- Small-cap public companies have suffered from a lack of capital formation. This has inhibited job creation, innovation and investment opportunities stemming from startups and small companies.
- The core problem in the capital formation issue is the lack of trading liquidity in many publicly-traded small-cap companies. Existing market structure rules have made it challenging for meaningful institutional investor ownership, the primary source of trading liquidity.
- This problem adversely impacts individual investors as they comprise the vast majority of ownership in small-cap stocks. Studies have shown that stocks achieve greater valuations with the presence of institutional investment.
- A pilot program, as outlined in the ECF Task Force report, will provide for a realistic way to enable capital to start flowing to the small-cap market while balancing the needs of investor protection and promoting capital formation.
- A viable pilot program offers a fair process to test a market structure will have a positive impact on the US economy, individual investors, institutional investors and small companies.
About the ECF Task ForceComprising professionals from across America’s startup and small-capitalization company ecosystems, the Equity Capital Formation (ECF) Task Force formed in June 2013 to 1) examine the challenges that America’s startups and small-cap companies face in raising equity in the current public market environment, and 2) develop recommendations for policy-makers that will help such companies gain greater access to the capital they need to grow their businesses and generate private sector job growth. The task force’s efforts have been informed by discussions flowing from The Securities and Exchange Commission’s Decimalization Roundtable (February 2013), which examined the impacts of decimalized pricing of securities on IPOs, trading, and liquidity for small and middle capitalization companies; and from the Capital Access Innovation Summit convened by the Treasury Department and the Small Business Administration in June 2013, which focused on the impact of the JOBS Act of 2012 on capital formation for emerging growth companies and what additional measures might benefit this process. In a November 2013 report presented to the U.S. Department of the Treasury titled, “ From the On-Ramp to the Freeway: Refueling Job Creation and Growth by Reconnecting Investors with Small-Cap Companies,” the ECF Task Force made a series of recommendations to enhance market structure for small-cap companies as a means to increase the potential for job creation and growth. A copy of the complete report can be accessed at: www.equitycapitalformationtaskforce.com.