In my efforts to become more familiar with the various equity crowdfunding platforms that exist, I came across Localstake, an Indianapolis-based company that focuses on local businesses. Here is my Localstake review.
Before I get into the details of the platform and what it offers both investors and entrepreneurs, I do want to say that there are things about Localstake that are refreshingly different. I will talk about those shortly.
However, if it wants to capture a chunk of the crowdfunding market, it needs to do a better job of telling its story. A one-page description of the two founding members and their five core principles is not going to cut it in the fast-moving world of equity crowdfunding.
One only needs to go to the homepages of StartEngine or Wefunder to understand how competitive the industry has become. Transparency is the only way Localstake is going to be able to compete with the big boys.
Maybe it doesn’t want to, and that’s fine, but at least tell a story that’s confident and easy to get behind.
Now that I’ve had my rant, let me tell you why I like Localstake.
Local Needs the Money Most
Small businesses are disappearing at an alarming rate due to the novel coronavirus. According to data gathered by Yelp (NYSE:YELP), 80,000 small businesses permanently closed between March 1 and July 25. Of those, local businesses, which are defined as fewer than five locations, accounted for 75% of these closures.
The American Bankruptcy Institute expects small business bankruptcies in 2020 to increase by 36% over last year. Between mid-February and the end of July, approximately 800 filed Chapter 11. The organization expects a lot more to do so in the final four months of the year.
“Probably all you need to do is call the utilities and tell them to turn them off and close your door,” said William Dunkelberg, who runs a monthly survey as chief economist for the National Federation of Independent Business. “[Closures] are going to be well above normal because we’re in a disastrous economic situation.”
Therefore, any help Localstake can provide for new or existing local businesses is very much welcome.
Localstake Specifics Worth Noting
Easily the best thing about Localstake is that it’s set up to meet the needs of both investors and entrepreneurs. By offering four different investment vehicles: 1) Revenue Share Loans, 2) Preferred Equity, 3) Convertible Debt, and 4) Traditional Loans, both parties get what they’re looking for.
Entrepreneurs get the money they need to expand and grow their local businesses, and the investors get income, equity, or a combination of both. How you invest depends on your financial situation. If you’re retired, but want to dabble in private investing, a revenue share loan or traditional loan might be your preference. If you’re younger and can afford to wait for a bigger payday, preferred equity or convertible debt might be the way to go.
Whichever of the four methods you decide to go with is up to you. However, it’s important to note that some of these methods are more popular for entrepreneurs than others.
Probably Localstake’s biggest success story to date has been Ogden’s Own, a distillery in Ogden, Utah, that produces handcrafted spirits for sale primarily in Utah, but also in Wyoming, Montana, and elsewhere. In February, Ogden’s Own launched the sale of its products at Lee’s Liquors in Las Vegas. Lee’s has 22 locations in Nevada with a focus on the Las Vegas market.
Ogden’s Own raised $1.9 million in December 2019 from 298 investors using both a Regulation CF (accredited and non-accredited investors) and Regulation D (accredited investors). That was the maximum amount the distillery looked to raise.
The investors got 8.7% of the company for their $1.9 million, which put a $20 million valuation for the distillery. The minimum investment was $495. It planned to use the funds for marketing, equipment, inventory, and additional working capital.
On April 28, it announced the opening of its new building in Ogden.
As for current investment opportunities, I only see three on the Localstake site at the moment. It’s going to need more than that if it has plans of sticking around. In 2017, North Carolina crowdfunding advocate Mark Easley brought the Localstake platform to the North Carolina market. At this point, it doesn’t appear the North Carolina venture has been very successful.
My Localstake Review Bottom Line
To be honest, with so many excellent equity crowdfunding portals out there such as StartEngine, Wefunder, Republic, and many more, it’s hard to take Localstake seriously.
If you’re looking for local opportunities, you might want to look elsewhere. Localstake isn’t worth your time or money.
That’s unfortunate because I like the premise of having spinoff sites for cities, counties, states, etc. It could work. Just not the way it’s presently constructed.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
