Summary: This report discusses the access of U.S. small businesses to equity capital financing and describes the Small Business Administration's Office of Advocacy (SBA-OA) estimate of their perceived needs for equity capital financing. GAO studied recent trends in small business equity capital financing and the potential effects of market practices and securities law regulations on such financing. From the results of this study, SBA-OA estimated that about 10 percent of the businesses started in a year would need equity capital, as well as about 25 percent of faster growing small businesses. Available data are insufficient for updating the estimate of small businesses' equity capital needs, but indicate for the 1994-1999 period that the level of small business equity financing increased dramatically. The equity capital formation in the unregulated equity capital market is affected by market practices, which reflect the efforts of investors and other market participants to maximize returns and to manage risks on investments. In addition to simplifying registrations and exemptions, federal and state governments have tried to reduce the regulatory burden and costs for small businesses seeking equity capital financing in the regulated securities markets.
