Are cars the new beer? You might think so from the latest spate of high profile crowdfunding campaigns.
As new securities regulations go into effect that allow significantly larger amounts of capital to be raised, a new breed of issuer is grabbing the spotlight. In the last several weeks, boldly imaginative car and aircraft makers have been attracting the attention—and dollars—of investors.
On January 25, Dubuc Motors began gauging interest in a $25 million equity offering that would help it bring to market a high-end electric-powered sports car. The Tomahawk (pictured above) features “scissor” doors that open upward and speeds of up to 160 miles per hour—higher than those achieved by Tesla.
The move follows a successful campaign by another electric vehicle maker, Elio Motors. The Phoenix-based company has already raised more than $16 million of the total $25 million it hopes to raise before its funding campaign closes on February 1. The money will help Elio bring to market its ‘E-Series’ line of low cost, high mileage three-wheeled electric vehicles.
For those who want to avoid the roads altogether, XTI Aircraft Company recently launched an equity offering on January 21, on the heels of a successful ‘testing the waters’ campaign. The company, run by aerospace veterans, is seeking up to $20 million support the development of an innovative 6-seater aircraft. Called the TriFan 600, it is designed to take off and land vertically like a helicopter, thanks to three ducted fans, but fly like a jet. The company says it could usher in a new era of personal transport and door-to-door service, says XTI.
All three campaigns have been listed on StartEngine, an equity crowdfunding platform, and make use of the newly revised Regulation A+. Often called the “mini IPO,” it allows companies to raise up to $50 million from the public by issuing securities without undertaking a full blown IPO. The regulation also allows companies to “test the waters” with investors before committing to a fundraising campaign.
The offerings are a departure from the microbreweries that dominated early rewards-based and intrastate crowdfunding campaigns, and signal a return to a swashbuckling tradition of American entrepreneurship. And, though the startups are long on vision and high in risk, investors are gobbling them up.
XTI, for example, evokes the Wright Brothers in its equity campaign, telling investors: “Now is your chance to have your own ‘Kitty Hawk moment’ and get in on the ground floor.”
The company had received expressions of interest totaling $20 million from more than 2,000 potential investors before launching the campaign. Investors have until February 21 to invest. Even if the offering is successful, XTI has said it will require another $400 million and several years to develop and certify the aircraft.
The campaigns mark perhaps a new phase for crowdfunding, as new regulations that allow equity to be raised from the public take hold. The enthusiastic investor response to Elio, Dubuc Motors and XTI suggests pent up demand on the part of investors for big, potentially game-changing ideas.
“Retail investors still have a big appetite to invest in frontier type stuff,” says Doug Ellenoff, founding partner at the law firm Ellenoff Grossman & Schole. “They understand it’s a crapshoot, but they want to invest. This is years and years of built up appetite being expressed.”
Before Regulation A went into effect last June, companies had limited options if they wanted to raise capital from the public. Yet many venture capitalists and private equity investors aren’t willing to take a flyer on conceptual startups. The JOBS Act was passed to give early stage companies more avenues to raise money—and everyday investors more opportunities to invest.
“This vehicle has struck a chord with the American public,” says Paul Elio.
Some worry that deals passed over by sophisticated investors will end up being peddled to the public—what’s known as ‘adverse selection.’
However, Regulation A and other JOBS Act provisions, including the upcoming Title III crowdfunding exemption which goes live in May, require full disclosure of risks. And while some deals will surely fail, others may demonstrate the ‘wisdom of the crowd.’
As Ellenoff notes, venture capitalists passed over opportunities to back new ventures like the Oculus Rift and the Pebble watch, both of which went on to run hugely successful rewards-based crowdfunding campaigns. Oculus was later acquired by Facebook for $2 billion.
Even Tesla, the inspiration behind the spate of new automotive startups, initially had a difficult time raising funds.
“Private equity won’t do pre-revenue investments, and VCs think the project is too big for an eventual follow up check,” Elio founder Paul Elio told TechCrunch.
Similarly, Dubuc Motors spent two fruitless years trying to raise money in Canada, where it was founded, before moving to the U.S. to take advantage of crowdfunding laws here.
Beyond capital, the Reg A offerings have helped these young startups generate interest in their ideas and win customers.
On Elio Motors’s campaign page on StartEngine, visitors can reserve their own E-Series, which is expected to go on sale in late 2016 at a price of $6,800. Nearly 50,000 people have put in orders for one of the vehicles, which will be manufactured in Shreveport, Louisiana at a former General Motors plant.
“Fan reaction to this vehicle has been extraordinary,” company founder and CEO Paul Elio said in a statement. “How many other vehicles have built that much enthusiasm before production? Few, if any. This vehicle has struck a chord with the American public, and this stock offering has helped us get to an important phase in our development.”