Localstake is an investment crowdfunding site offering Reg CF, Reg D, and Intrastate crowdfunding investments, including many open to non-accredited investors.
Types of investments Localstake offers
As the name implies, Localstake specializes in local businesses like restaurants and breweries, and their typical raise amount is lower than many other platforms (often in the low six figures or even less). Details vary by investment, but some offerings are direct investments in the business raising money, while others are via special purpose entities.
What do you get when investing with Localstake?
Details vary by investment, but Localstake offers convertible notes, preferred equity, and revenue share investments.
How does Localstake make money?
Localstake does not charge any fees directly to investors. Companies pay to raise funds, and Localstake also collects a fee out of the money distributed to investors as part of the revenue share investments.
Potential returns and cashflow
Investments made via Localstake are high-risk investments in startups. Most startup investments lose some or all of their value. While some investors achieve excellent returns from startup investing, that is a rare outcome and requires substantial diversification over time combined with very careful investment selection.
With the revenue share investments, the borrower pays a predetermined percentage of their revenue each month until a defined multiple of the original investment is reached. For example, 4.25% of sales (which may fluctuate each month) until investors receive 1.6X their original investment, but for no more than 48 months (if investors haven’t received the 1.6X by then, the full amount comes due).
The revenue share model is clever, and it’s obvious why it’s appealing to businesses facing unpredictable cash flow.
It can be a bit tricky to compare investments apples-to-apples, but as a rule of thumb to get an approximate IRR equivalent, you can take the multiple, raise it to 1 divided by the term in years, and then subtract one. For example, if the multiple is 1.6 and the term is 48 months, 1.6^(1/4) - 1 = 12.5%. (Though note that if the full multiple is paid before the term is over, the effective rate of return would be higher.)
Breadth of offerings on Localstake
According to their website, Localstake has helped fund 23 businesses to date. As of this writing, there were 4 open investments, though it appears that 2 of them are intrastate offerings only available in the state the businsess is located (in this case Indiana).
Regulatory framework and due diligence expectations
Localstake a registered broker-dealer. Broker-dealers are subject to specific due-diligence requirements to ensure an investment is “suitable” for their registered customers, or they can face fines and civil action. (That does not of course provide any guarantees about investment return or performance!) All companies offering Reg CF investments on Localstake will have been through background checks of key officers and owners, and there are links provided to the relevant SEC filings made by the offering company.