Regulation A+ Funding Update: Elio Motors

On Monday, one of the first Regulation A+ deals will successfully close.

Elio Motors says it’s raised about $16 million so far on StartEngine.com. Thousands, probably tens of thousands, of investors have participated.

Elio had hoped to raise up to $25 million in the offering, which ends February 1. But it’s not bad for one of the first deals ever.

For those of you who missed my initial coverage of Elio back in October, here’s a summary. Elio is building a three-wheeled vehicle designed to get 84 mpg and cost $6,800. Ambitious, I know. Here’s a picture:

EI_elio motors

Note for new readers: Regulation A+ fundraises have been referred to as an “IPO-lite” or a “mini-IPO.” They don’t require the same level of paperwork and auditing that a true IPO does. So the cost of capital is lower, the amount raised is (typically) lower and ongoing reporting costs aren’t as bad as a full-blown public offering of stock. See previous coverage of Reg A+ here.

More Funding Required

I didn’t invest in Elio. As much as I like the company’s vision of a high-mpg commuter vehicle… I couldn’t do it.

Here’s part of what stopped me. Paul Elio himself admitted last year that the young company needs to raise roughly $240 million to complete that vision.

So why would it bother raising a measly $16 million in a new type of security offering? From thousands of investors?

I was puzzled by this at first. It’s not enough cash. It could, I suppose, try to get enough accomplished with the $16 million to bring in new private equity or VC money. Possible, but doesn’t seem likely.

Or… it could be betting on a government-backed loan. And that’s the most likely case.

Government-backed loans to “green” auto companies is nothing new. Tesla famously took $465 million from the feds in order to kick-start its electric sports car. For Tesla, the program worked like a charm.

Unfortunately, for almost all the other green companies that accepted federal money, the cash acted more like rat poison. Fisker, Solyndra and A123 Systems – among others – all failed with hundreds of millions in government-backed loans.

So even if Elio gets a loan, which is a big IF, we don’t have any guarantee of its long-term success. For that reason (and others I won’t get into today) I couldn’t invest in Elio or recommend it to subscribers.

I may be proven wrong, and I’d be delighted if that happens. I’d love to see Elio go on to become the next great American car company. Then thousands of early investors would make a handsome profit. And well-deserved too. They took on a lot of risk and came out winners. And that’s what early investing is all about.

Good Sign for Overall Market

As part of the JOBS Act, Reg A+ deals are considered by many (including me) to be part of the new phenomena of equity crowdfunding.

It’s a great sign Elio was able to successfully complete the fundraise. Sixteen million dollars is a substantial amount of cash. It’s not easy to raise that much – especially in this jittery market.

The fact that it was funded by thousands of individual investors is unprecedented in recent history.

Now that a few Reg A+ deals are having luck getting funding, others will follow.

I’ll keep you updated as interesting new deals come online. Have a great weekend, everyone.

Good investing,

Adam Sharp
Co-Founder, Early Investing

  • Asclepios

    I like your insight. Is Elio more risky than startengine.com’s other manufacturing startup, XTI Aircraft (especially given the problems Boeing’s V-22 Osprey and Lockheed Martin’s F-35 JSF have had with this technology)? The real winner is startengine.com and the considerable advantage they have over seedinvest.com and other competitors now that they’ve hosted buzz-filled launches for Elio and XTI on their platform. I’m sure at least one of these ventures will fail, but it’s interesting that both planes and cars will be cheaper to make with the current commodity slump. Although both Elio and XTI tout the efficiency of their new vehicles, sustained low gas prices would make the Elio a harder sell. I talk more about all this at http://www.youtube.com/watch?v=cb-GFVRNJeQ

  • Hannibal Smith

    “You don’t understand. I coulda had class. I coulda been a contender. I
    coulda been somebody, instead of a bum, which is what I am, let’s face
    it.” — Elio