Risk & Compliance

SEC Gives Small Business a New Voice

The securities regulator announces a new committee designed to elicit feedback from both pre-IPO and small public companies.
Alix StuartSeptember 13, 2011

The Securities and Exchange Commission announced today that it has established an advisory committee on small and emerging companies. The 19-member committee “is intended to provide a formal mechanism through which the Commission can receive advice and recommendations specifically related to” small private companies and public companies with under $250 million in market cap, according to a press release from the SEC.

While the life span, meeting schedule, and output of the committee are yet to be determined, the group could hold some promise for finance executives at smaller companies. “Broadly speaking, we would like to see small and emerging companies better able to raise capital,” says committee co-chair Stephen Graham, a partner at Fenwick & West LLP who works with both pre-initial public offering and public life-sciences companies. He says the committee is starting “with no preconceived notions” and hopes it will rethink the IPO process, as well as the current 500-shareholder limit on private companies, among other topics, as it balances ease of capital raising against investor protection.   

Graham’s co-chair is M. Christine Jacobs, CEO of Theragenics Corp., a New York Stock Exchange-traded medical-device company with $82 million in revenue last year. Among the committee’s 19 members are three finance executives: Shannon Greene, CFO at Tandy Leather Factory, a public company with about $60 million in revenue last year; Kara Jenny, CFO of Bluefly, a public company with about $90 million in annual revenue; and Kathleen McGowan, vice president of finance for Tobira Therapeutics, a private venture-backed biopharmaceutical company. Other members include the deputy general counsel for Zynga (a social-games maker that delayed its IPO this past summer), an investment banker, venture capitalists, microcap investors, and an observer from the Small Business Association.

“I’m cautiously optimistic about the committee, because it’s at least an acknowledgment that there are issues,” says Tom Paulson, CFO of NovaBay Pharmaceuticals, a publicly traded biotech with no sales and a market cap of about $50 million. Paulson hopes the committee will broaden its focus to tackle the need for better data from investors. “What plagues us is that there’s virtually no transparency about who is trading or shorting our stock, to help us defend it,” he says. “We’re trading under 100,000 shares a day, so any activity can really swing our shares.”

SEC chairman Mary Schapiro had hinted at the formation of such a panel back in April, when she sent a letter to Congress about some of the ways the agency was considering to make capital raising less onerous for small companies. In that letter, a response to questions from Rep. Darrell Issa (R-Calif.), head of the House Committee on Oversight and Government Reform, Schapiro noted that she had directed staff to study the possibility of expanding exemptions and sanctioning new capital-raising methods such as crowd-funding for emerging businesses.

Graham says he hopes the committee will hold at least two meetings before the year is out.