House Small Business Subcommittee on Economic Growth, Tax and Capital Access today held a hearing to examine the current regulatory environment for equity finance and ways to strengthen the ecosystem. Equity financing is a funding method where a business owner sells a percentage of their company in exchange for an ownership stake.
“Because many start-up businesses do not have sufficient assets to pledge as collateral to secure a bank loan, equity finance is an important source of funding for them,” said Rep. Mick Mulvaney (R-SC). “Equity finance provides not only growth capital, but also strategic partners who are invested in the business’ success.”
“In order to continue small business’s historical role as the engine of our economy they must have access to capital; unfortunately, there have been regulatory barriers that have limited this access. In order to help small businesses gain access to the credit and capital they need to run their business successfully, Congress must adopt policies that support functional capital markets without imposing undue restrictions on providers of debt and equity capital.”
For related hearing documents, click here.
Notable Witness Quotes:
Jason W. Best, Co-Founder of Startup Exemption in San Francisco, CA, said, “Many main street businesses may never fit into the typical venture-backed business model but may be good investments for individuals in that community. Now, crowdfunding can provide these businesses and entrepreneurs a chance to raise capital from their communities. Soon a dry cleaner could crowdfund to add much needed equipment, or a restaurant, to open a second location. While crowdfunding alone cannot solve all capital formation challenges, it may provide benefits to many businesses.”
Tony Shipley, Founder and Chairman of Queen City Angels in Cincinnati, OH, and testifying on behalf of the Angel Capital Association, said, “In the current economic times, Congress may also want to complement a lower capital gains tax for successful early-stage investments with a tax credit for investments in innovative small businesses. Federal ordinary income tax credits for angel investments in small business start-ups could improve the flow of angel capital to small businesses in communities throughout the country.”
“Angel investors are passionate about helping build great new companies in our communities. Many angel investors enjoy being part of the entrepreneurial ecosystem, along with business incubators, accelerators, attorneys, accountants, venture capitalists and other private experts who can guide new entrepreneurs through many key business processes and issues.”
Angela Jackson, Managing Director of Portland Seed Fund in Portland, OR said, “With the JOBS Act passed, opportunity still remains on the Federal level to both reduce friction for emerging startups and increase incentives to angel investors who put risk capital to work stimulating the economy. There are a number of proposals to amend the tax code to reward investors through tax credits and/or capital gains treatment that could be effective, fair and compelling. Similarly, the tax code provides a way to reward the job creating companies themselves with tax cuts and/or deductions."