Kickstarter partly created the crowdfunding phenomenon that many product designers, inventors, and startups love. This trend of offering a soon-to-be-made product to the crowd, or consumers at large, continues to take the world by storm. The wind behind crowdfunding is about to get stronger with the Securities and Exchange Commission (SEC) Regulation A+ opening for business today.
The SEC adopted the new ruling in late March, according to my Forbes contributor colleague, Michael Raneri, with his post: Testing the Waters WAT -0.22%: Filing a Regulation A+ Offering with the SEC (linked at left or below, depending on how you are viewing this article); the final rules become operational today.
“The SEC has approved modifications to Regulation A that are about to transform it from an obscure backwater of securities law into an attractive way for private companies to gauge their appeal in the marketplace, and raise up to $50 million in growth capital. In fact, the new Regulation A+ specifically provides a stage in the process in which companies can ‘Test the Waters’ to see how investors might respond to a fundraising offering, before pulling together a formal offering circular.” –Michael Raneri
Elio Motors, the maker of a new ultra-efficient vehicle, is one of the first to launch a “Regulation A+” crowd-funding initiative as the next phase of its fundraising strategy. Elio Motors is targeting the first half of 2016 to launch an enclosed three-wheel ultra-high-mileage vehicle that is expected to sell for $6,800 and get up to 84 MPG. The vehicle already is a hit with consumers, as more than 43,000 people have reserved a place in line to purchase a vehicle. With 250,000+ likes on their Facebook page, it certainly appears that they have a strong chance at success, crowdfunding or not.
The company chose to use a new crowdfunding platform, StartEngine, to make this Regulation A+ offering. The process is not the same as a traditional crowdfunding campaign and StartEngine has the campaign running. Click through to page 2 for rough costs after “testing the waters.”
As someone who follows and writes about the maker movement and bringing manufacturing back to America, I found the Elio Motors work to be inspiring. Elio Motors will manufacture the vehicle in Shreveport, Louisiana, at a former General Motors GM -0.46% facility that made vehicles such as the Hummer H3 and Chevy Colorado. To produce an ultra-high-mileage vehicle in the former Hummer H3 factory is, to say the least, ironic.
When the Elio goes to market, it will create 1,500 jobs at the facility. In addition, the Elio will use 90 percent North American parts and materials, creating another 1,500 jobs at its supplier partner companies. These manufacturing jobs will in turn create approximately 18,000 indirect jobs across the country. That’s enough to make the Elio Motors P5 vehicle a very desirable crowdfunding purchase and investment, above and beyond its low cost and high mileage.
The rulings under Title IV of the 2012 JumpStart Our Business Start-up (JOBS) Act, pave the way for private companies to raise up to $50 million from unaccredited investors. Just as crowdfunding platforms have made getting in on early product creation more enticing to consumers, Regulation A+ gives everyday folks an opportunity to invest in private companies like Elio Motors.
The March 25 official announcement explains it: SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital New Rules Provide Investors With More Investment Choices. The Securities and Exchange Commission today adopted final rules to facilitate smaller companies’ access to capital. The new rules provide investors with more investment choices. The release and fact sheet from the SEC is here.
-Testing the Waters: Filing a Regulation A+ Offering with the SEC http://onforb.es/1HJmuxj (May2015)
-Crowdfunding Experts Address New Regulation A+ Rules Live http://onforb.es/1H6qtCb (Apr2015)
In an email discussion with Ron Miller, CEO of StartEngine, he explained, “There is no cost for companies to ‘Test the Waters’ – that means businesses can promote their offering, determine market sentiment (# of investors / $’s soft committed) as a first step. Once a company sees that they have sufficient interest in their offering, it’s approximately $30-50K for legal and accounting costs to do the SEC filing. But again, this cost is only incurred once the company makes the determination that they have sufficient market interest and decide to move forward. We think Reg A+ is a great fit for companies that want to raise $500K minimum, ideally $1M+.”