For the most part, we know what’s going on in public markets. But private markets? Not so much. With more and more private companies opting for funding in private capital markets, the SEC is sounding the alarm on lack of transparency. 🚨
Private capital markets are pools of investors looking to invest in private companies without the logistical or transparency hurdles involved in publicly-listed companies. However, the SEC is becoming concerned as large ‘unicorn’ firms, which may have a tremendous impact on society, privately raise capital without disclosing their investors/terms. Furthermore, private ‘unicorn’ companies are valued at $1 billion or more — so this is no joking matter.
In 2020, SEC Commissioners voted 3-2 on a proposal to increase access to the world of private capital markets. Prior to the SEC’s vote, individual investors were only labeled ‘accredited’ if they held over $1 million in net assets and at least $200,000 in income. The SEC’s new legislation aimed to award ‘accredited’ investor status to MBAs, analysts, and those holding law degrees. Now, the SEC is working on legislation which would require private companies to release more information about their investors, finances, and business operations.
Commissioner Allison Lee shared “When they’re big firms, they can have a huge impact on thousands of people’s lives with absolutely no visibility for investors, employees and their unions, regulators, or the public. I’m not interested in forcing medium- and small-sized companies into the reporting regime.”
This push for transparency in private markets comes as investors and regulators alike have recently expressed concerns over wealthy traders pulling out of public markets. At the time of this writing, there are 959 known private companies valued at more than $1 billion.