For anyone currently or contemplating raising capital for a small-business or startup (which includes many of our clients), we encourage you to study the recently released 2025 staff report from the SEC’s Office of the Advocate for Small Business Capital Formation.
The Small Business Advocacy Office, established in 2019, is tasked with helping not just early-stage startups but also later-stage private companies and smaller public companies. As part of its mission, the Office identifies problems that companies in these three business-development stages face in trying to secure capital. The Office also offers a special focus on the challenges facing minority-owned, women-owned, rural, and natural-disaster-area small businesses and their investors.
The 100-page report provides a detailed view of how and by whom capital is being raised and invested, sharing extensive data and abundant easy-to-understand charts and graphics, along with additional resources. Information was gathered via public filings, reports and feedback to the SEC. (All data and statistics we cite in this article come from the report, which you can access by clicking here.)
Below is just a sampling of data that is particularly relevant to our clients seeking investors for their small-business and startup ventures:
Early-Stage Funding Problem
Early-stage companies sit at the most capital-constrained point in the business lifecycle yet face rising costs and tighter credit. In 2024, 94% of small businesses reported financial challenges, most commonly paying operating expenses and managing uneven cash flow. Over 80% of early-stage firms cited challenges such as general economic uncertainty, access to capital, and a difficult fundraising landscape. Traditional finance is far from a complete solution: 81% of small business owners who applied for a loan or line of credit found it difficult to access affordable capital, and about 40% of applicants sought relatively modest amounts under $50,000. At the same time, bank consolidation has reduced the number of small banks by roughly half over the past decade, further narrowing local lending options. Many founders therefore resort to personal funds and cash reserves before turning to investors, with 55% using personal funds and 51% tapping cash reserves as their primary response to financial challenges.
Pre-Seed and Seed Rounds
Pre-seed and seed remain the main institutional entry points for young companies, but expectations and competition have increased. Typical pre-seed rounds range from $50,000 to $250,000, often from friends-and-family, angel investors, and pre-seed funds. Seed rounds more commonly fall between $1 million and $5 million, led by angel investors, seed funds, and accelerators. Seed deal sizes have expanded: by mid‑2025 the average seed deal reached about $6.8 million, with the median around $3.1 million, significantly higher than several years earlier. The path to the next round has lengthened, with the median time from seed to Series A increasing to 2.1 years in 2024, roughly 84% longer than in 2021. This heightens the importance of companies setting realistic milestones. And they also need to be aware of the massive effort required to close a $3 million to $4 million dollar seed round: often involving outreach to 200 or more investors, 60 or more first meetings, dozens of follow-up meetings, and ultimately only one or two viable term sheets.
Angel Investors
Angel investors remain a critical bridge between friends-and-family money and institutional capital. Approximately 13% of the U.S. population now qualifies as accredited investors, most through net worth or income, and they are nearly three times more likely than the general population to consider investing in new or private companies. In 2024, angels invested about $17.9 billion across more than 55,000 businesses, with ~445,535 active angel investors in the market. Importantly for first-time founders, 78% of angel deals involved first-time CEOs, and 56% of angel deals took place in seed rounds, with nearly half of angel dollars going to seed-stage companies.
Choosing a Compliant Capital-Raising Plan
For early-stage and growing ventures that are ready for outside investors, U.S. law offers several routes, each with distinct trade-offs on cost, disclosure, and investor base.
- The most commonly used is Regulation D, especially Rule 506(b) private placements and Rule 506(c) general solicitation offerings, which together accounted for hundreds of billions of dollars in capital formation in the most recently measured period.
- Companies willing to make more public-facing offers often consider Regulation Crowdfunding or Regulation A, which function as scaled-down public offerings with capped amounts and tailored disclosure requirements.
- Regulation Crowdfunding campaigns raised a median of about $114,000 and an average of roughly $368,000 in 2024, with a typical offering lasting four to six months. About 43% of offerings were for equity, 31% for debt, and 25% for SAFEs (Simple Agreement for Future Equity, a contract where investors give cash to a startup now for the right to get equity later).
Practical Stage-Appropriate Steps
Companies can increase the odds of success by aligning their strategy with investor expectations and regulatory requirements. Here are some tips:
- Map your funding plan to business milestones.
- Identify whether your target investors are primarily angels, seed funds, or retail investors and then select a pathway (Rule 506(b), 506(c), Regulation Crowdfunding, or Regulation A) appropriate to that audience.
- For private placements, verify accredited investor status and retain documentation.
- For Regulation Crowdfunding, be prepared for a months‑long campaign, set realistic raise targets, and maintain platform-specific disclosure and ongoing reporting obligations.
- If considering Regulation A, budget time and funds for preparing legal documents, financial statements, and marketing materials.
- In all instances ensure that offering documents address operational issues, risks, and include sources-and-uses information.
Networks, Accelerators and Non-Capital Support
- About 64% of small businesses report needing technical assistance to access capital, and 11% did not even apply for financing because they did not know where to start, suggesting a continuing need for advisory and legal guidance.
- Companies with mentor networks tend to present more resilient business plans and show higher confidence with lenders and investors, and more chance for success.
- Regions that launch new accelerators see increases in local venture deal flow, and graduates of accelerators or incubators have a funding rate of about 5.4%, compared to 2.9% for startups that did not participate in such programs.
Challenges for Women, Minority and Other Business Startups
Demographic and geographic data in the report highlight both opportunity and risk for companies formed by women, minority, and rural founders.
Women-owned or equally owned businesses already account for about two million firms and employ approximately 19 million people, yet women founders continue to seek smaller amounts of capital and face higher denial rates from banks, with 42% of women entrepreneurs who applied failing to secure a bank loan. Women-owned businesses are 1.8 times more likely than men-owned businesses to seek $25,000 or less in funding. And while about 34% of Regulation Crowdfunding deals involve at least one woman founder, only about 26% of total crowdfunding capital flows to such mixed-gender teams.
Racial and ethnic minority founders also confront structural gaps: for example, many minority-owned businesses seek $50,000 or less in financing and experience varied success in obtaining loans or lines of credit. Many don’t even take the first step toward applying for funding, assuming they will be denied.
Data compiled for the report show that rural entrepreneurs receive a disproportionately small share of exempt-offering capital, with rural businesses accounting for only a sliver of Regulation D, Regulation A, and Regulation Crowdfunding capital over a three-year period. Instead, they rely heavily on relationships with small banks for financing.
Companies and their support teams can address these challenges by tailoring offering materials to emphasize community impact, job creation, and credible governance, which can resonate with both mission-oriented investors and programs targeting underserved founders.
Conclusion
The central challenge for early-stage and growing ventures is balancing speed of fundraising with securities-law compliance and investor protections. Each exemption has conditions around investor eligibility, offering size, information disclosure, and resale restrictions, and missteps can put you at risk of having to return investor funds, face civil or criminal prosecution or, at the least, encounter difficulty in future fundraising.
With the right planning, the current environment still offers significant capital for well-prepared early-stage companies: venture funds, angels, and nontraditional investors continue to deploy substantial amounts, but they increasingly favor teams that can demonstrate both legal compliance and disciplined use of capital.
You can read the full report by clicking here.
