This story has been updated
Elio Motors IPO is still facing trading obstacles because thousands of mom and pop investors in the company can’t get the shares they bought in an equity crowdfunding campaign deposited with retail brokers. Since I first reported Elio’s troubles, on February 24th, at Growth Capital Investor the company told me it’s teamed with executives at OTC Markets to educate and encourage retail broker-dealers to accept the new kind of securities, created by the JOBS act, known as Regulation A+. But large retail brokers like Fidelity are telling investors they won’t accept the RegA+ shares till they see how the new type of securities trade for a month.
As a result, only institutional or high net worth individuals are able to get their shares deposited for trading, at the likes of Morgan Stanley, who is willing to take on the broker liability of new shares brought to market without the backing of an investment bank. Morgan Stanley will do this because they’ve already made so much in fees from these sophisticated clients that they can afford to take the risk for their best investors. The impact of Elio going first to list a RegA+ deal means the company’s share price has moved way above a realistic valuation because the number of investors with shares to trade and make a market is low.
The company, which is developing a high-mileage, three-wheeled car, raised $17 million from 6,600 investors under Regulation A+. They chose to list the stock for secondary trading on February 19 at OTCQX, the top tier alternate trading system available for emerging growth companies. It wasn’t till the fourth day that shares were able to start trading because of the share deposit issue. And those trades were only by people with millions in brokerage accounts or institutions that convinced their brokers to take the risk on these shares that actually got the first trades off.
As of end of day Friday Elio’s transfer agent VStock told the company only these broker dealers are now accepting the $Elio shares which included:
Bank of America
Scottrade (office by office decision)< strong>*
Fidelity (office by office decision)< strong>*
Elio could have avoided some of the share deposit problems for their investors if in the beginning they’d hired an investment bank like WR Hambrecht to run the RegA+ fundraising. This also would have meant the company had to pay more in fees to make the investing process smoother for their fan base. Or if they had brought in a one-of-its kind broker dealer BANQ early in the process they would have had an online system that got their investor’s shares deposited in only five minutes. Once again that would have cost Elio more in fees. Not a lot, but that’s dollars they can’t use to pay engineering to keep working on a mass production of its E-series motor.
As a result of not having all shareholders able to trade yet and make a market, we are seeing misguided headlines by a contributing reporter at Forbes praising the mini-IPO for a billion valuation only a week after trading began. Of course a company that has no revenue, says it needs millions more to finish producing its unique engine, only collects a small percentage of the car’s sales price for a reservation, is not worth a billion dollars. The Forbes reporter didn’t even bother to investigate why Elio went from listing at $12 to closing at $60 on Monday or report on the share deposit issue.
Today we can finally start to see a correction with $Elio down 33% closing at $40. But $40 still means, on paper, investors tripled their investment so far and regardless of the frustration many investors felt not knowing how to get their shares deposited the first week, this mini-IPO is very news worthy and important to watch. The trouble is investors are not getting insightful or accurate reporting from my fellow journalist trying to catch up on what RegA even means.
The trade publication I report for, Growth Capital Investor, has been covering how equity crowdfunding could dramatically change the face of start up investing and capital raising for well over a year. We will be reporting in-depth stories on how Regulation A deals get done and the markets response to this new capital raise vehicle for start-ups. If you plan to hold Elio shares for a long time I’d love to hear why you invested. If you want to be interviewed for my next story on Elio Motors please reach out to me at email@example.com.
UPDATE 3.11.16 – Elio investors say Scottrade is now returning their shares to vStock and has decided not to accept them for deposit. Scottrade would not comment on why they chose not to accept regA+ shares. Additionally, Wells Fargo is now accepting shares.
* UPDATE 4.7.16 – Yoel Goldfeder, CEO of VStock and the transfer agent for Elio, told this reporter in an interview for Growth Capital Investor Scottrade and Fidelity have now changed their mind about accepting RegA shares for deposit. He cautioned that each of theses large retail brokers are only accepting the shares through a branch by branch and investor by investor case.
I have reported a long-form deal analysis of Elio’s RegA+ offering in the April 5th issue of Growth Capital Investor. It’s a great read with insight on the success and learning lessons of the offering.