Lawler. In your experience, startups generally hesitate 
to participate in demo days, in large measure due to fears of 
violating securities laws. Do you see that codifying these 
exemptions would help give entrepreneurs some more confidence 
in going out and seeking the funding that they need to grow 
their business?
    Mr. Case. Yes, I believe it would.
    Mr. Lawler. Okay. Would anybody else care to comment?
    Ms. Senn. The States certainly support--I am sorry. Go 
ahead.
    Mr. Newell. Go ahead.
    Ms. Senn. Those demo days and pitches, we do it all the 
time in Alabama, but State securities regulators, since we are 
seeing these operations going on across our State, we just want 
to be sure that we do not have, and we see it all the time. You 
all, I mean, prosecute these cases where you have a startup 
that is not very business savvy, they are misusing the funds 
and they are not doing what they are saying. They are making 
misrepresentations. Knowing that they are out there, it is 
important to sort of help prevent some of that and keep these 
businesses. Like I said, build a good foundation, but the 
pitches and the demo days are very successful in Alabama.
    Mr. Newell. I think it is important that you spread the 
message of what you are doing, why it is important, and why it 
is going to be a valuable investment. The more that you can 
allow that to happen, the better it will be for the country.
    Mr. Lawler. Thank you, Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back. The gentleman 
from Tennessee, Mr. Ogles, is recognized for 5 minutes.
    Mr. Ogles. Thank you, Mr. Chairman. Mr. Trotter, I want to 
revisit Mr. Garbarino's conversation about the closed-end funds 
and give you a little more opportunity there, but millions of 
Americans, including many in Middle Tennessee, depend on 
closed-end funds (CEFs) as a critical source of retirement 
savings and investment opportunities. We are talking about 
expanding access to capital. CEFs can be a significant force 
multiplier in helping our fellow citizens achieve the American 
dream, as you mentioned, Mr. Case. In 2023, total closed-end 
funds, CEF assets were $544 billion. Traditional CEFs had total 
assets of roughly $250 billion. Unlisted CEFs, including 
interval funds, tender offer funds, and business development 
companies, had total assets of $77 billion, $60 billion and 
$159 billion, respectively.
    Unfortunately, the SEC maintains that a closed-end fund 
should hold no more than 15 percent of its asset and private 
funds, and that if a closed-end fund exceeds this amount, the 
CEF should offer its share to accredited investors, which, as 
many of my colleagues have noted, is in desperate need of 
definition upgrade. In the case of CEFs, candidly, there are 
few investment vehicles that have more robust investor 
protections, including investment advisors, directors, 
extensive disclosures, reporting requirements, et cetera. Mr. 
Trotter, in your view, given these protections, is it a 
worthwhile tradeoff to maintain the SEC staff position, 
limiting private fund investments to 15 percent of a CEF's 
assets? Why or why not?
    Mr. Trotter. I think 15 percent is a little arbitrary. It 
is a staff position. I think it makes sense to broaden that.
    Mr. Ogles. Well, and I think there is the opportunity when 
you have a fund, they can analyze their own risk protocols and 
tolerance, quite frankly. It does make sense to allow CEFs to 
invest what they think is basically how they should invest in 
private securities, creating arbitrary anti-free market 
limitation, crowds out the market, needlessly precludes retail 
investors from critical opportunities.
    I am grateful to the gentlewoman from Missouri, the 
Chairwoman of the Capital Markets Subcommittee for her 
legislation, the Increasing Investor Opportunities Act, and 
look forward to working with her on that one. The current 
definition of ``accredited investor'' limits private market 
investments to those deemed sophisticated. Mr. Stutzman's bill, 
the Investment Opportunity Expansion Act, would expand the 
accredited investor definition to include individuals who 
invest 10 percent or less of either their net assets or annual 
income, whichever is greater, in a private offering.
    Mr. Case, can you flesh out a little bit for me if the 
opportunities that an investor would have had in the early days 
when you were launching AOL versus the regulatory regime that 
kind of has stymied those opportunities and limits the access 
to that American Dream? The returns that you saw under your 
tenure were phenomenal, of course, right, and not every 
investment is going to have that, but again, let the free 
market decide, if you will.
    Mr. Case. Yes. As I mentioned earlier, in the 80s and 90s, 
when an asset class was less developed, there was less of it. 
It was harder to get, and also, once you got to a certain 
stage, you had to go public in order to access additional 
capital. Because of the growth of capital markets and venture 
capital and later-stage growth, companies can stay private 
longer, and many choose to, and that is totally fine. As I said 
earlier, it has an unintended consequence of depriving 
individual investors, retail investors, of the ability to 
invest in some of these companies when they are up and running, 
whether it be AOL or Uber or Amazon or other companies. You 
might have been a customer of one of those companies, believed 
in that company, but you did not have the ability to invest 
until much, much later when they go public, when they are worth 
$10 billion or $20 billion or more.
    Figuring out ways to allow people to invest in those 
companies by modifying the accredited investor rules would open 
up that market to other investors who could then participate in 
some of the upside of some of these companies. You note there 
are obviously risks associated with that so you need to figure 
out how to strike the right balance, but it does feel like it 
is time to take a fresh look.
    Mr. Ogles. Yes, sir. Well, and then, Mr. Newell, would an 
expanded definition of ``accredited investor'' have been able 
to help you as you started your Sutro Biopharma company?
    Mr. Newell. Absolutely. When the company was first started 
in 2003, it was really friends and family. Venture capital did 
not come in for a couple of years, so it was really important 
to have those angel investors around the table, and the more 
you have, the more successful you are likely to be with your 
business.
    Mr. Ogles. Yes, sir. Thank you, and, Mr. Chairman, I think 
the note here is that obviously we proceed responsibly and with 
caution, but there are missed opportunities for the retail 
investor in this sector to win and achieve that American Dream. 
With that, Mr. Chairman, I thank you and yield back.
    Chairman Hill. The gentleman yields back. The gentlewoman 
from Michigan, the Chair of the Republican Conference, Mrs. 
McClain, is recognized for 5 minutes.
    Mrs. McClain. I will try and be quick since we have votes, 
Mr. Chairman. Thank you. I am going to piggyback off what 
Congressman Ogles was talking about. Ms. Matthews Brackeen, 
what variables other than wealth and income do you think we 
should consider when expanding the accredited investor 
definition and look at it from both the investor end and the 
entrepreneurial end?
    Ms. Matthews Brackeen. I would say there are probably two 
areas that you could look at. Experience would be one of them.
    Mrs. McClain. Experience in investing. Have you had 5 years 
of experience, is that what you are saying?
    Ms. Matthews Brackeen. Not necessarily in investing, but 
really in different markets. There could be someone who studied 
chemistry or biology in college and deeply understands biotech. 
They have experience in that space, so experience and education 
could be another way to expand that.
    Mrs. McClain. I do not want to put words in your mouth, but 
I want to make sure I understand, experience maybe in the 
sector.
    Ms. Matthews Brackeen. In the sector. Thank you.
    Mrs. McClain. Anything else?
    Ms. Matthews Brackeen. I would not want to limit it any 
more than it already is. I think that the point of this is to 
expand it so that capital is not constricted as much as it is 
right now.
    Mrs. McClain. I agree. Mr. Case, I would like to hear your 
opinion on that as well.
    Mr. Case. I agree that sector expertise helps, also having 
some investor expertise, understanding the complexities of 
these securities and what happens with follow-on rounds, I 
think, is important. A number of the proposals that require 
some level of education, maybe passing some kind of test would 
be a step in that right direction.
    Mrs. McClain. I am sorry. Passing some kind of test, did 
you say?
    Mr. Case. Some way to make sure that people making these 
investments understand not just the opportunity, but how the 
structures work and what some of the risks are.
    Mrs. McClain. Yes.
    Mr. Case. Many different ways to do that, but having that 
as part of it would, I think, be important.
    Mrs. McClain. Very helpful. Thank you. Mr. Trotter, we have 
heard from numerous small business owners in Michigan, my 
State, who found working with the SEC, me being one of them, 
over the past years to be extremely frustrating, expensive, 
complicated, especially the past 4 years. What I am trying to 
figure out is, I had my own financial services company at one 
point. We had more people in the compliance department than we 
had in the processing department, than we had in the client 
service department, right? We were so worried about making a 
mistake that we spent a lot of resources doing that to make 
sure that we were compliant. What I am trying to figure out is, 
can you discuss ways to actually reduce friction, roadblock in 
the registration process or from the SEC? I mean, I think it 
was started with good motive, but just like everything, I think 
we are a long way from home.
    Mr. Trotter. We have talked about a lot of those ideas. You 
have sponsored a bill that would be very helpful in that 
regard. It does not necessarily affect every single company 
going public, but many companies going public will run into a 
problem with their auditor independence. There are private 
company auditor independence rules that apply to pre-IPO 
companies, and then the PCAOB and SEC rules are much more 
rigorous and demanding, and your bill would be very helpful for 
companies like that.
    Mrs. McClain. I just want to make sure I get you on record. 
You would be in support of that. You think that is a good idea.
    Mr. Trotter. Yes, it is a great idea.
    Mrs. McClain. Thank you. No, I mean, it is important, and I 
think we all have good intentions when we put these regulatory 
bodies together, right? We want to provide guardrails, but at 
some point they just grow so big and they get so overwhelming 
that they actually begin to do the opposite, and they have the 
opposite effect for both the companies and the investors that 
we have talked about. With that, Mr. Chairman, we have votes. I 
am going to yield back. Thank you all for your time.
    Chairman Hill. The gentlewoman yields back. Pursuant to the 
previous order, the chair declares the committee in recess, 
subject to the call of the chair. We will reconvene immediately 
following the last vote in the series of floor votes, so the 
committee stands in recess.
    [Recess.]
    Mr. Downing [presiding]. The committee will reconvene and 
come to order following our recess.
    The gentlewoman from Texas, Ms. De La Cruz, is now 
recognized for 5 minutes.
    Ms. De La Cruz. Thank you so much, Chairman, and thank you 
to all the witnesses for being here. I do appreciate it.
    Texas is home to over 3.3 million small businesses and is a 
destination for businesses of all sizes. My district is all the 
way down in deep South Texas, a very rural area, hard to raise 
capital, but very entrepreneurial. In fact, I myself am a small 
business owner and have been blessed to open several different 
types of small businesses. I understand how challenging it can 
be, especially in a minority community, like mine is, being a 
female and then opening small businesses with all the 
challenges. My question is directed to Ms. Matthews Brackeen. 
What are some of the issues startups face when they are located 
in more rural districts, like mine?
    Ms. Matthews Brackeen. Good afternoon, and thank you, 
Congresswoman. I would say it depends on kind of the small 
rural region. Is it covered in the county? Does that county or 
city support economic development work? Is there educational 
programming available? I think there are a lot of different 
things that people need beyond just capital. If your region 
does not have kind of economic development work happening 
within it, you sometimes do not know how to access those 
things, so what is that center point within your community that 
can help you to grow and thrive as a business? Is that the SBA? 
Is that a Service Corps of Retired Executives (SCORE) mentor? 
Is that just someone who has set up a local innovation hub? All 
of those things are necessary to help a company to grow.
    Ms. De La Cruz. Thank you so much, and you are ``Mrs.'' I 
am sorry.
    Ms. Matthews Brackeen. That is Okay. We are all moving 
fast.
    Ms. De La Cruz. We are moving fast here. Thank you so much. 
I appreciate it, and you are absolutely right. As I said, I 
have been blessed to be a part of many different types of 
businesses, opening them by myself, and sometimes you just do 
not know where to start. If you are not in a community that has 
a small business association or a university that has an SBA 
area that can help you, then you can feel quite lost and 
overwhelmed, right? As a small business owner myself, like I 
said, sometimes with those challenges, especially the capital 
challenge, they often close. What is the statistic? Do you know 
something like 50 percent of small business openings close 
within the first 3 years?
    Ms. Matthews Brackeen. I am not certain of the small 
business number, but I know for tech companies, it is 8 fail 
out of 10 generally, right? That number is really high at the 
early kind of pre-seed seed stage. It is later where they start 
to grow, but I do not know that small business number.
    Ms. De La Cruz. Eight out of 10 is very high. What do you 
think some of the steps for Congress or that Congress could 
take in order to assist?
    Ms. Matthews Brackeen. I would say more support around 
technical assistance for companies. I would say there is not 
really a nationwide push behind helping with technical 
assistance for technology companies. The Small Business 
Administration is still supporting, in general, main street 
businesses. That could be through other organizations, like 
ours, where we support through kind of economic development 
work. We are in seven cities in the State of Ohio and nine 
cities elsewhere in the country, so that is one area. Another 
is just making it easier for capital to flow throughout all of 
the States. SSBCI has been brought up several times today. I 
would say continuing that program is incredibly important. It 
has helped to capitalize lots of companies that were started in 
garages and labs across the country.
    Ms. De La Cruz. Thank you. Mr. Trotter, how can we make 
public markets more attractive?
    Mr. Trotter. Well, continue with the success of the JOBS 
Act. In particular, make it easier to go public, and then once 
you are public, make it easier to be a new public company and 
entice companies that are considering an IPO by lowering the 
cost of being a new public company for a meaningful period of 
time after the IPO. Those would all be helpful steps, and you 
can do all of those by expanding the definition of emerging 
growth company.
    Ms. De La Cruz. Thank you. I yield back.
    Mr. Downing. The gentlewoman yields. The gentleman from 
Iowa, Mr. Nunn, is now recognized for 5 minutes.
    Mr. Nunn. Thank you, Chairman Downing. It is always good to 
have an Air Force guy as your wingman up in the seat there. We 
appreciate it, certainly, as a combat veteran ourselves.
    Let me begin by iterating the U.S. capital markets remain 
the envy of the entire world. We have a lot of good opportunity 
here. Our markets provide unrivaled liquidity. They have 
transparency, competition, rule of law, which help millions of 
Americans, including millions right in my home State of Iowa. 
The challenge, however, is despite our Nation's financial 
strength, access to capital remains overly concentrated, 
particularly in the East and West. I see my colleague from 
Alabama nodding her head. This is the reality. Last year alone, 
33,000 new small businesses launched in Iowa, but our markets 
still fail to reflect its growth. Imagine the economic power if 
we were able to bring more of this capital to the heart of the 
heartland.
    Now, Ms. Matthews Brackeen, you are an Ohio gal. You 
recognize this firsthand. I think that you know that we 
struggle with our traditional financial centers when it comes 
to raising that initial funding. Limited availability of 
initial capital outside of major investment hubs reinforces a 
pattern, matching a tendency for fund startups to resemble what 
we have seen in the past, which makes it even more difficult 
for a Central America opportunity to get outside of Boston, New 
York, Miami, or Silicon Valley, all great places, but we have 
an opportunity right here. You have helped lead some real 
successful examples of what securing capital in the Midwest 
might look at, some of the key factors that we should focus on 
to increase and lower barriers for small companies. Tell me how 
Ohio and Iowa could better fit into this model.
    Ms. Matthews Brackeen. I think we need to look a little bit 
at the model that you see on the coast, but we also need to fit 
it to ourselves, right? I would say in the Midwest, we are more 
thoughtful about the way that we spend money. First and 
foremost, we make certain that companies are generating 
revenue, that they can see growth, and we can really build our 
own models. Earlier today, I talked about Ohio Third Frontier 
and JobsOhio. Those are the ways that we are capitalizing our 
businesses and putting Ohio companies first. I think Iowa could 
definitely do the same thing and you are seeing that across the 
country, and those things work quite well.
    Mr. Nunn. I could not agree with you more, and I think you 
are right. There is a model we can use on both sides of this. 
As we look at the lack of small businesses in our public 
markets now, they are deprived of the investing opportunities 
to invest in high-growth companies, primarily because they do 
not have the same opportunity. Have you seen opportunities for 
businesses in Ohio or other places to be able to capitalize on 
those high return yields?
    Ms. Matthews Brackeen. That is a question that I do not 
think I could answer, but, Joel, do you want to take that one?
    Mr. Nunn. All right. Mr. Trotter, she just teed it up for 
you, brother.
    Mr. Trotter. I do not have an easy answer to that question. 
I mean, my emphasis, again, is on improving capital formation 
by principally expanding the category of emerging growth 
company and expanding the well-known seasoned issuer 
definition. I think all of the proposals before you are steps 
in the right direction. They all help facilitate capital 
formation and take down some of the barriers that are 
unnaturally inhibiting steps to grow capital and raise capital 
and help businesses grow.
    Mr. Nunn. Mr. Trotter, on that example, I will take you one 
step further. The JOBS Act created the EGC designation, which 
is an example that grants certain smaller companies relief from 
specific disclosure compliance requirements for a limited 
period and helps ease their transition effectively into the 
public market. I have a bill that would allow EGCs to present 2 
years of audit financial statement, rather than what is 
currently out there right now, 3 in both the IPO and spinoff 
transaction. Is this an example of something that could help us 
get into the public market space, and if so, how?
    Mr. Trotter. Yes, that is definitely a great example. EGCs, 
when they go public, they can go public with 2 years, but there 
are these aberrational circumstances that your bill would 
address where experience has shown that despite having gone 
public with 2 years, for whatever weird reason, they are 
required to present a third year. It makes no sense, and there 
is no easy path for relief for those companies. Addressing that 
scenario in a spinoff scenario, as well as a case where maybe a 
newly public, emerging growth company has acquired another 
company and they have to come up with a third year of target 
financial statements, that makes no sense in those situations. 
You are fixing parts of the rules where there is an extra 
burden that really should not be there.
    Mr. Nunn. Hopefully that is a good onramp. Mr. Chairman, 
thank you very much. I yield the remainder of my time.
    Mr. Downing. The gentleman yields. I now recognize myself 
for 5 minutes for questions.
    First, without objection, I enter into the record a comment 
letter from the Institute for Portfolio Alternatives.
    So ordered.

    [The information referred to can be found in the appendix.]

    Mr. Downing. Montana is a very rural State, and according 
to the SBA, more than 99 percent of Montana businesses are 
considered or classified as small businesses, and they employ a 
super majority of the State, 67 percent of Montanans. I have a 
lot of experience dealing with the challenges of a startup, 
especially in a rural State, and this is mostly a comment. I 
really appreciate some of the comments that we have had on the 
unique challenges that rural startups face, but I am going to 
start on something a little bit different.
    One of the issues that I have had in my career before 
politics is, like, the definition of ``accredited investors.'' 
It is something that has bugged me because it seemed like it 
disqualified a lot of Americans from being able to participate 
in alternatives, and it was a big problem for that. Mr. 
Trotter, the current accredited investor standard limits 
investments in the private markets to individuals with an 
annual income of at least $200,000 and net worth over a million 
dollars. The median income in Montana is about $71,000 with 
only 8 percent of households making $200,000 or more, and over 
99 percent of U.S. companies are not publicly traded. My 
question is, does this deny retail investors growth and 
diversity in their retirement accounts when they can 
essentially only invest in less than 1 percent of U.S. 
companies?
    Mr. Trotter. Yes, it does, and I have been to a number of 
these hearings where a lot of emphasis is placed on this 
definition. It does seem like there is room for commonsense 
expansion of the definition and to take a more pervasive 
approach.
    Mr. Downing. Right. I have always struggled with the fact 
that you could have no experience and a lot of money and you 
are qualified, or you can have a lot of experience and not 
enough money and you are not qualified, and so thank you for 
your answer there.
    I am going to go to Ms. Matthews Brackeen. Most VC 
funding--venture capital funding--is concentrated in 
California, Massachusetts, and New York. Again, I struggled 
with this, trying to start a startup company outside of 
California, and we have discussed a lot today on how new 
challenges are needed to expand venture capital access to other 
states, like Montana. The 2012 JOBS Act contains several 
provisions to make raising capital in private markets easier. 
After the passage of the JOBS Act, did you see some venture 
capital funding going to other areas that would demonstrate the 
need for Congress to do more now?
    Ms. Matthews Brackeen. Yes. I will say that I have been in 
the tech industry specifically for the last 10 years, so some 
of that was before my time. However, I will State that SSBCI 
funding did get put into the State of Ohio, and it helped 
launch three major funds in our State: Cincy Tech, REV1, and 
Jumpstart. We have seen incredible economic development in our 
State because of that, and I think that States like yours in 
Montana could see the same if we continue those programs.
    Mr. Downing. Thank you. Shifting on to Mr. Newell, the U.S. 
has recorded several of its worst years on record for initial 
public offerings as costs associated with going public have 
doubled since the 1990s. Costs are crazy. Gary Gensler, the 
former chair of the SEC, never proposed a single rulemaking to 
make raising capital easier. In fact, he pushed policies to 
make private markets less attractive, like adding costly 
regulatory requirements and disclosures on private funds. Can 
you explain why it is a bad idea to try to force companies to 
go public when they are not ready?
    Mr. Newell. The regulatory burden of becoming a public 
company is not insubstantial. The accounting costs that are 
required can run into the millions of dollars, and, you know, 
that is money that is not going to advancing your business. 
That is not money going to hire new employees. That is money 
going to satisfy accounting requirements that, frankly, are not 
rightsized for the business at that point in time, so it acts 
as a great deterrent. I would say that you have to think 
carefully about going public. It is one of these be careful 
what you wish for because you might get it. There are a lot of 
things that if you are not well advised, you are going to 
discover that you now need to triple the size of your 
accounting force, your finance team, just to meet compliance 
requirements when, really, that is not necessary for investor 
protection. There are other investor protections we have as 
well, and we have talked about a lot of them here today.
    Mr. Downing. Yes. Thank you, and I thank all the witnesses 
for your time today. This has been very useful and informative. 
I yield my time, and I would like to thank you all for your 
testimony.
    Without objection, all members will have 5 legislative days 
to submit additional written questions for the witnesses to the 
chair. The questions will be forwarded to the witness for his 
response or her response. Witnesses, please respond no later 
than April 29, 2025.

    [The information referred to can be found in the appendix.]

    Mr. Downing. With that, this hearing is adjourned.

    [Whereupon, at 2:35 p.m., the committee was adjourned.]



      
      
      
      
      
      
      
      

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