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The Securities and Exchange Commission (SEC) is coming down hard on private markets. In this episode, we explore why the SEC is going after private funds and what the consequences could be on the VC industry.
Welcome to the Venture Capitol podcast, the place where politicians can impact the startup industry nationwide. Join NVCA President & CEO Bobby Franklin for a unique podcast that looks at public policy through the eyes of America’s venture capitalists — the people who are investing in the high-growth companies of tomorrow. This show brings together VCs, policymakers, and policy influencers to discuss and debate issues that affect our nation’s economic future.
Bobby Franklin (00:06):
Hello everyone. I'm Bobby Franklin. And welcome back to Venture Capital, a podcast brought to you by NVCA. Where there's an O in capitol is in Capitol Hill where NVCA advocates for policies that support the US startup ecosystem. This episode focuses on how new private funds, and potential private company regulations from the securities and exchange commission could impact the VC industry. We'll hear from Congressman French Hill, NVCA, senior director of government affairs, Charlotte Savercool, and former SEC director of the small business advocate office, Martha Legg Miller. We start the show with Congressman French Hill who represents my home state of Arkansas's second congressional district. He's a ninth generation Arkansan elected in 2014 as the 22nd member of Congress to represent central Arkansas. He's a member of the committee on financial services, where he serves as ranking member of the subcommittee on housing, community development, and insurance. Prior to being elected to Congress, he was actively engaged in Arkansas business for over two decades. Congressman French Hill, thank you so much for joining us today on Venture Capital.
Congressman French Hill (01:15):
Bob, it's great to be with you.
Bobby Franklin (01:18):
One of the areas that we've been focused on recently is the interest that the securities, and exchange commission has had on private funds, such as venture funds, but they're all sorts of private funds, or hedge funds, private equity funds, real estate funds. They're operating differently, I think that Congress intended differently than the public markets, and kind of what happens when you do become a successful company, and go in the public markets to get public capital. This happens in the private markets. And to me, there's been, kind of advantages and disadvantages in the private markets, and advantages and disadvantages in the public markets. But what, from our perspective, we have seen is the SEC really coming down hard on the private markets, and trying to make a lot of changes there. We've just filed a lengthy comment letter that suggests that A, they don't have the authority, and B, it's not really going to help the entrepreneurial ecosystem by providing a lot more regulation on the private funds that are there to support entrepreneurs. I wonder if you'd have a perspective on what the SEC's doing right now?
Congressman French Hill (02:29):
Well, the job of the securities and exchange commission is to make sure that consumers have adequate protection, and investors in terms of learning about the products that they can put their life savings in, their retirement savings, and to have orderly capital markets. So their mission is capital formation, and orderly capital markets. So they're looking at exchanges, and the public trading of securities. They're looking at disclosure for companies that go public, and we have the largest deepest capital in the world. It is amazing, though, when you and I reflect back on our careers, we have about half the number of public companies that we had when I came out of college back in 1979, began my career in Texas, and that's been concerning. And so we've worked really hard to lower the burdens on going public, being flexible on going public, reduce the regulatory burden for small cap companies, because we keep moving this up and up where you can't even go public if you're not like a billion dollar market cap.
And gosh, that's hard and really narrows the field. And we've done things like the Jobs Act to make that easier. We've tried to allow crowdsourced financing to find a place in the venture ecosystem and SEC approved process. I've offered to change the accredited investor rules to make that much more broad, and give more opportunity to smaller investors with private opportunities. And then a key part of the last 30 years has been the development of private equity, both startup venture capital, all the way up to private equity firms that help companies go private, take reforms, and then go public at a later date. As we record this, the hot news of the week is Elon Musk buying Twitter, and you got a political connotation, but you got a big private equity connotation, and you have a classic corporate governance situation where you're allowing a strong entrepreneurial, amazing visionary business person taking control of a public company. So, anyway, this is a big, big part of the venture ecosystem, and the capital market system.
What the commission is proposing is concerning to me because it disrupts that balance between public companies and private companies. It disrupts that balance of going from an individual retail investor that might open a Robin Hood account and buy an ETF up to the world's most sophisticated institutional investors, the New York public employees pension plan. The cutter sovereign wealth fund. Elon Musk's own private investing or the Gates Foundation. And so what Gary Gensler, the chairman of the commission is proposing in this rule goes against everything I just discussed. So you've argued that they don't even have a statutory ability to do this. I share that view, but I've tried to also tell you that even from a business rationale, or a capital market's policy rationale, that doesn't make any sense at all. And what's going to happen is it's going to raise costs, deter investments, remove opportunities for both venture capital, and private equity, capital, and fuel businesses that are definitely growth companies. And they're possibly the future IPOs coming up.
Bobby Franklin (05:54):
Well, we couldn't agree more, and I hope that they take a look at the comments that will be made including ours on the record and use the Administrative Procedures Act, which they're required to do so, to come to hopefully the conclusion that it was a bad idea to begin with. But if they don't, and if we are sort of thinking about, okay, we've got to get help. Are there things that Congress can do to help us with regard to the challenges that we see at the SEC where they are seemingly looking to make the private markets, whether it's for a fund, or a company, a lot more challenging. And I guess in some way in their mind, they think if we make the private markets less inviting, maybe they'll jump over to the public markets, as opposed to, I think the way you, and I would think is why don't we work on what comes after the Jobs Act we did 10 years ago, and what are other things we can do to encourage people onto public markets?
But at the end of the day, it's about encouragement. It's about carrots. It's not about sticks. It's not about trying to make it more difficult in one environment. So it forces you to some other environment. It's like, how can we help in both environments? So that entrepreneurs and business leaders can form capital, and can help folks take chances to start businesses, and make sure the US continues to be the most innovative place to do business and create business in the world.
Congressman French Hill (07:29):
Well, that was very inspiring. I do agree with it. We just celebrated the 10th anniversary of the Jobs Act, the crowdfunding piece hasn't been so successful. I think we should revisit those things, and continue this improvement of the continuum from raising your first dollar all the way up to that famous bell ringing on one of the exchanges. So, I agree, but look, the ranking member of our capital market subcommittee, Bill Huizenga of Michigan, and I wrote Gary Gensler about our concerns on this private fund ruling, and laid out many of the issues that you shared. And so we can certainly conduct oversight.
And we can also introduce legislation if we need to. And on your bigger concept about Medling taking SEC statutory jurisdiction, somehow imposing it over private companies, which I don't think is constitutional, legal, or appropriate. And I think they would lose in court, but I'm so tired of everything having to go to court to be the place of resolution. But a bigger concern I have for our private industry is what Gary Gensler, and Janet Yelin's views are about cramming down climate policy, onto private companies. And I think that's something that Bill, and I, and others on the committee are watching very closely.
Bobby Franklin (08:49):
Congressman, thank you so much for your points on that. I want to turn to our home state of Arkansas, and I want to get your thoughts. I've enjoyed hearing you talk about a lot of the FinTech activity that's happened in Little Rock, and other areas of entrepreneurship. Maybe you could describe for our listeners what you see happening in the natural state.
Congressman French Hill (09:14):
That's great timing. I just got off a zoom call this morning. It was a statewide meeting hosted by the Kaufman Foundation and the Conductor led by Jeff Stanrich at UCA who manages the Kaufman's Conductor Program in Conway, Arkansas. And this is to spread our venture ecosystem to all over the state. And it was an inspirational meeting. So, first, I would say, Arkansas is rapidly becoming a startup capital. There is ample money available, for example, in 2021, I think over $100 million in venture capital was raised in our state. That's a big number for a small non coastal state. And I see the hubs are obviously Northwest Arkansas with your home of the Arkansas Razorbacks, but for a lot of our listeners, you also have to recognize that's the global headquarters for Walmart, Tyson Foods, JB Hunt Transport, and many, many other vendors that support those enterprises. Little Rock in our capital city, as you noted, has become a FinTech hub, with both the independent community bankers selecting our venture center as their go-to accelerator spot for the entire community banking industry.
And it's also the home for the accelerator, and incubator for FIS. One of the biggest office, IT companies for the financial services industry in both software and payments, they're the owner now of World Pay. So they're one of the biggest technology platforms on the globe in financial services. And they've selected Little Rock as a site for their FinTech research and acceleration. So your home state is doing well and I'm leaving out success on the UCA campus in Conway or the ASU campus in Jonesborough and not intentionally. But what I love is where I see a local community use something like the Conductor, and Kaufman Foundation to do a local accelerator, take somebody who's already got a successful business with one location and tell them, how do we help you go 10X? Grow 10 X? How do we help you achieve the next step in your business?
And Bobby, this is key. You're very involved in the venture capital business, both from angel, all the way up to the beautiful leaders in Palo Alto, California, that's true, but the secret to, I believe all the rest of the country as in the famous book Rise of the Rest, is that we offer VC services and tech startup services in all of our communities. But that we also recognize we want to give an accelerator capability to anyone's business in the heating, and cooling business, the restaurant business, any kind of a services business. And so I'm excited about it. And for the first time in a long career I've had in and out of Arkansas, since the late 1970s in business, we are really serving the entrepreneurial community, both with capital and with mentorship.
Bobby Franklin (12:24):
Well, that's wonderful to hear, and I'm excited to come down and see what's happening and have an excuse to see friends and family, Congressman French Hill. Thank you so much for joining us on Venture Capital.
Congressman French Hill (12:37):
It's a treat to be with you Bobby, keep up the good work and let me know when you need somebody behind the scenes to help you start a business.
Bobby Franklin (12:44):
I appreciate that very much.
Congressman French Hill (12:46):
See you soon.
Bobby Franklin (12:51):
My next guest is Charlotte Savercool, NVCA, senior director of government affairs. Welcome Charlotte.
Charlotte Savercool (12:57):
Hi, Bobby. Thank you so much for having me. It's great to be with you.
Bobby Franklin (13:01):
Well, it's great to have you here, Charlotte. Here on this episode, we want to talk about all that we're doing, all that you're doing, big props to you for all the work going on. About what the securities and exchange commission seems to have on its agenda. The biggest challenge, it seems that we have, whether it's policy makers on Capitol Hill, whether it's folks in the white house sometimes, or in this case, whether it's folks at the securities, and exchange commission is they're focused on a different fact pattern. They're focused on somebody else and the way they do business. In our case, because you can be a private fund, and be a hedge fund.
You can be a private fund to be a real estate fund. You can be a private fund, and be a private equity fund, or you can be a private fund and be a venture capital fund. And for so many people, I know we get frustrated that they couldn't tell you the difference in those different funds. We know the difference, and we constantly try to educate them, but it always seems to be the unintended consequence that happens. So they think about somebody else, but it hits us. So can you talk a little bit about that with regard to some of the things that we have been focused on in our engagement with the SEC?
Charlotte Savercool (14:13):
Yeah. Well, first I think you're exactly right. And I hear you say this a lot, and we all say this a lot, which is Washington is a big company town. So a lot of the issues that we see on the table are really impacting those large industries, and we get caught in the middle a lot of times in a lot of different ways. I mentioned the form PF that is targeting registered invest advisors. But the reality is a lot of VCs are registering with the SEC now because of secondary investments, and digital assets, and fund to funds. So we are getting hit in the crossfire for lack of a better term.
But I think probably the biggest one where we're seeing broad impact on the industry is this private funds proposal. And this is the most impactful of them all. And it is so because it actually targets exempt reporting advisors, which are VC funds as well as registered investment advisors. So there's not really, in terms of some of the bigger pieces of the proposal, there's not really a differentiation between the two. Everybody gets hit the same way, which brings us a lot of concern over every stage of the industry, and how this could impact future entrance into the industry as well.
Bobby Franklin (15:25):
What do you think of as one of the top areas of concern that we have that they're proposing to make a change?
Charlotte Savercool (15:32):
Well, I think there's a handful of prohibitions that the SEC put out in their proposal, and one of them is on indemnification provisions for VC fund advisors, which is something that we've heard from our members that is incredibly important, especially, at the earliest stage of a company's existence, trying to get this new, innovative technology off the ground. A lot of investors will have these as part of their investments into a portfolio company to help back up that innovative unproven idea. So, we are stating a lot of our concerns to the SEC on this. I think this could have a huge impact down the line. We've heard there's folks concerned about taking that risk into the young companies that VCs invest in, so that is one piece I'm very concerned about.
Bobby Franklin (16:19):
Well, I think you're right to be concerned about it, because essentially what they're doing is they're saying instead of having kind of a gross negligence standard, we want to change it to a negligent standard, and you can't be indemnified if you commit negligence, and the concern just kind of connecting the dots here on what you just said is that venture capital investors are supposed to make extraordinarily risky investments, by their very nature. So if you are part of, again, they're focused on somebody else, but if you're a venture capital investor and you're trying to make investments in very risky unproven entrepreneurs, or ideas, the reality that we know from our data is that most of those early stage investments will go to zero.
So imagine if you start changing the negligent standard, and you have attorneys that then go start filing lawsuits against somebody that made an investment on something and went to zero because now the standard has been changed. It's like that, to me, is going to have a chilling effect on what sort of investments venture capitalists make. And let's just remind everybody that we need VCs and entrepreneurs to take extraordinary risk. That's how we stay the most innovative country in the world.
Charlotte Savercool (17:36):
I think that's a great point. And that's what we need to make sure that the agency understands, which this could have really dire effects on the industry, and society as a whole, because think about all the technologies that you use, and I use today, a lot of it is born out of venture capital. So this is why our industry is so critical to the economy.
Bobby Franklin (17:55):
Another one? What's another one that we care about here?
Charlotte Savercool (17:58):
Well, another one that I wanted to flag is on the side letters for limited partners of funds. I think this is a really important one. And basically just high level point of the side letter piece of the proposal is that they are banning certain side letter provisions, but also requiring more transparency. So if you provide a side letter to one of your LPs, you have to disclose that to the rest of the investors in your funds. So this is another thing that... This is a common practice in the venture capital industry for investors, or VC investors, I should say to provide their investors with side letters. And especially as we're looking at emerging managers from underrepresented backgrounds, trying to raise a first fund, side letters are really key into locking down that first LP in their fund, so this is a really big concern. I think there's going to be a lot of unintended consequences from this proposal, so this will be something that we'll be fighting back on.
Bobby Franklin (18:53):
That's a great point. When you're talking about the need for us, which we identify, we created venture for to 501c3 to work on this each, and every day, trying to make the industry more diverse, trying to make it a better version of itself. You can imagine a new emerging manager trying to get that first LP commitment. They may have to jump through a few extra hoops for this one big anchor LP, that may not make sense for all the other LPs, but again, because they're focused on some problem and some other part of the alternative asset class, some other type of private fund, how I guess LPs in some other world have real challenge in negotiating on their own behalf, even though these are sophisticated investors. We're dealing with this and I love the way you put it.
It's like here is another unintended consequence that this could actually hurt us from being a more diverse industry of check writers, which are what VCs are and those diverse check writers. If they're not there, they can't support the diverse entrepreneurs that we know are everywhere, all around the country, different genders, different race, and ethnic backgrounds, solving different types of problems. And that's what we need to have happen. Isn't what the SEC's focused on kind of very similar to what we see on Capitol Hill, and other places where they're just focused on somebody else?
Charlotte Savercool (20:20):
Yeah, I think that's exactly right. You can look at this in the context of the VOCA rule, and where we were other financial regulatory issues. We were up against a lot of different industries or in union with them, but a lot of times they're thinking about these bigger entities that the antitrust conversations, the drug pricing conversations. So, as you say, a lot of these are really focused on larger industries, and I'll just give one shout out on a different policy issue that we're working on right now, which is a US competitiveness bill that's making its way through Congress. And one thing that we are really trying to form in that language is how can we have these new innovative programs at the federal agencies that are going to support young technologies to being developed out of a lab?
How can we make sure that is going to a company that could have this high growth vision that startups have that our members invest in? Because a lot of times there are entities that are more sophisticated in navigating a lot of these government grant programs. And we want to make sure that this is such a big opportunity it really needs to be formulated in a way that our industry can take advantage of it so we can advance these technologies.
Bobby Franklin (21:29):
You making that point reminds me of how we often say here in Washington, that the beltway bandits, the big companies that have mastered kind of sucking out all of the appropriate dollars that Congress says. We're putting in money for climate, we're putting out money for cyber, we're putting out money for whatever else. They figure out how to go get it a lot quicker than anybody else. And so I love the way you point that out. We have to do a better job of making sure that startup companies, which most of the time are going to have the better answer to some big, large incumbent company. We see it time, and again, that's going to be super important. Charlotte, what else are we looking at when it comes to the SEC provisions they're trying to change?
Charlotte Savercool (22:16):
So one last piece of this private funds proposal that I'll just throw on the table, if you're not concerned enough already, here's another reason why you should be paying attention to this, everything going on at the SEC. The proposal on the private funds has no grandfathering provisions. So, if you have your agreements, contracts, everything in place for however many funds that you have in existence, right now, the way it's structured is you would have to go back, and update all of those to be in compliance. So, that is another piece in case I forgot to add that earlier, that is incredibly important and something that we're going to be fighting the SEC on. I guess, looking ahead, one thing I'll just flag for everybody.
Right now, we're dealing with this on the fund industry side. I think coming down the pipe in the next couple months, there's going to be a whole effort for regulations of private companies. So the SEC is focused on the fund piece right now, but there's going to be a lot more to come, so hopefully we can have another episode talking about that when it comes out, if it does come out. And I think the industry's engagement on these issues is so important. So I would just give out a big, thanks to everybody that's contributed to all these efforts so far.
Bobby Franklin (23:26):
Well, I would double that, thanks to everybody that has raised their voice in these debates. It's super important. If they only hear from the lobbyist, it's not going to work. They've got to hear from the practitioners as well. And fortunately, we have a bunch of folks in the industry that are willing to do that, but we always need more. And I think you're absolutely right while the private fund piece is concerning as it is. I think the private company piece that could be coming down the pike might even be bigger.
Charlotte Savercool (23:55):
I think you're exactly right.
Bobby Franklin (23:56):
Charlotte Savercool, senior director of government affairs for the National Venture Capital Association. Thank you so much for joining us on Venture Capital.
Charlotte Savercool (24:05):
Thank you so much for having me, Bobby. Great to talk to you.
Bobby Franklin (24:13):
My next guess was the securities, and exchange commission's first director of the office of the advocate for small business capital formation, Martha Legg Miller, advocated for solutions to address challenges faced by small businesses and their investors raising and deploying capital. Martha, welcome to Venture Capital.
Martha Legg Miller (24:31):
Thank you very much, Bobby. I am thrilled to be here today.
Bobby Franklin (24:35):
Well for our listeners, Martha, help us understand, help them understand how you guide here. Give us your background on your route to the SEC.
Martha Legg Miller (24:44):
So, before being at the SEC, Bobby, I was working in private practice as a lawyer, working on a lot of different transactions, very similar to what the folks that are tuned in today are interested in. Transactions between investors, whether those are a venture investors, or maybe earlier stage angel investors, and companies that are looking to grow and scale. So this is an area that I cared deeply about and spent a lot of time working on before coming to the securities, and exchange commission.
Bobby Franklin (25:12):
So in 2016, Congress passed a bill, which basically created the small business advocate in this office. So you get a call, what, 2018?
Martha Legg Miller (25:22):
Yes, 2018. They said, "Martha, we want you to come do this." And I said, frankly, I said, "No, I love what I'm doing. I have no plans to come to DC." And they said, "No, no, please come and talk to us. We really do think this could be a great fit." And then the rest has been history.
Bobby Franklin (25:38):
So tell us about the office. You were the first one, what's it like setting up a first office inside the SEC, and also talk a little bit about kind of the purpose of the office and what you do there.
Martha Legg Miller (25:50):
So I'll start with what Congress charged us with doing, Bobby. And Congress saw that we have this big, large landscape of regulation within the securities and exchange commission. Most people associate the SEC but the regulators of our public markets. What a lot of people don't think about is that the SEC also writes the rules for how capital is raised before a company goes public. Whether that is through the friends and family round, venture rounds, crowdfunding, you name it. That's also all within the SEC and they really wanted a team that was focused on the issues that those companies and their investors were facing, so that's the background. Congress created our office, and then I got to come in, and actually build it out. And I like to joke for the first year that we were truly operating like a startup within the government.
There is no good startup manual, by the way, for how to build out something new in the government. So I did what I knew, which was I borrowed from what all of the people that I had worked with in the actual startup world were doing fleshed out, okay, what's our MVP going to be? How are we going to scale? Where do we need to layer in talent? Who do we need to hire first to make sure that we can accomplish these early stage milestones? And so we really approached it just like most early stage companies do, figuring things out a little bit on the fly, but albeit with some resources already behind us, we already had our financial backing secured.
Bobby Franklin (27:16):
Well, that always helps.
Martha Legg Miller (27:18):
It does.
Bobby Franklin (27:19):
You've got a group and you've hired folks. And then you have a committee of folks in the industry that you also collaborate with, correct?
Martha Legg Miller (27:27):
Yes. So the same legislation that created our office also created the SEC's small business capital formation advisory committee. One of the nice things, Bobby, about not being from the DC inner circles is that I came in and I said, "Okay, we're starting the office at the end of January, I plan to launch and host the first advisory committee meeting the first week of May." And everyone looked at me like I was crazy thinking that in three months I was going to get an entire advisory committee constituted, we were going to get everyone through background vetting appointed, and have a public meeting. But that was the timeline that I was used to from the private sector that seemed normal. And so thrilled to say we pulled it off, but it definitely came as a shock to most folks because we were ready to start working. We were not planning to sit and have a really slow launch of our office, or the committee's work.
Bobby Franklin (28:19):
So you spent the last several years in this role, and that means that you learn from your committee, and you understand what's happening in the industry, but then your job really is to be like those of us at NVCA. You're an advocate. You're advocating on these policies before both Congress, as well as the commission. You're sort of paid by the commission to lobby the commission. Is that a way to think about it?
Martha Legg Miller (28:41):
You can think about it that way, Bobby. The way that I like to phrase it is we are a little bit like a megaphone that gets the opportunity to sit in the room when the decisions are being made, we get to, for lack of a better analogy, be behind the emerald curtain on decisions and actually help the wizards of Oz, and represent those voices. And that's a really unique position. And what we try to do throughout all of the work of our office is to take the voices of those who might not be heard as often within the commission, or within the halls of Congress and say, "Okay, here's a perspective you might not have heard as much of, but it's one that's really important. And let us tell you why."
And we tried to do a lot of the storytelling of not just the end goal of this is where we think this policy needs to end up, but the why and how we got there. And so it's been a lot of fun. It's been wonderful to have the opportunity to collaborate with folks like NVCA, and others who care deeply about the different issues facing entrepreneurs and their investors.
Bobby Franklin (29:43):
Well, let's talk about now for our listeners, you just left this role at the SEC so you're about to embark on something next, and we don't have any announcements here on this podcast, but you're going to embark on something great, I know. But we are at the intersection of the SEC paying a lot of attention to private funds, and private companies. So, given what you just described as the role of your former position, can you talk about what the current SEC is sort of looking at with regard to private companies because you, and I have had this conversation in the past. And I'm scratching my head and I'm thinking, what problem are we trying to solve here?
I thought everybody was looking at let's make the public markets more inviting, so companies will want to go into the public markets. And instead it feels like we're making the private markets a lot harder to be in the private markets. And somehow that's going to force people to go to the public markets? I mean, we're really in the industry, scratching our head going, what is the SEC thinking? So, as somebody who was just inside there, as you just described, help us understand the SEC thinking, and focus right now on private funds and private companies.
Martha Legg Miller (30:57):
Bobby, that's a great question. And that should come with a lovely disclaimer that I would've, given while I was at the SEC, which is going to give my own perspective here, not necessarily that of the entire agency, but I want to zoom out on this because I think this is a really critical question as we look at, what are people thinking? What are their motivations here? And not speaking for any individual in particular, I think it's critical that we think about the experience that they bring to the decisions they're making in the present tense. And when you look at the different folks, I think everyone who is active in this space cares deeply and they think they're doing the right thing. And so one of the challenges I think of advocacy is developing these strategic, and intentional relationships where you don't just walk in the room and say, "Bobby, here I am to tell you exactly how I think the rules should be written because I have the answers and I figured them out."
But instead of saying, "Bobby, what is your experience? What have you seen before that is informing how you're approaching this issue?" So I like to think about it as people having different lenses, almost like different glasses on, and that informs what they see of the world, and that background experience. They bring informs how they approach the issues as they see them in private markets versus public markets. So, I'll break those down into four different areas, because I think that is, to me, these are very umbrella categories. And again, this is just my way of looking at the world, but it's helped me to understand a lot of the people that I get a chance to work with, and hear from that raise challenges. So the first set of lenses is people that have worked really hard on public market focused issues. And their view is public markets are better than the private markets.
And so what does that mean? That anybody who is not trying to be in the public markets must not be a good player. They must not see the full picture, and understand it. And so they come at the view of, well, of course, everyone should be in the public markets. And so that's where you get people that have a focus that may have a balance away from private markets, or think that the [inaudible 00:33:09] should be more of a foursome versus a choice of whether or not you are ultimately acquired, you may remain a private company or you may go public. They want to have a push that nudges more people into the public markets. I think the second lens is really informed by those who spent a lot of time working on the fraud side of things. And we have a lot of people, we have an entire enforcement division at the SEC, and not to mention at the SEC we've also got all of our state regulators and other people in the legal field that work combating fraud.
And there's no one who's going to say, there's no such thing as fraud. But if all you have done for your career is work on fraud, every single thing looks like fraud, or a potential for fraud. And so for those folks, they are looking at the world trying to spot the fraud, and they view the idea of the dark, private markets, not having visibility. It's this ominous like the pre Batman city of Gotham kind of view of the world, as opposed to saying, okay, the vast, vast majority of entrepreneurs, and investors are good actors who want to comply with the rules. They're the people that call our office Bobby and say, "Okay, I'm trying to do the right thing. I'm willing to pick up the phone, and call the federal regulators and confirm I'm doing the right thing." But those are the people that is the vast majority of entrepreneurs, and investors in my experience. And I think the data backs that up. But if you've only seen fraud, everything else looks like fraud.
So, that's that second set of lenses. I think the third set is people that look, and love data and they love the informatic set of things. And I'll say I'm a total data nerd, but that said, I don't think that data solves problems necessarily. It informs how we look at them. And so for people that are very focused on the data side of things, they're saying, "Okay, wait a second. We don't have the same level of information about private companies as we do about public companies, so we need to completely change the disclosure regime. We need to change exactly what those companies are telling investors, what those investors are filing with the SEC as we look at private funds", and that's really informed by people that have a data-centric view of the world.
And then I'll say that last of the four lenses that I think about in terms of those who really see the opportunity for changes are people that come at our mission and mandate focused very keenly on the first leg of the SEC's mission, protecting investors, and not quite thinking as much about the other two legs, which is not to say there's anything wrong with it, I am very much pro investor protection, but for them, the investor access side of things is much less of a concern than protection from loss. And so you have a very interesting mix and balance there. So, Bobby, all of that to say, I know that I'm speaking a lot right here, but you have a lot of different, really smart people who believe they're doing the right thing, and I think are doing the right thing.
And the critical piece of advocacy is getting all of those different people in the room to learn from one another and to spot the blind spots that we might have from not having interacted with certain segments of the market. Not having seen that the vast majority of entrepreneurs are trying to do the right thing. They're trying to build something great. So it's a wonderful and fascinating area, but it requires a lot of advocacy to, in some ways, translate between those background experiences that different people bring to the table.
Bobby Franklin (36:51):
Well, I've heard you give that explanation before, and I'm going to be honest with you, I would've wanted to have you on this podcast regardless, but when I heard you give that explanation before I thought, "This is what we need to help share with those that don't live, and work in Washington DC", because it does help explain, frankly, that same sort of explanation could happen multiple times around multiple issues at multiple agencies, right? I mean, people in the government do have certain backgrounds that they come with. You just did an excellent job of explaining how folks at the SEC are coming to the table, and looking at issues such as the ones that they are focused on now, so thank you for that. I also couldn't help, but wonder if the way you think about things wasn't influenced by your bachelor's degree at Vanderbilt in cognitive neuroscience, and communication studies, because that sounds like a scientist sort of looking at things.
Martha Legg Miller (37:54):
Well, I will say that, once a nerd, always a nerd, and once you've delved into studying how the brain works, it is the most fascinating part of, to me, business, and policy is that we're doing it with our brains. And that may sound like a totally abstract concept to bring in. But the piece of it that I think is the most critical is also not just understanding how we're different, because we are all very different, but understanding that we have so much more in common with one another, including with people that you may disagree with on a policy issue, you probably actually have more that you agree on, on that policy topic than that you disagree on. We just have knack for focusing on the things that we disagree on. And so I think that background in how the brain works has led me to figure out different ways to work with people that I can learn from because we think differently. And that's been a wonderful blessing, and something that I think has enabled us to find a good bit of success over the first three years of the opposite's existence.
Bobby Franklin (38:56):
I appreciate that. Now, here I am at NVCA, and I'm thinking, okay, Martha has helped us understand in her now former role, the way the SEC thinks. And we're trying to make the case over why we think a lot of the suggestions that the commission has made shouldn't apply to us either because we don't think it's the right policy or because Venture Capital is very unique, and not like private equity or hedge or the other parts of the financial system, so let me get advice from you. What would you advise the NVCA to do in addition to filing comments? Like how can we best make our case to your former agency?
Martha Legg Miller (39:45):
So, for those that are listening, you're listening to NVCA's podcast because you probably care deeply about the work of NVCA. And you also care about influencing policy. So, for listeners, not just for NVCA, but I think for every single person listening, the most critical thing that I want you to take away is that whether you are reaching out to the SEC, or to another agency, they are listening and are looking for your feedback. And so one of the things that I think is most critical is we've got groups like NVCA who will file comment letters, and who will tell the big picture story, and weave together a wonderful, wonderful explanation of the rules. But we need to hear from more than just in NVCA, we need to hear from each of you that are listening, and send in your feedback.
If you take the time to tweet about one of these things, or to post something on LinkedIn or a Medium post or a blog post, or an op-ed, if you've already got thoughts and you're willing to put them out there, what's absolutely critical is that they make their way into the official comment file. Because I'll tell you the way that process works. Under the Administrative Procedure Act, and I promise that is the last bit of the legal, technical jargon, but under the APA, when a federal agency is looking at making changes, they must seek feedback from those that would be impacted. The challenge is you might think I'm putting my opinions and my perspective out there, and my followers are hearing it and they have liked it. They have commented and said, "Spot on Bobby. You understand these issues. I am so glad that you get it", but guess what, Bobby? If it's in your blog post, if it's on your Twitter, it's not in the comment file unless you put it there.
And that means it's not actually influencing the regulatory process. So if you take the time to do it, I don't care if you take a screenshot of your tweets and file it. I don't care if you email, and here are my top three bullet points, and I'm going to tell you it'll cost us $50,000 a month to put this new filing requirement in place, whatever it is, it can be short and to the point, but put it in the comment file, because that is the only way to ensure that your voice is actually weighing into the mix. It is not just about saying it to people that are listening to you, but saying it directly to the agency. And I'll tell you this, every single thing that goes in the comment file gets read by staff reviewed, and becomes a part of how the staff responds with follow up rule making. So, that is the most critical thing. If you were listening today, please do not just tweet LinkedIn post, Medium post you name it, put it in the comment file.
Bobby Franklin (42:28):
Martha. Anything else that you would like to share with our listeners about what you've learned over the last several years, thinking about entrepreneurs, and the venture investors that help them take their dream into a product or a service, turn it into a company? Any other words of wisdom or advice you'd like to give us?
Martha Legg Miller (42:49):
I think my other really wonderful takeaway is how many people are truly passionate about supporting entrepreneurship about supporting investors, and Venture Capital, but we all come at it from a very different angle. And if you are somebody, you can probably hear a twinge of my Southern accent. I'm from the state of Alabama, which is not known for its venture capital industry, but we have our own venture funds there, they look different than the funds of the west coast, and other places. And I think it's really important, as we look at policy to think about the fact that entrepreneurship, and communities that support capital raising are going to look different in every single community. There is no such thing as recreating Silicon Valley to become Silicon slope, Silicon y'all, Silicon, you name it. Every community is going to look different, and we have to come up with solutions that can support all of those communities. And that's an area that I am very passionate about and will remain passionate about as I move forward from the SEC.
Bobby Franklin (43:53):
Well, Martha Legg Miller, thank you so much for the job that you have done at the SEC, and the support you have given this industry over the past several years. We can't wait to see where you land next, and keep us informed on that. Martha Legg Miller, the first and now former director of the office of the advocate for small business capital formation. Thank you for joining us on Venture Capital. Well, that wraps up this episode of Venture Capital. Thanks for listening. But before we gavel out, here's another fun fact. Did you know that the oldest fish market in the United States is in Washington DC? The main avenue fish market opened its doors in 1805, and has been operating ever since. Again, thank you for listening to Venture Capital, a podcast brought to you by NVCA. Hope you enjoyed the show because investing in tomorrow starts with smart policies today. I'm your host, Bobby Franklin wishing you good days ahead. Bye, for now.