Crowdfunding Deal Review: Elio Motors

At last, change is coming to U.S. markets.

Before this year is over, the first equity crowdfunding deals will be live.

For the first time in 82 years, average Americans will be legally allowed to invest in private companies.

That privilege has been reserved for “accredited” investors since the Securities Act of 1933.

For 94% of Americans, this will be their first opportunity to invest in a private deal.

It’s an exciting time, but I’d recommend newcomers proceed at a measured pace. A lot of research and diligence should be done before you jump into a deal.

Now, let’s take a look at what will probably be the first equity crowdfunding deal to go live.

Elio Motors

EI_elio motors

Since 2009, Paul Elio and his company have been working on a three-wheeled car. They say the Elio will retail for around $6,800 and get 84 mpg. There are real working prototypes (albeit with a different engine than will be in the production model).

All the paperwork for this deal to go live has been filed with the SEC. It looks like Elio will go live by late this month or early next. It will be raising money on an equity crowdfunding site called StartEngine.

You can “reserve” shares in Elio Motors here (nonbinding). But before you consider doing that, there are a bunch of things you should know about the deal. Due diligence is required in any investment, but especially a high-risk one like this.

First off, building a new car company in the U.S. is probably one of the riskiest endeavors one could undertake. It takes a lot of money, a lot of skill and a fair amount of luck.

But as we have seen with Elon Musk’s Tesla, it’s one of the most potentially rewarding. So I do feel like this deal is worth an examination.

Elio also happens to have a solid management team with deep experience in the industry. Read more about its team’s experience here.

It’s a radically different type of car. Technically, it’s not a car at all. The Elio is classified as a motorcycle.

Being considered a motorcycle has some pros (fewer regulations) and some cons (in some states, drivers may still have to wear a helmet). But you wouldn’t even know it was considered a bike unless you read the offering circular (dense legal document) and got to Page 11…

That’s just one of dozens of things you should know before considering an investment in a private company like Elio.

Financials

The Elio is an ambitious project. The company’s already spent a fair amount of cash, and will need to spend a lot more to get to production.

Once again, you need to dig into the legal documents to get a clue to its financial situation. Unfortunately, not all the information is up to date.

For example, there’s this section:

We have a significant working capital deficiency.

At December 31, 2014, our working capital deficit was $8,446,483. We have been raising funds through reservations of the Elio, a private placement of our securities, and the sale of excess equipment to meet our cash needs. Our current liabilities include a note due December 31, 2015, which was in the principal amount of $1,600,000 at December 31, 2014.

Elio explains that it’s raising more money, but we don’t know the status of those events at this time. It’s dated from December 2014, almost a year old (and I’m not saying the outdated info is Elio’s fault – it’s been waiting for this legislation to go live for a while).

I suspect more recent financials will be provided before the deal truly goes live. I hope so. Mr. Elio and his team seem committed to get this car to market, and I wish them the best.

I’m just not sure it’s something I’d invest in yet.

Tune in next week, when I’ll review another upcoming equity crowdfunding deal (or two). One of them will be XREAL, a very interesting-looking mobile gaming startup. I happen to know a little about the founders going into researching this one, and the industry (e-sports).

Good investing,

Adam Sharp
Founder, Early Investing

P.S. What do you think of the Elio Motors deal? Would you invest? Let us know in the comments.

  • CUZIN ERN

    All faction of life is a gamble including IPO’s so, just trust your guess and hope to see fruition…as seen when Ferrari went IPO as the highest price snob vehicle known for its prowess!!