Bill to help businesses raise cash moves ahead

U.S. House of Representatives passes bill, sponsored by U.S. Rep. Anna Eshoo, that would raise limit for 'mini-offerings'

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."

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Posted by What-Does-Anna-Eshoo-Know-About-Finance?
a resident of Another Palo Alto neighborhood
on Nov 3, 2011 at 6:37 am

> 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.

> This leaves many businesses with few options for
> raising capital, she said.

For a woman who does not have even a BS/BA degree, has never held a job in the private sector, much less started a company and been responsible for a payroll, it's difficult to believe that Anna Eshoo could possibly know what she is talking about.

The problem here is that raising money from the public through so-called "public offerings" is very risky for the public. Small companies always have options. They can merger with other small companies, they can sell to a larger company, they can approach the private equity market for what are called "private placements", they can open up their ownership to the employees, who can then invest in their own company with their own money. These days, India and China offer new sources of "capital", albeit with some unknown consequences for the company that tries to acquire capital from these sources.

Historically, $5M has been a kind of milestone for company growth. Most anyone could get a company to $5M, but the complexities of management begins to separate the "men from the boys" at this revenue level. When venture people start to get involved with companies, they typically want to replace the owner/managers, because these people are not capable of managing, or growing, their companies to a larger size. This owner/manager replacement usually results in a lot of hard feelings for the people displaced, but it's necessary for the company to grow. "Professional managers" start to appear at this point. The same phenomenon occurs at/about the $50M revenue level--with the need for more "corporate", less "entrepreneurial", management styles.

Most of this "growth management" comes from the VCs. The whole idea of allowing private businesses to go "public" generally means that the business has established itself as a "going concern", and that investment in this entity is not a scam. Even so, many small companies end up taking in millions from the public, and then folding--with the money just "disappearing".

Anna Eshoo voted to repeal "Glass-Steagall", which was supposed to help "create capital". She also voted to take Credit Default Swaps (CDSs) out of the purview of the Federal Government--which helped to create the meltdown in 2008, and the $80B-$140B bailout of AIG, and other financial houses. To date, Anna Eshoo has yet to acknowledge her part in the current financial mess that she helped to create.

If Anna Eshoo opens the door to small businesses being able to raise capital from the public without better oversight than we have been getting from the current level of SEC regulation, then the public will likely see a lot more of its money disappearing down the proverbial "rabbit hole".

Like this comment
Posted by Know Your Facts First
a resident of Leland Manor/Garland Drive
on Nov 3, 2011 at 11:56 am

To What-Does-Anna-Eshoo-Know-About-Finance?
Better know your own facts before throwing rocks. The Reg A limits relate to the amount of capital raised by a company during a one year period, not its revenue levels. You may assert the same arguments anyway, but your linking revenue levels to Reg A commentary suggests some soft spots in your own financial acumen.

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