A small gathering of about 60 people met in New York City at 304 Hudson Street to witness an event with profound implications for two important industries. As is typical, there was little fanfare. You see, disruption is often overlooked-- at least at first. Innovative ideas are almost universally ridiculed or even ignored by lethargic incumbents because they do things so differently.
On February 25th, three firms shared the stage to celebrate the first ever crowd-sourced, public offering from a Reg A + offering. Elio Motors raised $17 million from over 6,000 individual investors.
A non-conventional company
Elio Motors is non-conventional in almost every way. Following in the footsteps of Tesla Motors, Elio is blazing a trail for affordable and efficient transportation in a way that would make Henry Ford proud. Their tandem two-seat, three-wheeled vehicle breaks all the rules. The company plans to retail its auto for under $7,000 while achieving greater than 80 mpg! The base model will come standard with air conditioning, power windows, and a radio. All additional options can be purchased a la carte. No more silly packages where you need to pay for three things you don't want in order to upgrade something you actually care about.
Elio motors used StartEngine, a crowdfunding platform, to raise $17 million from over 6,000 individual investors. Four years ago, the JOBS Act made this day possible by allowing small companies to raise up to $50 million annually from non-qualified investors for the first time ever. Cromwell Coulson, CEO of OTC Markets Group, called the JOBS Act "the great gift from the Great Recession."
Small firms drive the economy, but when it comes to raising capital, they've been shut out of the traditional methods. According to Coulson, we are on the verge democratizing finance. Just like the Internet has made individual investing more affordable, crowdsourced financing is opening up an efficient way for entrepreneurs to start and grow their businesses. Now average investors will be able to invest in early stage businesses that they believe in. In the past, these deals were exclusively for qualified investors. At The Motley Fool, we've long believed that you don't need to be rich in order to be smart and capable.
Why Elio's funding is so special
Elio Motors, StartEngine, and OTC Markets Group have a chance to blaze a trail for future entrepreneurs. Like most pioneers, they will no doubt have their share of obstacles to overcome. Already, some Elio investors reportedly had trouble getting their shares into their brokerage accounts shortly after the IPO on Friday February 19th.
While I was sitting at the press conference yesterday, I thought: "There's no way this could have happened in any other country on earth." Efficient capital markets have been a huge strategic advantage to our nation. They've recently fueled the rise of Silicon Valley and the Internet. That capital has transformed the way people interact, date, communicate, transact, shop, and are entertained. But somewhere along the way, our capital markets lost sight of their objective. According to Coulson, IPOs have become exit vehicles for private equity investors and venture capitalists.
The JOBS Act makes it possible for entrepreneurs to raise capital to start and grow new businesses -- ultimately creating more jobs.
Isn't that what capital markets were meant to do? It's exactly what Paul Elio is trying to accomplish. According to Elio, he'll need another $200 million to configure their 1.4 million square feet of production space in Shreveport, Louisiana. In an ironic twist of fate, the 80+ mpg Elio will be manufactured in the same building where GM formerly manufactured the Hummer. The efficient and Darwinian flow of capital allows for transformations like this to occur. Capitalism can be cruel, but it's also amazingly efficient.
At the end of his speech, Elio fittingly acknowledged the 50,000 plus reservation holders who placed a bet on him and his dream. They deposited money without knowing if or when the vehicle would actually make it to production. They were encouraged to support a new way of doing things -- to innovate and to transform the way we get around this earth. Unsurprisingly, 64% of the money raised came from those same reservation holders. If all goes well, these micro-financiers will be rewarded with a strikingly disruptive product in a year or so. And, for some, there's a chance for a handsome return on their investment. Without knowing it, they might have helped ensure that future entrepreneurs have affordable access to capital to make sure that America remains the most innovative and entrepreneurial country on earth.
Buck Hartzell has no position in any stocks mentioned, but does hold a reservation for a new Elio. He is also an investor in Elio Motors and owns shares in OTC Markets Group. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.