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Don't try this at home. How credit card arbitrage funded my first company.
21–30 of 107 posts
Re: Don't try this at home. How credit card arbitrage funded my first company.
#22Is this actually considered arbitrage? http://en.wikipedia.org/wiki/Arbitrage While the 4th credit card company he applies to has imperfect information about what his credit is (at that point) actually worth, it seems like all the deals are independent.
No, it's not even close. I was expecting a story about generating profits with arbitrage, and using the profits to fund the company.
Though inaccurate, the title was much catchier than:
"How credit cards funded my first company"Re: Don't try this at home. How credit card arbitrage funded my first company.
#23Is this actually considered arbitrage? http://en.wikipedia.org/wiki/Arbitrage While the 4th credit card company he applies to has imperfect information about what his credit is (at that point) actually worth, it seems like all the deals are independent.
I'm not sure when this took place, but prior to the credit market crash, you were able to get risk-free savings accounts at around 5% interest. As long as your credit-card rates were below 5%, I think you could call it arbitrage, though it's value is lost in this case since the startup was burning the cash, not just letting the arbitrage run its course and used the proceeds.
This wasn't a particularly uncommon scheme in the mid-2000's with easy credit and high savings rates. A rough calculation shows that with a zero-interest card (you could generally negotiate 0% cash-advance checks as well) and a 5% savings account, you could make in the ballpark of $450 over the course of a year per 10k borrowed. If you had good credit and could quickly get access to 100k, you'd be making a few thousand for a not much more than a days work + some short-term damage to your credit score, though at that time, credit scores didn't really mean all that much.
Re: Don't try this at home. How credit card arbitrage funded my first company.
#24Back in the mid-2000s, when money-market accounts were paying around 5%, and there were a ton of promotional 0%-balance credit-card offers, people from fatwallet used to use the term "app-o-rama" for this trick of applying for a ton of 0%-balance credit cards all on one day, so that they'd all be approved before the credit score was updated. Then, there were ways to essentially extract the balance as a cash advance w/o it being coded as a cash advance. A few cards (like Citibank's) would let you do a "balance transfer" via a check made out to you, and then you could transfer that balance to others and repeat. The end result was that you could take out a quick $50k or so in credit, put it in a 5% money-market account, and pay it all back 12 months later when the 0%-rate intro promotion would be expiring, netting $2500 interest.
You could also start a business with the cash, but that's a bit higher-risk...
Re: Don't try this at home. How credit card arbitrage funded my first company.
#25Re: Don't try this at home. How credit card arbitrage funded my first company.
#26> For some personal background, I do come from a financially stable family. My parents could have covered the $16k to help me follow my dreams. But I didn't ask them (and neither did they offer). The financial pressure and responsibility of my startup was to be fully on my shoulders. Even though he wasn't accepting money from his parents, he was implicitly using their financial security to shoulder this risk. If ever…
Credit card debt is, in most states, entirely dischargable in bankruptcy. So while it would be unethical to take on all this debt specifically with the purposes of squandering it, the CC companies are extending you an unsecured loan. It's really not all that bad of an idea, provided you can survive a bankruptcy and a few years of exceptionally poor credit.
> while it would be unethical to take on all this debt specifically with the purposes of squandering it
Actually, in the UK, if they can prove it, it's illegal. Be surprised if that wasn't the same in the West.
Re: Don't try this at home. How credit card arbitrage funded my first company.
#27For bonus points: Find the credit cards affiliate program. Sign up to it, and use it. You might get for example $50 commission, for signing up to a 0% credit card, if you use your affiliate link.
I don't think the fraud is really worth $50.
Re: Don't try this at home. How credit card arbitrage funded my first company.
#28Arbitrage is not the same as borrowing money.
Re: Don't try this at home. How credit card arbitrage funded my first company.
#29Earlier quoted context omitted.
I think you missed the part where he says they had no coders as founders, and also the part(s) where he says "don't do this".
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There's a difference between learning to code, and learning to code well enough to make something worth selling. If it were that easy, everyone in his situation would have done it already - but it's not.
I'm an amateur web dev and experimental iOS dev, but in the time it would take me to get good enough to build my ideas from scratch, I could've payed someone to build 5 of them.
Re: Don't try this at home. How credit card arbitrage funded my first company.
#30This is crazy - crazy interesting and crazy nuts. The idea of arbitraging has always be fascinating to me. I've had an idea for currency arbitrage in the travel industry, but never done anything other than back of the envelope calculations. Feel free to take the idea: Tour operators publish their prices for the upcoming year's trips. They publish them usually in one currency, sometimes in two, rarely in three. They'r…
And then you get a client like me, who points out that the price in Euros in 10% cheaper than the price in AUD because of currency fluctuations in that period, and I would like to pay in Euros please.
The travel agency (in Australia) weren't able to do that for me, however - so it seems their agreement was in a single currency as well. I'm not sure how hard I could have pushed it, because the dates ended up not quite working anyway.