Different funding model or scam?

#1

Post by Killjoy » Tue, Mar 31, 2009, 6:41 PM UTC

My co-founder has a meeting this week with a group named Liberty Capital (http://www.liberty-capitalfunding.com/). They offer money with future invoices as collateral.

Right now, my team needs cash. We're pretty savvy (thanks to the HN contingent!), and still early enough where we need cash to get ramen profitable. My first thought on this was, "SCAM" -- but is using future invoices as collateral just a horrible idea? After all, you usually give up equity, which is trading future money for money now; not really that different than what Liberty claims to do.

Does this scream SCAM to you guys too? What are your thoughts on it?

Re: Different funding model or scam?

#2

Post by cperciva » Tue, Mar 31, 2009, 6:48 PM UTC

This is a common financial practice in some fields -- you might have heard of something called "securitization" in the news lately. :-)

That said, applying it to a startup seems rather weird. Normally the way securitization works when future revenue streams are predictable, which is far from true for most startups.

I wouldn't call this a scam necessarily, but it certainly raises my eyebrows enough that I'd recommend reading over the fine print very carefully to make sure that you know exactly what you're agreeing to.

Re: Different funding model or scam?

#3

Post by pg » Tue, Mar 31, 2009, 7:07 PM UTC

I've never heard of a startup doing this. And the site looks alarming.

Re: Different funding model or scam?

#4

Post by jakewolf » Tue, Mar 31, 2009, 7:42 PM UTC

I know people who loan money off of credit card receivables. Terms are usually for 6 months and at a very steep interest rate.

What's a future invoice?

You're better off getting cash redoing their website.

Re: Different funding model or scam?

#5

Post by aristus » Tue, Mar 31, 2009, 7:50 PM UTC

I used to work for a company that did this kind of brokering, or "cashflow factoring", etc.

The basic idea is that they give you Y*X dollars now against X future revenue from your organization, where Y is much lower than 1.0. You're selling a lien against future revenue.

Usually they target lottery winners, manufacturers with firm orders, people who have won monetary awards in lawsuits, etc. It's not a very good idea.

Re: Different funding model or scam?

#6

Post by [deleted] » Tue, Mar 31, 2009, 8:59 PM UTC

cperciva wrote: post #2

This is a common financial practice in some fields -- you might have heard of something called "securitization" in the news lately. :-) That said, applying it to a startup seems rather weird. Normally the way securitization works when future revenue streams are predictable , which is far from true for most startups. I wouldn't call this a scam necessarily, but it certainly raises my eyebrows enough that I'd recommend…

[deleted]

Re: Different funding model or scam?

#7

Post by dont » Tue, Mar 31, 2009, 9:49 PM UTC

Invoice Factoring or "Receivables Securitization" only happens when the receivables are well established. That is, when the invoice has been generated and accepted by customer.

No legitimate funding exists before the invoices are crystalized. Definitely not for "FUTURE" invoice

Re: Different funding model or scam?

#8

Post by Killjoy » Tue, Mar 31, 2009, 9:49 PM UTC

HN comes through again! Thanks guys, those are my thoughts exactly!