Localstake: Crowdfunding for Small Businesses by Local Investors

June 19, 2012

9:46 am

I know what you’re thinking. Another crowdfunding platform? While the simple answer is yes, Localstake is not your typical crowdfunding startup jumping on the JOBS Act (or “Crowdfunding Act”) bandwagon.

Localstake is a locally focused crowdfunding marketplace that connects local businesses with local investors of any wealth. It was founded in 2011 after Kevin Hitchen, co-founder, was approached by a friend asking for help raising money. Realizing that you normally needed to be an accredited investor to invest, he and his co-founders, Brandon Smith and Ryan Flynn, set out to make investing in private businesses available to more “everyday” investors.

When I talked with Hitchen he explained:

“The reason we wanted to focus on local investments is because of the added protection it brings to investors. We quickly saw many other benefits. Local investments are easier to research and check up on. You can go talk to the entrepreneur or ask your friends about them. From a business prospective, not only does the investor supply capital but they become customers and advocates. Ultimately a business can have customers anywhere, but for the most part, they always start local.”

They are able to make these offerings to non-accredited investors (individuals with a net worth less than $1 million) without the JOBS Act because they have registered to be a broker-dealer. Localstake is required to perform due diligence and provide detailed information to investors about the companies. A big difference between them and other crowdfunding startups is that the investments are equity, debt, and revenue share securities.

Most businesses that have already signed up are looking to raise between $100,000 and $500,000, although they are able to raise as much as $1 million. The minimum investment allowed is $500, which is thought to be more than a donation.

Localstake just launched version 2 of their platform on Friday with local marketplaces nationwide and their new Localstake academy that helps educate investors on how to invest in private businesses.

Guest author Nick Tippmann is a young entrepreneur with a thirst for learning and a passion for helping. He is an organizer for Startup Weekend, a mentor for Lean Startup Machine, and currently full-time on his own startup. Follow him on Twitter @ntippmann.

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