Roughly a year after the passage of new rules making it easier for fledgling businesses to tap U.S. capital markets, just a handful of them have succeeded in doing so.

A Phoenix-based startup that makes three-wheeled vehicles raised roughly $17 million through one such mini-IPO, in which small companies can raise as much as $50 million by issuing securities.

Two other companies together have raised nearly $70 million for real estate investments, while a community bank with operations in three Southern states has issued stock for a merger deal.

The new rules, known as Reg A+, reduce the legal and reporting requirements for making these offerings. The rules, which took effect last June, grew out of the 2012 Jumpstart Our Business Startups Act, or JOBS Act, aimed at spurring business growth and employment.

“The big issue is there has been a rush of companies and not enough gratification,” saidRod Turner, chief executive of Manhattan Street Capital Inc., a funding platform for the offerings.

According to the Securities and Exchange Commission, 94 companies had filed to raise a total of $1.7 billion under Reg A+ as of early June. Of those, 45 offerings seeking to raise a total of $785 million have qualified to raise funds, and just a few have actually completed their offerings.

The low tally highlights some of the challenges that small companies continue to face, as well as the JOBS Act’s limited progress in achieving its objectives. But the weak market for initial public offerings hasn’t helped.

Among the biggest problems for the companies trying to raise funds is that they aren’t prepared for the amount of marketing needed to attract a big enough pool of potential investors.

In some cases, companies set overoptimistic minimums for the amount needed to complete the offering, and then had to return money to investors after falling short of their goal. Another hurdle: attorneys and broker-dealers are still getting comfortable with the new fund-raising option.

“Finding investors is always hard,” said Sara Hanks, chief executive of CrowdCheck Inc., which provides due diligence, compliance and disclosure services to entrepreneurs seeking to raise funds online. “That has not changed.”

Commercial real-estate asset manager Allegiancy LLC launched its $30.1 million stock offering in March, hoping to become one of the first companies to use the new rules. But the Richmond, Va., manager of low-rise office buildings struggled to woo individual investors and to convince broker-dealers to venture into uncharted territory. In the end, it canceled its offering.

“Just because you are a leader doesn’t mean anyone is going to follow you,” said Allegiancy CEO Steve Sadler. “Mark me down as an overly optimistic knucklehead.”

Mr. Sadler says Allegiancy will try again, but with a lower target and a different marketing strategy.

There have been other hitches. The SEC increased the amount companies could raise without providing audited financial statements to $20 million from $5 million. But to win approval from some state securities regulators, many companies still need to have an audit.

Roughly half of the 50 states require audited or reviewed financial statements for offerings exceeding $1 million, according to Michael Pieciak, Vermont’s deputy commissioner of securities.

After its $5 million offering was qualified to begin raising funds under Reg A+, Broadcast 3DTV Inc., a Burbank, Calif., developer of 3D software and hardware, had to get its financial results audited. That “cost us about three or four months and probably $20,000,” said CEO Dean Zanetos.

The federal rules let companies “test the waters” by gathering expressions of investor interest ahead of an IPO, but that preliminary interest doesn’t always translate into an investment.

The nearly $17 million in funding that Elio Motors Inc. raised in its February offering was well below the roughly $45 million it received in nonbinding reservations. That doesn’t include the additional $312 million that the company, which promotes its three-wheeled vehicles as a low-cost, high-mileage alternative to conventional cars, says it would need to fund “production activities.”

Paul Elio, founder and chief executive, said none of the dozen people who said they were interested in investing $500,000 actually bought shares. “People were putting in false indications of interest,” he said.

Elio has had more success than many under the new rules, thanks in part to its marketing strategy. It reached out to nearly 50,000 individuals who have put in reservations for its vehicles, which have a targeted base price of $6,800, and another 100,000 people in the company’s database.

Reservation holders provided nearly 70% of the funds raised by the $12-a-share offering. The stock has been trading recently at around $19.50 a share on a market owned by OTC Markets Group Inc. It briefly jumped to $75 shortly after the February offering.

Many other companies have found it tougher than expected to attract investor interest. “There has been some level of magical thinking,” said Ron Miller, chief executive of StartEngine, an online platform that hosts Reg A+ offerings. “Founders have perceived that there is this pent-up demand for investment in startup and tech companies” and that investors “would come out of the woodwork.”

That hasn’t been the case. RalliBox Inc. pulled its Reg A+ offering in June, after generating less than $10,000 in commitments, far less than the $3 million it sought. Now, the company, whose internet-based platform lets users sell goods that are shipped by other vendors closer to the customer, is looking to raise that money from wealthy individuals, known as angel investors, a more common route for early stage companies.

The new rule “very definitely is something that would work well for somebody who doesn’t need it, a company with a really big brand name,” said ralliBox founder David Kneusel. “But it is not something that is startup-oriented.”

Ends

July 21, 2016