LocalStake is an Indianapolis-based equity funding platform with the main focus on local businesses.
Investments are made into local businesses and projects, to make local communities better places to operate.
On LocalStake, local investors can pool their money together in small increments to make an even bigger impact.
You may think of how Localstake will be able to stand in this competitive industry with key players like StartEngine and Wefunder. But the only factor which gives a competitive advantage to LocalStake compared to big giants is “transparency”.
Therefore we prepared a detailed review of LocalStake includes types of investment does LocalStake offers, how you can invest, why should you invest, how much returns should you expect, and all other relevant stuff regarding LocalStake.
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Founded |
2011 |
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Investment Type |
Venture, Startups |
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Sectors |
Fintech, Cyber, AI, MedTech, and BidData |
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Minimum Investment |
$100 |
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Audience |
Open to all Investors |
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Investor Fees |
None |
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Due Diligence Process |
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Securities Offered |
● Preferred Equity ● Revenue share loans ● Convertible debt ● Traditional debt |
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Investor Resources |
Company documents, blogs, One to one interaction with employees |
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Pros |
● Support to local businesses ● No upfront fees ● Low amount of investment required (as low as $100) ● Some opportunities are only open for accelerated investors ● Individual businesses have an opportunity to offer non-monetary perks |
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Cons |
● Generally, small businesses are extremely risky ● Localstake does not disclose its track record in the recent past ● Localstake does not offer securities against default of business ● Limited investment opportunities ● No secondary markets |
Types of Investments LocalStake offers
LocalStake is one of the companies in the market which offers services that facilitates both investors and entrepreneurs.
Localstake mainly focuses on small businesses and gives a platform to get the money they require to grow and expand their business.
They mainly offer four types of investments –
- Revenue Share loans – In this investor gives money as a loan to the startup in return for a share in the revenue. The investor share will still remain in the company until he gets a reasonable return on the investment like 1.5 times. The annual returns on investment are solely based on the time taken by the company to generate specified revenue.
- Preferred Equity – In this type of investment you get a part of ownership in the company but on some terms just like preference shares. If the business goes for liquidity then preference equity holder gets preference to pay out the amount outstanding
- Convertible Debt – You can also invest in companies via convertible debt in which investor gave their money as a Loan but in the future, they can convert their loan into equity on discount by mutual understanding with the company’s management.
- Traditional Loan – The only instrument in the list we are most familiar with. It refers to traditional loan types in which investors can loan funds to the business.
What do you get when investing with LocalStake?
If you are an investor and want to invest in a non-listed startup you can invest through four investment options mentioned above in the small companies and startups and if the startup grows or the company went for a public listing you will get the difference of profits made on investments.
Small businesses and startups are considered extremely risky investments you can invest to diversify your portfolio. If the company grows you can get extraordinary returns on your investment because small companies have the most to grow.
How does the company make money?
Localstake act as an intermediary between investors and entrepreneurs –
- They charge $499 as a monthly subscription during your funding campaign
- Users have to pay $199 per month after successful funding and it will continue till the entrepreneur repay the whole amount.
Potential Returns and Cashflow
Return Potential returns on your investment are based on the company you invest in and the type of securities you invest in.
In the case of Revenue share loans, it will be based on the time taken by the company to generate required sales.
The most important factor is how the company performs in long run. If the company performs well and increases its revenue and ability to generate healthy profits you can get outstanding returns on your investments.
If liquidity is your main concern then Localstake is not the option you should go with as it generally takes 2 to 3 years to convert your investments in liquid cash.
You may consider stocks, debentures, and other investment instruments for higher liquidity.
The Breadth of offerings on LocalStake
The Deal flow of the company
LocakStake carefully selected local businesses who need capital between $50K to $500K ($250K on an average) post their campaign on the site; potential investors review these campaigns; they fund them if they feel the business will make an impact in local community life.
On average, local businesses borrow over $250K through Localstake’s platform each year -about $6M total since inception- which is then re-invested back into various local communities across Canada.
Regulatory Framework
As a registered broker-dealer Localstake is liable to have a background check on the businesses and their management which they want to list on their platform under Regulation CF.
How much I can Invest?
It depends upon the type of status you have.
Accelerated investor
If you are an accelerated investor then there is no limit to investing through LocalStake.
Non-accelerated Investor
If under Regulation crowdfunding you are considered as a non-accelerated investor you can invest up to $2,200 if your net worth or income does not stand more than $1,07,000.
If your income or net worth comes out to be more than $1,07,000 you will be able to invest 10% of the respective one (whichever is greater).
Conclusion
LocalStake is a crowdfunding platform with higher transparency than its competitors and helps to get funds to the startups from the interested investors.
But as a long term investor, I feel hesitant to invest in these startups with LocalStake –
- High Risk – About 90% of the startups fail and end up closing their operations. Furthermore, 10% of startups closed within 1 year of their operations. It makes them a high-risk investment to invest in. It will not recommendable for a beginner.
- New Platform – LocalStake is a new platform that does not publish its track record of the past few years and can raise less than $1 Million in funds from Venture capitalists. This scenario gives rise to trust issues with LocalStake.
- Better Options – Crowdfunding is one of the key sectors which had grown tremendously. But despite that, there are other companies in the market like Maininvest better investment opportunities to go with.
In addition to that the funds you invest will not be FDIC or SIPC insured.
At last, I just want to mention investing in startups is a high-risk and low liquidity game. A beginner should not prefer it as an initial investment.
An experienced investor with a great portfolio can diversify their portfolio by investing in startups to earn huge returns.