A bill that aims to help small businesses amass capital and go public overwhelmingly passed the House of Representatives Wednesday morning.
The bill, introduced by Rep. David Schweikert, R-Arizona, and sponsored by U.S. Rep. Anna Eshoo, D-Palo Alto, seeks to raise the amount of money a small business can raise under SEC Regulation A from $5 million to $50 million. The provision, adopted during the Great Depression, governs offerings for small businesses and simplifies the registration requirements. The $5 million limit was set in 1992. Proponents of the bill, including Eshoo, have argued that this limit no longer suffices.
The bill, known as the Small Company Capital Formation Act, passed 421-1 Wednesday in the House of Representatives. During the hearing, Eshoo, whose district includes the high-tech communities of Palo Alto, Menlo Park and Mountain View, said the legislation is an important step toward supporting innovation in America.
"This is an important way to facilitate capital formation, which is one of the important pillars of the national economy," Eshoo said. "My Congressional district, which is Silicon Valley, is the innovation hub of our nation and it thrives on capital formation."
In December, Eshoo testified in front of the House Committee on Financial Services and argued that the existing $5 million limit is too small to be useful for most companies. At the same time, she said, the threshold for going through an initial public offering remains out of reach for most small businesses. This leaves many businesses with few options for raising capital, she said.
She noted that two local companies, Silicon Valley Bank and the law firm Wilson Sonsini Goodrich and Rosati, have more than 9,000 private companies as their clients between them. These companies, she said, either need or will need an infusion of public capital.
"Regulation A will allow companies to seek small infusions of funds as they go along and investors can demonstrate their confidence with their checkbooks," Eshoo said at the December hearing. "Without this access to public-capital markets, good ideas are withering on the vine."