The Securities and Exchange Commission (SEC) wants to allow individuals to invest in private companies, including in-demand startups.
SEC Chairman Jay Clayton said the commission also would like to give individuals the chance to invest in companies that aren’t public, including firms like Uber and Airbnb that have stayed away from public markets and instead chosen private investors, such as venture capitalists.
Currently, there are rules in place to protect individual investors from riskier private deals. For example, only individuals with a household income of $300,000 can participate. Private securities in particular can be especially risky, because they’re mostly off the radar of federal regulators and there is usually less information available about the firms.
But Clayton said the SEC is now considering an overhaul of those rules in order to open up new options for individuals.
“The private markets are awash in capital these days,” Clayton said on Wednesday (Aug. 29) in Nashville, where he spoke to groups of entrepreneurs and business students. “The question is, who is participating?”
Public market activity in the U.S. has grown in 2018, with 158 companies going public so far, raising $43.1 billion — a 36 percent increase from last year. And some point out that more participants in private markets could help regions in the country that have fewer venture capitalists.
“There is a massive capital gap in the middle of the country,” said Patrick Henshaw, a vice president at Cincinnati-based public-private partnership Cintrifuse.
The SEC is also under pressure from President Trump, who wants the agency to look into the balance between public and private markets, and also wants it to consider the impact of nixing required quarterly earnings reports in favor of half-year reports.
“I’m not wedded to a particular result, but I think we should look at it,” Clayton said, adding that companies would still need to update investors on important trends regardless of what the SEC decides.