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Public Statements

Entrepreneur Access to Capital Act

Floor Speech

Location: Washington, DC


Mr. GARRETT. I thank the gentleman from North Carolina for all of his work on this legislation, as well as the chairman of the full committee, Spencer Bachus, for his leadership on this initiative as well.

To the extent, as with the previous piece of legislation that we had, it goes to the overarching theme I think of today--and also during the last 10 months of this time in the House--which is job creation for this country, what can we do here in the House of Representatives to facilitate the creation of more jobs.

And just like with the last piece of legislation, what we can do is help businesses, both small and large, to obtain additional capital, capital being at the heart of the ability of a small business to go out, to expand, to grow, to hire new employees, and to create jobs in this country.

The legislation before us goes well in that direction. And now, done in a bipartisan manner, it, as the sponsor, stands head and shoulders above the way it was before because it adds additional provisions for safety and soundness to it.

It allows for equity financing, in which investors can purchase ownership stakes in the company in exchange for basically stock or shares in those companies to grow in a future direction, to grow larger and what have you. And it allows the companies to obtain those funds without having to repay specific amounts at any particular time. What does that mean? That means it enables the company today to obtain that capital today to expand the company and hire new employees.

Now, through the efforts of the gentleman from North Carolina, what they did, in a bipartisan manner, was to add additional--what do you want to call it, protections, I guess, it will--and which was part of the discussion I think we had in committee at the time. And that was a good discussion there. We had the markup in the committee to allow for some of these discussions; and I know it went further, after the hearing and eventually with markup, to achieve this.

I think it's important--I'm just going to spend a minute--I know you touched on some of these, but I want to take a minute or two to run through what the additional protections are that we are providing for investors, in no particular order--well, maybe they are, actually. They are in the order of page eight and nine of the bill, but in front of me here, first: Warning investors of the speculative nature generally applicable to investment in startups--and that's what we're talking about here, they're startups. And if you're going to invest in a startup, it's not a sure thing, it is speculative. So those warnings are there.

Secondly, warning investors that they are subject to the restrictions on sale requirements. What that basically means is that if you're investing in this today, don't expect necessarily that you can just take your money out tomorrow, but that there may be restrictions as to when you can take out your money. But that's necessary, as I said before, so that the business can have that capital to grow. So it's reasonable.

Thirdly, taking reasonable measures to reduce the risk of fraud with respect to such transactions--again, a reasonable measure.

Fourthly, providing the SEC, the Securities and Exchange Commission, with continuous investor-level access to the issuer's Web site. Why? Because we want to make sure that that information that is being conveyed to whom--the investors in this--is the same information that the SEC has. A good provision.

Fifthly, requiring each investor to answer questions, to do what? To demonstrate their abilities--and I think the gentleman from North Carolina already went through this as far as what those restrictions should be--but, A, recognition of the level of risk generally applicable. It goes back to what I said before: If you're going to get involved in this, make sure that you understand it. And that's one of the questions. B, risk of liquidity. If you're talking about a startup company as opposed to something that's traded on one of the exchanges, there's not a lot of liquidity out there, generally speaking.

That means there's not a lot of folks out there who are trading these shares on a daily or hourly basis. So you have to understand that there is going to be a restriction on liquidity in this marketplace.

And, C, such areas as the SEC may determine appropriate, so broad authority there.

Sixth out of seventh I'm going to touch upon, and maybe this is the point that the gentleman was just referencing in some respects, the outsourcing of cash-managing functions to a qualified third-party custodian. And I think the gentleman referenced traditional broker-dealers, but actually this goes into a slightly different caveat from that which, I think, is actually the appropriate manner; otherwise, what you may be doing with all these restrictions being good, you don't want to get too restrictive in this and too costly. If you did do that, then you may end up making this just as difficult as if you were in some other framework.


Mr. GARRETT. One of the reasons that you do that is because we are talking about small companies, companies that may be creative artists starting up a business, a nonprofit starting up a business, a small entrepreneur, so you're talking about small folks, small businesses. You're talking about businesses under $1 million.

If you were talking about what we read about in The Wall Street Journal, if we were talking about things that may be shortly traded on the New York Stock Exchange, that would be more appropriate. But you're talking about these much more, smaller type of industries here; right?


Mr. GARRETT. Part of the other problem is that you may not find the interest actually by the broker-dealers if you're talking about a $25,000 or $50,000 or $100,000 enterprise.

Is that another reason why you went this way?


Mr. GARRETT. Before you leave, tied to this is another one of the two last points I was going to raise, which perhaps you would like to illuminate on.

The bill also requires that the intermediaries state a target amount that you're raising. You just said perhaps $50,000; right? And one of the requirements under it, as I understand it, is that you would have to withhold the capital formation proceeds, the money that you collect, the capital, until you hit a percentage of or that target amount. Is that correct?


Mr. GARRETT. The point of that is, again, what? Basically investor protection here. What you don't want to have happen, I guess, is: Say I'm going to go out into the marketplace and start raising money, and as soon as the cash starts coming in I can start using it right away, even though I was intending to raise $200,000, but I'm going to start using it right away. Those proceeds may not go to the point where you intended.

I see the gentleman from Colorado is nodding his head. Is that your understanding? Is that the reason why this was included in here?


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