The SEC’s Small Business Capital Formation Advisory Committee recently held a discussion about improving the ability for small businesses to raise capital.

Following a meeting that was held on May 6, the Committee explored the possibility of implementing improvements and updating Regulation A (expanded under the 2012 JOBS Act), which provides an exemption from full SEC registration requirements for initial public offerings if they meet certain criteria.

Instead, they must file a simpler disclosure document called Form 1-A, which is reviewed by the SEC but involves less time, cost, and complexity.

The discussion also addressed potential conditional exemptions from broker-dealer registration for finders – individuals who assist in raising capital but do not perform the full range of broker-dealer activities. Those finders are common and critical in businesses that operate outside well-established capital formation networks.

That conversation centered on a 2020 rule proposal that would have codified finder exemptions, but was never adopted.

Commissioners weigh in

SEC Commissioners Mark Uyeda, Hester Peirce, Caroline Crenshaw and Chairman Paul Atkins opened the meeting with several remarks that highlighted the importance of capital formation for small businesses.

The three Republican commissioners agreed that Reg A was underused and was impeded by state-level secondary sales restrictions, which could lock investors into investment without an exit path.

Uyeda was the strongest supporter of finder exemptions, stating that finders were critically important for companies raising under $5m. He contended that a person who solely provides names and contact info for modest transaction-based compensation should not be regulated like large broker-dealers.

Likewise, Peirce and Atkins both supported pragmatic changes and clearer finder exemption rules to boost early-stage capital formation.

Conversely, Commissioner Crenshaw stated that she was opposed to weakening finder oversight, fearing that it would invite fraud.

She emphasized that the 2020 rule proposal to relax finder requirements would have given finders the purview of traditional broker activity and did not provide a mechanism for the SEC “to review whether they were complying with the requirements of the safe harbor.”

Consensus emerged around raising the Tier 2 maximum raise limit from $75m to $100m, with a recommendation to study whether it should be raised to $125m. Several members emphasized that any final changes to the threshold should be based on data.

There was wide agreement that a lack of liquidity and state-level securities laws deterred investors in Reg A offerings, and the committee voted to recommend preemption of state regulation of secondary sales of Tier 2 securities.

Discussion on “finders”

A participant noted that finds were ubiquitous and necessary in startup ecosystems, and they often rely on deceptive workarounds that allow themselves to be compensated, and that concerns related to high-pressure sales tactics used by broker-dealers usually do not apply to finders in that capacity.

She also criticized the high compliance costs of having finders register as broker-dealers and the legal and accounting issues that arise from unregistered finders.

The SEC’s 2020 rule proposal split registration-exempt finders into two tiers. Tier 1 finders would be limited to providing contact information once per issuer, with no direct contract with investors. Tier II finders could solicit investors but would be subject to additional disclosure and acknowledgement requirements and could not give investment advice.

One participant, however, supported the Unlocking Capital for Small Businesses Act of 2025 draft bill’s use of monetary thresholds ($15m per offering/$30m annually) as criteria for finder exemptions rather than limiting specific activities in the tiered approach.

Some participants wanted finder exemptions to extend to LLCs or legal entities like universities or angel investor networks, rather than just natural persons. Many found the ban on investor contact impractical and suggested minimal introductions should be allowed.

Opinions on finder compensation were mixed, with some participants supporting caps, some saying that allowing compensation incentivizes abuse, and others saying that there should be no restrictions on compensation at all.