“Growing Pains” as Elio Shares are Slow to Trade After Reg A+ Mini-IPO

ELIO Hurdle

As the very first equity crowdfunding offer to go through the process of issuing shares and then listing on a public exchange under Reg A+, Elio Motors was bound to encounter a few bumps along the way.  One of the challenges was the transfer process of shares to investors.

Cromwell Coulson 2In Growth Capitalist, Cromwell Coulson, CEO of OTC Markets stated;

“I know Elio’s transfer agent Vstock has the shares, and one brokerage firm has accepted them but we also know there are some growing pains right now with getting brokers to accept the shares into Elio investors’ accounts … There will be some delays but it will be worked out as broker-dealers figure out how to handle the shares.”

Elio (OTCQX:ELIO) raised approximately $17 million on equity crowdfunding platform StartEngine. The mini-IPO type offer was available to anyone -not just accredited investors. The securities also became immediately transferable under the Reg A+ rules.  Elio worked diligently to list their shares on the OTCQX, the market reserved for the highest qualify companies listing on the OTC platform.

Trailblazing companies not only get to claim first – they get to pave the way for others too following helping to streamline the process. Many industry insiders expect that, over time, the process of raising capital via equity crowdfunding to trading shares on an exchange to become routine.

Mark ElenowitzOne platform, TriPoint Global Equities, is providing a service that will make the transition easier. Via their Banq platform, Tripoint is accepting Reg A+ issuers now.

“There have been recent successes with issuers raising capital under Reg A+, but most  of the investors in those offering have been left without the ability to deposit their shares  with brokerage firms and liquidate them in the market. As a result, the Issuers are now  faced with angry investors,” said Mark Elenowitz, CEO of TriPoint Global Equities.

Elenowitz says some brokers are reluctant to accept securities issued under the new exemption. He touts his service as the solution to the challenge.  He also congratulated Elio on their accomplishment but stated his service could have smoothed the transition to publicly traded shares.

Paul ElioTimothy Clemens, an IR consultant for Elio, explained in the Growth Capitalist article, that unlike shares sold in a traditional IPO, the offer was not registered under the Securities Act of 1933.

“The challenge has been getting all parties in the securities distribution process to understand this. In this age of electronic communications, discussing the issues ‘real time’ rarely occurs and Elio Motors has had to remain patient while waiting for responses from the power that be.”

While share transfer and trading details are worked out investors who purchased equity in Elio should be consoled by one important aspect of the investment: shares have moved higher in the short time they have been listed on OTCQX.

Elio Share Price March 4 2016As we reported early last week, Elio has traded much higher than the $12 / share issue price for people participating in the Reg A+ offer.  At one point the valuation topped one billion dollars, perhaps boosted by the growing list of individuals signing up to buy some of the first three-wheel vehicles off the assembly line.  Of course, the low supply of shares may have helped to propel prices higher too.

Ron Miller NoirRegardless of the initial hurdles, Paul Elio, with justification, declared this is how wall street is supposed to work.  Ron Miller, CEO of StartEngine, said, “Elio Motors is emblematic of what equity crowdfunding can do.”

Smaller IPOs have been in a nose-dive in recent years.  The decades of adding new regulations on top of existing rules has inflicted a tall toll on the capital markets.  The US is no longer the go-to-market for young, innovative companies looking to raise capital via a public offer. Promising young companies now avoid doing an IPO as long as possible meaning gains are hoovered up by the very wealthy while smaller investors are left out.  An IPO has become less an investment and more of an opportunity to exit.

Big Money Hoover VacuumInitially, there was some question regarding Reg A+ as to whether, or not, smaller issuers (IE early stage companies) would use the updated exemption. So far, the empirical data looks promising as platforms like StartEngine, SeedInvest and WR Hambrecht, see opportunity in companies issuing securities for less than $50 million. While so much copy has been written about Reg CF (Title III of the JOBS Act), this crowdfunding variant may have the most potential to disappoint. The highly prescriptive approach by Congress channelled final rules by the SEC that lack such valuable features like “testing the waters” or the ability to create an SPV. Shares cannot transfer for a full year. On top of this, the funding cap is a mere $1 million, hobbling the exemption unnecessarily.  Of course, reality hits this coming May as issuers may, or may not, choose to take advantage the new exemption. Time will tell.

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  • Teri Buhl

    JD if you are going to copy my original quotes and reporting at least follow journalism standards and name the source your material came from which is http://www.growthcapitalist.com . Growth Capital Investor was first to break the news that Elio investors were having share deposit issues and some broker dealers were saying they would not accept RegA shares on Feb 24th. http://www.growthcapitalist.com/2016/02/elio-investors-find-obstacles-trading-reg-shares/

    • crowdfundinsider

      Hi Teri,
      I did credit the source in the copy as we always do. The link was to MarketNexus but I have updated it to the one you list above.

      JD

  • As the article notes, a few bumps were to be expected in the first one. FINRA had to get their arms around the first 5110. That’s much easier now those who come after Elio. DTC had to get their arms around the first Reg A+ eligibility. That’s much easier now. FINRA had to get their arms around the first 211. That’s much easier now. And clearing firms (keep in mind that TriPoint is not a clearing firm nor an infrastructure provider, but a small BD that does some investment banking and retail sales) had to get their arms around the first Reg A+ securities coming onto their books (both via DWAC’s and purchases). That’s getting easier by the day.

    Thanks to Elio the entire Reg A ecosystem is getting more organized and in better form for everyone. This includes issuers who are raising capital, investors, exchanges like OTC, clearing firms like Pershing, COR, Folio and others, infrastructure firms like FundAmerica Technologies, service providers, major broker-dealers like Hambrecht, and even tiny retail brokers like TriPoint who are now able to participate in this market.

    • crowdfundinsider

      Thanks for sharing this.

      JD

  • whaaat

    “At one point the valuation topped one billion dollars, perhaps boosted by the growing list of individuals signing up to buy some of the first three-wheel vehicles off the assembly line. Of course, the low supply of shares may have helped to propel prices higher too.”

    More like speculators and day traders! lol

    • crowdfundinsider

      Not yet. Volume is too light.
      JD

      • whaaat

        Over half of all volume traded was in shorts.

        http://otcshortreport.com/index.php?index=ELIO&action=view

        • crowdfundinsider

          That’s interesting. Thank you for pointing this out.

          JD

      • I wouldn’t expect a lot of volume. People are, I believe, buying Reg A securities because they are passionate about the company, not because they want to trade on a quick pop. That’s why so many prefer to own shares directly instead of transferring them to an existing brokerage account or opening a new brokerage account just for these shares. People love the company and want to be a part of it.

        • crowdfundinsider

          Maybe. But if I saw the share price jump like that I would certainly consider a trade.

          JD

          • Yep, for many people, and if you’d chosen to hold your securities directly instead of in your brokerage account at Schwab, Wells Fargo, or wherever then you could easily tell your broker to import (DWAC) them into your account. Of course if a lot of people were selling then that price would not have been what it was.

          • whaaat

            I believe that a huge part of the problem is in first time investors trying to open a NEW account with only Elio stock. I doubt that anyone with an existing account would experience the same problems.

          • Well the problem, from what I know, was less than 10 investors out of over 6,300 investors in the deal. So it was far from “huge”. But, yes, to open a new account just to transfer in some securities would be up to the registered rep that the investor was working with.

          • whaaat

            I didn’t say that the problem was “huge” (as in being a widespread problem). I’m saying that the major problem is that you’ve got people who have never traded before trying to open their very first account with an OTC stock that is very thinly traded. I’ve been watching several boards and there’s way more than just 10 people having problems transferring shares. (if only 10 or so people were complaining, this issue wouldn’t have gotten the attention that it has… this very article attests to that). Nevertheless, in time, the issue will undoubtedly be resolved.

            I’m going to guess that at least half of those 6300+ investors are unsophisticated investors. As one who has made a tidy little profit in short sales of Elio stock, I look forward to seeing these new Elio stockholders enter into the game!

        • whaaat

          Over half of all volume traded was in shorts.

          http://otcshortreport.com/index.php?index=ELIO&action=view