Vehicle manufacturing startup Elio Motors recently became the first crowdfunded “mini initial public offering” via the SEC’s new Regulation A+ rules, put in place under the 2012 Jumpstart Our Business Startups (JOBS) Act.
Regulation A+ is the update to Regulation A, an old rule that allowed private companies to raise funds from accredited investors for up to $5 million. The JOBS Act Reg A+ update brings this rule in line with the brave new world of crowdfunding, allowing companies to raise money in two tiers, for amounts up to $20 million and $50 million, including from non-accredited investors.
Elio Motors initially listed shares in 2015 via the StartEngine equity crowdfunding platform, raising $17 million. In February, its shares, which are immediately transferable under Reg A+ for new investors, were publicly listed on the OTCQX market. An initial spike put the company’s valuation at over $1.5 billion, and though that has since leveled off, shares are consistently trading over double their initial purchase price of $12 each.
As with most any new process, a few speed bumps have popped up. Investors are currently running into some issues depositing their Reg A+ shares with brokerage firms. Platforms like TriPoint Global Equities have jumped in with solutions for these hangups, and it is expected that as more and more companies take advantage of Regulation A+ to raise funds, the process will become increasingly streamlined and routine.
Elio’s success is an early vindication of the promise of using crowdfunding to raise IPO money. Small companies have traditionally been kept from IPOs due to the immense expense associated with going public, and small investors have been kept out due to SEC rules. Reg A+ and similar updates inspired by crowdfunding are changing the game dramatically, and both entrepreneurs and investors are proving to be ready for that change.