Localstake

Author: Kaitlyn Short

Localstake was founded by a team with background in investment banking and investment management. Their goal is to support small business by providing a means of funding as well as insight into how to attract potential investors to their business. Users are able to appeal to investors on Localstake as well as their own family, friends, and customers to invest in their business.  

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The Good

• Model type
• Fund type
• Maximum allowed raise
• Deadlines
• Receiving funds
• Administrative work options

Model Type

LocalStake is structured as both an equity and Rewards fundraising model, what they describe as a Revenue Share Loan. A revenue share loan is a loan designed to pay back investors through monthly payments based on your business's revenue until a maximum total return has been reached. The three fundraising options LocalStake offers small businesses are Revenue Share Loans, Preferred Equity and/or Convertible Debt. Revenue share loans require your business to provide investors with an IRS 1099 form each year with the amount of their interest income-like a bank does when you have an interest-bearing checking or savings account. Preferred Equity Investors receive a share of the ownership of the business by investing directly or through a pooled entity while Convertible Debt Investors loan funds to the business which convert to equity at a discount to the price of the next round of equity financing. Users are able to appeal to investors on Localstake's platform as well as family, friends, and customers to invest in their business. Those who invest are then able to either receive future revenue from the business or equity in the business itself. Users are also able to offer rewards to those who invest such as discounts or swag. This allows investors to feel connected to the business and creates a vested interest from donors.

Fund Type

LocalStake's unique Revenue Share Loan funding model doesn't apply to the typical 'All or Nothing' or 'Keep What You Raise' funding modalities used by most crowdfunding platforms. It is a fundraising platform, but unlike other crowdfunding sites where there are donators, LocalStake is a marketplace for investors seeking to invest in a small business through revenue loan sharing.

Maximum Allowed Raise

LocalStake allows a maximum of $500K. At a minimum, companies on Localstake must raise at least $50K. If you are looking to raise less than $50K or more than $500K, Localstake is likely not a great funding solution for you. In limited situations, they will consider exceeding $500K if your company's revenues and growth warrant it.

Deadlines

Since LocalStake uses a revenue loan sharing model, there are flexible deadlines on fundraising (agreed upon with investors)-which alleviates one common challenge to new businesses. Most crowdfunding sites offer the opportunity to raise money for one project or cause; however, LocalStake is more long-term, offering the chance for small businesses to connect with investors and secure an equity loan agreement for the operations of their business-not just one project. The only timeline is how long it takes for businesses to repay the full principle and interest on a revenue share loan which is 5-8 years. Every business who raises funding on Localstake must designate a minimum target amount of funding they are looking to raise. Until that minimum target amount is reached, investors will not transfer any investment funds. If you do not reach that minimum target amount, no funds will be transferred to your business.

Receiving Funds

The monthly revenue share payments are electronically deposited directly into the bank account or self-directed IRA account provided by the investor. This means there is no delay in investors receiving their funds and there are no third-party processing or transaction fees.

Administrative Work Options

Another perk of Localstake's platform is the ability to utilize the knowledge and insight of a Localstake advisor throughout a campaign. Advisors help business owners develop a campaign page that will appeal to potential investors by communicating your story and the most important aspects of your business. They also help business owners put together legal documents necessary to appeal to investors including investment documents, your investor pitch, financial projections, subscription documents, and legal disclosures. They also help business owners navigate security laws, create a marketing plan, and access investors through Localstake's investor networks. For example, once funds are raised and ready to be distributed to investors, LocalStake offers administrative work assistance such as:

• Dedicated customer support and advisory via e-mail
• Provide investor updates
• Make payments to investors
• Investor management
• Continue to connect with new and existing investors

Their insight and guidance through the campaign process and beyond is a valuable way for users to get the most from Localstake's platform when running their campaign.

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The Bad

• Fees

Fees

Because funding earned through Localstake is structured as a loan, users will have to pay investors back with interest. This does provide business owners the ability to create vested interest in their business by providing lenders with equity, however, many other crowdfunding purposely function on a donation basis where funding comes with no strings attached. Localstake's fee structure is substantially higher than many of the other crowdfunding platforms. Users are required to pay a monthly fee of $499 through the duration of their campaign. Once they have achieved their funding goal, users are required to continue to pay a monthly fee of $199 until the loan has been repaid. The purpose behind these fees is to encourage business owners to stay on top of their campaign as well as repaying their investors. It does mean that business owners need to have the ability to stay on top of paying these fees in order to continue utilizing Localstake's platform. With a revenue loan share funding model, Percentage of Revenue at 2-10% and Maximum Total Return at 1.5-2 times the amount invested. The one upside is that there is no fee for non-completion, as it is an investor platform (Most crowdfunding sites are donator platforms).

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The Bottom Line

While Localstake does provide small business owners with several features to help them raise the funds necessary to grow their business, the fees-both front end and back end to investors-are way beyond the scope of a small business struggling to get off the ground (ironically their target market). To their credit, LocalStake offers solid administrative work options, use of a Localstake advisor as well as means of giving donors stake in their business gives users the tools they need to appeal to potential investors. Overall, due to the pricing and fees, we cannot recommend Localstake as an excellent crowdfunding platform for small businesses.