Quarter Frictions: Remarks Before The Small Business Capital Formation Advisory Committee, SEC Commissioner Hester M. Peirce, Washington D.C., May 6, 2025

Thank you to the Committee members for your continued service and to today’s panelists. I was at the grocery store the other day thinking about, of course, small business capital raising. I shop at several different grocery stores, each of which has its plusses—low prices, broad selection, high-quality local produce, unique items, proximity to other places I need to go. Each store also has its frictions—crowded parking lots and aisles, annoying quarter deposits for grocery carts, limited opening hours. I often choose the store based as much on the frictions I will face in going there as on which one has what I want that day. That quarter for a grocery cart might just be the deciding factor against a particular store on a day when I have neither a quarter nor the capacity to carry everything I need to buy. Just as I have choice in grocery stores, small businesses have multiple capital raising options, and frictions often dictate the choice small businesses make.

Regulation A, the topic of today’s meeting, is one avenue for small companies to raise capital, but the frictions are high. When an issuer decides to do a Reg A offering, it first must choose between Tier 1 and Tier 2. Neither choice is completely satisfying. Issuers that offer and sell securities under Tier 1 of Reg A can raise up to $20 million in a 12-month period and have fewer ongoing disclosure obligations but miss out on any form of state law preemption. Without state law preemption, issuers are required to register or qualify their offering in any state in which they seek to offer or sell securities, a process that can be costly, time-consuming, and confusing. Issuers that offer and sell securities under Tier 2 of Reg A can raise up to $75 million in a 12-month period and get state law preemption, for primary sales at least, but are subject to more burdensome ongoing reporting requirements. Perhaps those frictions help explain why from July 2023 through June 2024 companies raised only $1.5 billion using Reg A compared to $12 billion using general solicitation under Section 506(c) and $170 billion in private placements under Section 506(b).[1] A discussion of Regulation A is therefore timely.

Among the questions I have for your consideration are:

1. The Small Business Advocate’s 2024 report showed that over the last several years “[t]he amounts and number of [Reg A] offerings have continued to decline.”[2] To what do you attribute that decline?
2. By contrast, “[t]he number of offerings raising more than $50 million has remained relatively stable”[3] at about 20 per year. To what do you attribute the fact that larger offerings have not declined?
3. Would Tier 2 of Reg A be a more viable avenue for raising capital if secondary trading enjoyed state law preemption? If so, what conditions should apply to such preemption?
4. Should the Tier 1 and Tier 2 offering limits be raised to make Reg A a more attractive option for a broader range of companies? What would reasonable caps be?
5. How could the Commission streamline the regulatory obligations under Reg A without compromising investor protection?
6. Should, as one commenter recently suggested,[4] pooled investment vehicles be permitted under Reg A?
7. One reason a discussion of Reg A is timely is that some crypto market observers see it as a viable avenue for public offerings of crypto assets.
   1. Former Committee member Sara Hanks, for example, pointed to Reg A as “the most appropriate option for public offerings of either tokenized traditional securities or novel crypto assets, without violence to the original objectives of Regulation A or the need for significant rulemaking.”[5] Do you agree?
   2. If so, should the Commission take the position that crypto tokens are “equity” for purposes of a Reg A offering? Would such a position conflict with how crypto assets are treated for accounting purposes? I have heard that at least one crypto asset issuer attempting to use Reg A was advised that the crypto assets should be treated as equity for securities law purposes and debt for accounting purposes.
   3. Would any other aspects of Reg A prove challenging for crypto asset issuers?
   4. Hanks suggested “that the ‘exit’ provisions to Regulation A ongoing reporting suit native digital assets that are securities at inception, but cease to be securities once a specific blockchain project has been sufficiently developed.”[6] Should the Commission, as she suggests, “confirm that when an instrument that was a security ceases to be such (by reason of decentralization, completion of a blockchain project, etc.) there are no longer 300 holders of record of the applicable class of securities?”[7]

I welcome your insights on the frictions associated with Reg A offerings, what we can do to address them, and any unique considerations for the application of Reg A in the crypto context. I hope you have a productive and enjoyable meeting.