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The Securities and Exchange Commission is still drafting its rules for crowdfunding—a provision in last year’s Jumpstart Our Business Startups Act that allows private companies to raise capital by lining up large numbers of small investors.
That delay is good news for the founders of LocalStake, an Indianapolis-based Web startup that is using an exemption in existing securities laws to arrange private offerings while others wait on the guidelines. (Read my July story here.)
"It keeps competition further away,” said Kevin Hitchen, who launched the company last year with partners Ryan Flynn and Brandon Smith.
Donation-based crowdfunding has exploded in recent years as sites like Kickstarter allow users to support creative projects with small gifts. Adding equity to the equation adds layers of complication that LocalStake aims to unravel.
As a registered broker-dealer, LocalStake is set to connect investors with businesses in their communities that need cash.
About 90 companies have applied for funding through LocalStake, but only two are listed as “potential offerings” on its online marketplace. Another five are in the process of being approved.
“We are being very selective about who we deal with,” Flynn said.
Although securities laws prevent them from discussing the companies they’re working with, the partners said they want to offer investors a range of options: startups and growing businesses, for example, in a range of industries.
Registered users can see the basics on the companies seeking funding. On LocalStake right now: A startup Bloomington craft distillery looking for $500,000 and an established Anderson pet treats maker that wants $150,000.
Users with LocalStake investment accounts can request additional information, including the offering materials filed with federal and state regulators.
By the end of the year, the partners expect to have helped more than a dozen companies secure capital. They also want the experience to be positive for the 650-plus investor-users who already have signed on.
“They are our real customers,” Flynn said.