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Small Business Subcommittee on Oversight, Investigations, and Regulations Holds Hearing Examining Alternative Pathways to Investing in Small Businesses

WASHINGTON, D.C. – Today, Congresswoman Beth Van Duyne (R-TX), Chairman of the Small Business Subcommittee on Oversight, Investigations, and Regulations led a hearing titled “Navigating Regulations: Alternative Pathways to Investing in Small Businesses.” Subcommittee Chairman Van Duyne issued the following statement after today’s hearing.

“I appreciated the witnesses who joined us today and confirmed that our small businesses and community bankers are stifled by this Administration’s overzealous regulatory onslaught, said Subcommittee Chairman Van Duyne. “Rather than allowing meritocracy to prevail, this Administration is forcing lenders to base investment decisions on demographic quotas and regulating small businesses out of existence. In today’s regulatory environment, private credit is more important than ever before, serving as a lifeline for our entrepreneurs and empowering innovators to succeed across every sector. I’m grateful to have held this hearing as part of our oversight efforts as we continue to put the needs of our job creators first and push back on the Biden Administration’s hostilities.”


Watch the full hearing here.

Below are some key excerpts from today’s hearing:

Chairman Van Duyne: “Mr. Shah in the private equity space, merger and acquisition transactions are a vital tool to help businesses expand into new geographic markets. They also help fuel innovation and lower prices. While most mergers do not require additional information, once a pre-merger notice is filed with the FTC and DOJ, a small percentage are subject to additional review out of fear of possible antitrust harm. In your testimony, you mention that you're concerned with one of the newer FTC proposals that would subject every pre-merger notice to additional review, which would force small businesses to spend a lot more time and money on providing likely unnecessary documentation. So do you believe that this will affect one's ability to find alternative financing, and if so, how, and why?” Mr. Shah: “Thank you for that question. Yes, I do. I believe that because when you're starting a business, specifically, small businesses that are in technology and software that are very high fast growth companies, and it's required to go after private financing, such as, like I said, angel investing, venture capital. It is important that we have an exit strategy. And if that exit strategy by any means is compromised or could be compromised, even the eyes of an individual, a fund, society in general, then it definitely impacts us for the ability to raise that capital.”

Rep. Crane:Have you guys noticed that because of the uncertainty of some of the regulations that have been coming down from this administration, a lot of entrepreneurs will just completely go around or forgo even talking to, you know, some of your more traditional resources for gaining capital? You were talking about seed investing, angel investing. Have you noticed that a lot of entrepreneurs will just go straight to those sources instead of going to banks and the SBA?” Mr. Shah:Yes, I've definitely noticed a lot more of that. I can say from my perspective in the type of businesses that I've run in the technology sector where it’s software based, it is extremely difficult, if not almost impossible, to go get traditional lending because we don't have physical assets such as a physical location, physical assets. They don't really deem software as something that is, you know, able to be collateralized. So, it's very, very difficult. And so therefore, private equity, whether it's angel investors, seed rounds, or venture capital, is just the route you have to take. And there isn't really a lot of other financing options.”

Rep. Alford: “Small businesses have turned to alternative sources of capital, such as private equity. Private equity is an essential tool for small businesses looking to access capital and actually grow. In our district alone, there was $1.4 billion of private credit investment in 2022. Unfortunately, the Biden administration cannot abide any pathway for Main Street to grow and has released a new merger guidelines through the FTC and DOJ that curtails those private equity's ability to invest. By the FTC's own estimate. The new merger guidelines would lengthen the process for filing by 300 percent. I feel that's unacceptable. Over the next decade, compliance with President Biden's regulations will cost Americans more than $1.5 trillion. Let that sink in. Ms. Kennedy Thompson, thank you for being here today. Can you please speak about how securing capital from private equity impacted your business?” Ms. Kennedy Thompson: “Certainly. I'd be most happy to. There's many levels it has impacted us. So from the franchisor side, we are in our fifth hold period with private equity. When I came into the company, we were doing 400 million with six brands. Today we're doing 4.1 billion with 30 brands. And it is a testament to the private equity investment that our PE sponsors have made with us and helped us. And along the way, as we've grown, we've been able to grow our franchisees as well because we've had the right resources at the right time to bring in the right talent to be able to have the right access to capital so we could buy some of those companies to be able to provide our customer the right and best experience and then to our franchisees.”