Crowdfunding

With First ‘Reg A’ Deals And Final Rules, The JOBS Act Gains Steam

Amy Cortese | November 23, 2015

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Elusive for so long, the JOBS Act is suddenly coming into fruition.

On Friday, automotive upstart Elio Motors received Securities & Exchange Commission qualification for its widely anticipated $25 million Regulation A offering. The deal, which will help the company commercialize its innovative low-cost, three-wheeled cars, is the first official “Tier II” deal using the newly revised Reg A. The approval comes just weeks after the Commission green-lighted final rules for Regulation Crowdfunding, also known as Title III of the JOBS Act, which will open up securities crowdfunding to all investors.

While the Title III crowdfunding rules won’t go into effect until May, the new Regulation A is already opening up public investment in private companies. Formally Title IV of the JOBS Act, Regulation A has been called “the mini-IPO” because it allows a simpler version of a public offering. Like an IPO, it requires registration with and approval from the S.E.C. (“Tier I” deals under $25 million also require state approval).

In addition to the Elio Motor news, crowdfunding pioneer Fundrise last week announced plans to offer up to $50 million in shares—the maximum allowed under Regulation A— of a new real estate investment trust. The shares are priced at $10 with a minimum investment of $1,000. The trust will be invested in real estate deals across the Fundrise platform and will be open, as per the Reg A rules, to ordinary investors.

Fundrise has filed a prospectus with the S.E.C. but the deal has not yet been approved. The company is in a quiet period and could not comment.

Groundfloor, an Atlanta-based real estate crowd-lending platform, was qualified for a Regulation A offering in September, although it began the lengthy process before the revised “Reg A+” rules went into effect in June. The company’s real estate investments are now open to residents of Georgia as well as California, Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, and the District of Columbia.

Poster Child

“I’m really happy to see quality filings by quality companies getting through the process,” said Sara Hanks, CEO of Crowdcheck, a company that provides due diligence services. Some of the early filings by companies hoping to raise money through Regulation A have been unprofessional or incomplete.

Elio Motors has been test-driving prototype vehicles and has $290 million worth of pre-orders, but needs an infusion of capital to begin commercial production.

In many ways, Elio Motors is the perfect poster child representing the kind of companies that the JOBS Act, and Reg A+ in particular, were meant to support: an innovative young company powered by American ingenuity. Founded by auto enthusiast Paul Elio, the Phoenix-based company’s line of American-made, super efficient cars with a base price as low as $6,800 have the potential to be groundbreaking.

“Our goal is to alter the course of American transportation,” declared Elio in a statement.

The Phoenix-based company has been test-driving prototype vehicles and has $290 million worth of pre-orders, but needs an infusion of capital to begin commercial production. The $25 million Reg A offering will help it do so. Shares are priced at $12 with a $600 minimum. The company is also said to be seeking debt-based financing through a Department of Energy program.

Enthusiasm for Elio Motors has been running high. A “test the waters” campaign on crowdfunding site StartEngine has elicited more than $45 million in indications from potential investors. With its formal offering, Elio Motors is offering $25 million in equity shares to the public, also through StartEngine. The shares are expected to eventually trade on an established exchange.

But if you’re interested in getting in on the deal, you may be too late: the company has already met its $25 million funding goal and is only accepting investments from those who have previously reserved shares. You can, however, get on a waiting list.

Related: With Reg A+, Regulators Usher in the “Mini-IPO”

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