Clearbanc Swaps VC Investing for MCA
November 13, 2018
The business model for many startups is that the business won’t even be close to profitable for years until it gets enough clients or users. But this isn’t the case for all startups. Some of them actually generate considerable revenue after just months. For companies like these, that also need capital for marketing or expansion, Clearbanc is interested to work with them.
Founded as a venture capital firm by serial entrepreneurs Andrew D’Souza and Michele Romanow, among others, the company now primarily offers merchant cash advances. Instead of analyzing the company’s founders, they are looking at tangibles like revenue and percentage growth.
“We pay a lot of attention to our underwriting and decision-making process because if we make a mistake, we can lose a lot of money,” D’Souza, who is CEO, told Techcrunch yesterday. “Unlike a VC, we don’t expect the majority of our companies to fail and have the winners make up for the losses.”
Clearbanc offers cash advances to new businesses in the U.S. and Canada, from $5,000 to $10 million. At this point, Clearbanc only funds eCommerce and Consumer SaaS (software as a service) companies. Also, eligible companies must be incorporated, have a monthly average revenue of at least $10,000 and have at least six months of consistent revenue history.
So far, Clearbanc has funded $100 million to 500 companies in 2018. Founded in 2015, the company is based in Toronto, Canada.
The Broker: How Industry Veteran Joe Cohen Closes Deals and Dodges Backdooring
November 11, 2018Role: I’m the manager of Business Finance Advance in Brooklyn. I manage a team of about 20.
Years in the business: Since the beginning. 2005/2006.
How he closes a deal:
You have to really know the customer. You have to have a feel for what his needs are. Is his hot button the amount of money? Is it the term? Is it the rate? Is it all of the above? You have to know what the customer is looking for and try to hit a bullseye…I make sure that I know exactly what the customer wants before I make an offer.
What were your first deals like?
In those days, when we first started doing it, the hard part was just convincing the client that we were for real – actually willing to give him money – and not some fraudster trying to get a hold of his bank statements. And it was only based on credit card revenues at the time. We used to call them up, “Hi, Mr. Smith, do you accept credit cards?” “No.” We’d hang up the phone [because] we couldn’t do anything. There was no ACH program in those days.
Once we got the statements back, we’d just have to figure out how much we could give him based on his credit card sales…We never knew what a decline was in the early days. Everybody that sent in paperwork was approved, it was just a matter of how much money he was going to get approved for.
Biggest challenge as a broker:
The most challenging part of my job is the silent thief. When we send out deals to funders, not only do we have to worry about closing the deal…but when we send a file to some of the funders, either there’s someone at the funder that’s backdooring the deal or there’s a whole syndicate taking the deal and calling the merchant behind our back. That is the biggest challenge to [brokering] today…You’re going to make some deals and you’re going to lose some, but the biggest issue we have is the drama that’s been set up by the backdoor channels that are rampant throughout the industry.
Advice for newcomers:
You have to [understand] that it will take you a year, at least, before you start making any money because a) there’s a lot of people doing it, and b) you have a lot of [backdooring] and if you don’t understand the business, you’re going to get caught up with the wrong funders.
What are some funders you work with, who you trust?
Quarterspot. And CAN Capital and OnDeck. These are the ones that will not backdoor us.
What do you look for in a good broker?
A guy that basically is hardworking and tenacious. You can’t give up. It’s not an easy business. You’ve got to work very, very hard and you have to deal with the successes and compartmentalize the losses.
Big MCA Deal Was Really Just a Massive Ponzi Scheme
October 30, 2018
Bank deposits were apparently the entire business model for Daniel Rudden, a 72-year old from Denver who fashioned himself the owner of a life insurance company called Financial Visions. In reality, there hadn’t been any such business in almost a decade. In July, Rudden sent out a mass email admitting that his whole operation was actually a Ponzi scheme that he’d been running since around 2010 and that it had finally come undone. In his wake, he left more than 150 investors duped out of $55 million. Some of those investors were retirees who had entrusted him with their life savings.
And that’s not all. Court records show that in addition to SEC and DOJ charges against him, a series of judgments from merchant cash advance companies have piled up in recent months with defaults exceeding a combined $1.3 million. One of those judgments was for more than $500,000 from a single funder. deBanked counted at least 8 MCA funders that had been fooled.
Rudden told CBS News that he spent all of the money and has only $4,000 left.
“By the end, I would have taken money from almost anyone who breathes. No one was off limits,” Rudden wrote in an email to duped investors. “I purported a sale of the company to stall for more time, in fact there is no company to sell.”
In addition to civil securities penalties, Rudden is facing 20 years in prison for fraud.
Shopify Capital Issued $76.4M in Merchant Cash Advances in Q3
October 25, 2018Shopify Capital, Shopify’s funding arm, issued $76.4 million in merchant cash advances in the third quarter, the company revealed. That brings the total to $375 million advanced since April 2016.
Overall, the company reported Q3 revenue of $270.1 million and a net loss of $23.2 million.
The company operates an e-commerce platform for online stores and retail POS systems.
In New Jersey, Yellowstone Capital Buoys Volunteer Ambulance Organization
October 19, 2018
Hatzalah of Union County, New Jersey, a volunteer ambulance organization, has saved hundreds of lives thanks to its volunteer-only team and its three ambulances, all funded by donations from Yellowstone Capital CEO Isaac Stern and the company’s employees over the past seven years. Total donations from Yellowstone Capital, including from Stern, have exceeded $300,000.
“[Stern] is our largest supporter and he spreads through Yellowstone the opportunity to give,” said Yudi Abraham, chief of the Union County Hatzalah operation. “He’s gotten everyone there into the idea of giving back.”
In 2015, Stern held a fundraiser barbecue dinner at his home and in a subsequent year, he organized a fundraiser barbecue in a public New Jersey park, to accommodate more people.
While Hatzalah (which means “rescue” in Hebrew) is primarily a Jewish organization, anyone – regardless of background – can call the hotline and get emergency medical attention, free of charge. The emergency number varies depending on where you live. The first Hatzalah emergency team was founded in Brooklyn in the late 1960s and the Hatzalah of Union County was started in 2004.
Abraham explained that the Hatzalah model is different from 911 ambulances in that the all-volunteer force generally arrives within three minutes in their own personal vehicles that are equipped with oxygen, a defibrillator, a full trauma kit and an emergency childbirth kit. The Hatzalah ambulance then arrives at the scene shortly minutes later.
Over the past year, with donations from Yellowstone, Hatzalah of Union County has upgraded its emergency radio dispatch system from analog to digital, Abraham said.
“Yellowstone has truly been a partner for us,” Abraham said.
“Out Of State” MCA Funder Not Precluded From Entering COJs in New York, Court Rules
October 18, 2018In May 2017, Funding Metrics (FM), a small business funding provider, entered a signed Confession of Judgment (COJ) in Westchester County, NY against a California-based customer. The Court issued a judgment a mere five days later.
That should have been the end of it, but on July 26th, the customer hired law firm White & Williams to challenge the judgment’s validity on the basis that New York Business Corporations Law § 1314 limits the circumstances in which a non-resident corporation may bring an action or special proceeding against another non-resident corporation. Neither FM nor the customer were based in New York nor had any connections to New York whatsoever, they alleged, which precludes such a judgment from being entered there. But it’s doubly bad, defendants argued, because the judgment by confession statute in New York is unconstitutional as it waives the defendants’ due process rights.
The Honorable Terry Jane Ruderman was unmoved by the arguments, pointing out that not only was FM registered to do business in New York and claimed to have an office there but that defendants incorrectly relied on § 1314 because a Confession of judgment is not an action, nor a special proceeding.
[…]That statute does not preclude the judgment entered here, entered by confession of judgment. By such a document, a person “agree[s] to the entry of judgment upon the occurrence or nonoccurrence of an event” (see Black’s Law Dictionary [10th ed. 2014]), giving the holder a remedy that does not require proof of the nature of the transaction or allow for interposing defenses (see Soler v_Klimova, 5 AD3d 294 [1st Dept 2004]). Therefore, in entering the judgment, the court does not inquire into the underlying transaction, including with regard to such matters as the home state of the corporate plaintiff.
Moreover, while the Business Corporations Law § 1314 applies to “maintaining actions or special proceedings,” the statute providing for judgments by confession does not require commencement of an action; it clearly states that “a judgment by confession may be entered, without an action, … upon an affidavit executed by the defendant” ( CPLR 3218 [emphasis added]).
Defendants’ constitutionality argument was rejected as “meritless” and all of their other arguments not discussed in the order were explicitly rejected.
You can download the decision here.
The case # is 57737/2017 in Westchester County in the New York Supreme Court. The law firm representing plaintiff Funding Metrics was Stein Adler Dabah & Zelkowitz.
NYIC – IFA Northeast – AFBA – deBanked Conference Recap
October 17, 2018
Yesterday, the New York Institute of Credit (NYIC) hosted a conference in Manhattan with attendees from several segments of the commercial finance industry, including factoring, MCA, and asset based lending. Approximately 100 registrants gathered at Arno Ristorante in the garment district section of midtown. In addition to local New York firms, attendees travelled from as far as Chicago and California to be at the event.
“By all accounts, it was a big success,” said Harvey Gross, Executive Director of the NYIC, which recently celebrated its 100th anniversary. The half-day conference was a collaboration of the NYIC, the Alternative Finance Bar Association (AFBA), the IFA Northeast, and deBanked.
“The joint conference was truly groundbreaking,” said Lindsey Rohan, a cofounder of the AFBA, who also moderated a legal panel. “Having the various business models that make up the alternative finance space in the same room created an opportunity for honest and impactful conversation. While we only scratched the surface and I have many new questions, I’m confident that new business relationships were created and this will open the door to a continued exchange of ideas.”
Nineteen panelists, many of them executives at financial companies and lawyers, contributed to four panels that filled the afternoon with lively and thoughtful conversation. Regulations coming out of California and just recently from New Jersey, were hot topics of discussion.
deBanked founder Sean Murray moderated a panel on Best Practices. “These type of collaborative events are necessary as commercial finance offerings continue to expand. Education and debate create a more fluid marketplace,” Murray said.
Andrew Bertolina, whose company Finvoice offers factors and asset-based lenders a sleek software solution, said it was “great to see everyone at the Lending Conference and cross-pollination of MCA, factors and fintech players. Most cross-pollination at this IFA NYIC event than in prior factoring events.” Bertolina is the co-founder and CEO.
Robert Zadek, an attorney with Buchalter said, “that was a great meeting. It was so instructive to hear intelligent, honorable representatives of factoring and of alternative finance, who share clients and have overlapping products cordially comparing notes and sharing somewhat different views of the marketplace and the future of SMB financing. It is fascinating to see how much each can learn from the other, and to witness how such different financial products are moving towards each. The lesson – adapt or perish.”
The conference was sponsored by Change Capital, Finvoice, law firm Platzer, Swergold, Levine, Goldberg, Katz & Jaslow LLP, Aurous Financial, and Financial Poise.
The Broker: How Andy Savarese Changes Collars and Closes Deals
October 12, 2018
Title:
I’m the Managing Partner at JustiFi Capital, a brokerage in Farmingdale, Long Island. I started it September 2017 with my cousin, who’s the owner and my best friend. We do mostly MCA, but also some term loans.
His schedule:
I have a part-time/full-time job in the mornings. I work in sanitation for the town of Oyster Bay on Long Island. I typically wake up at around 3:37 a.m. I get into my yard at 4:15 a.m. and I go right into my route. My job is task completion. So the faster you work, the faster you get to go home. You get paid the same. I was fortunate to get on a fast truck, so I’m usually done between 7:45 a.m. and 9:30 a.m.
I go home, I take a quick shower, and I change my outfit. I go from blue collar to white collar. I get into the office around 10:30 a.m. and I start doing more of a mental hustle compared to a physical hustle.
At around 12:45 p.m., I take my lunch and I go to the gym for about 45 minutes. I get back to the office and I keep up the closing, the pitching, the selling, the prospecting. At around 5:30 p.m., I leave the office, I pick up my son from daycare, and since my wife works evenings, I take care of him at night until around 7:30 p.m., and get him ready for bed. The second he hits his crib, I hit my bed and I call it a day.
His background in the business:
About three years ago, I was driving oil trucks after sanitation, and my cousin, who is also my best friend, gave me a call. He knew I was breaking my butt all day. He had a friend that was starting his own ISO. So I did that for a year and I learned the industry. It didn’t really work out there, so I convinced my cousin to open up our own shop, which is JustiFi.
His process:
At JustiFi, we’ve been growing. We’re just grinding it out and things are going really well. We have four brokers and we keep it tight. We keep it small so that everybody is inundated with files and everybody’s making money and everybody’s happy. We don’t have any processors or chasers. We do it all on our own. We’re working the deal from beginning to end. My cousin has devised a pretty strategic marketing plan that inundates us with leads all day. I disperse them and I follow up with my guys and see how I can help. I overlook all of the closings and make sure that everything than can get worked is getting worked.
His biggest challenge as a broker:
A lot of people will say getting good leads and keeping your brokers happy. What I found is the most challenging part of being a broker in this industry is keeping a really level head and keeping your emotions out of the game. It’s a very tumultuous industry. One day, you could have 12 deals in the funding chute, the next day, your pipe could be dry. You could have a deal you think is going close and something happens on the funding call and it gets derailed. The point is that you’ve got to stay positive, you’ve got to stay confident, and you’ve got to roll with the punches. If not, you’re going to lose it and you’re going to get eaten alive. Because it’s a battlefield out there. You’ve got to keep your composure, no matter what the size of the deal. You’ve got to just keep pushing through. Because if not, you’re not going to make it.
His largest deal funded:
$250,000. And I made $38,000.
His advice for brokers:
When I go to close a good sized deal, or a tough deal, I don’t like to come off as a salesman. I’ll never do that. I’m going to come off as an advisor. I’m going to come off as a partner with you where I’m going to explain the ins and outs of the deal. I’m going to explain how it benefits you. I’ll never put on pressure or talk slang. I’m going to be a professional. You’ve got to kind of put yourself in [the merchant’s] shoes and you’ve got to see that it really makes sense for them. Because when it makes sense to you and it makes sense to them, you’re going to close the deal and you’re going to move forward.
But there are always deals that will never close, deals that you can’t sell. So you can’t be too hard on yourself. You’ve got to stay positive. You can’t beat yourself up if you don’t sell something. You’ve got to just do your best, stay neutral, and just talk to clients how you want to be talked to.
What he does to pump himself up for a deal:
If I know my day is bringing a big deal that I have to sell and I’m a little uneasy about it, I have an advantage. I’m on the back of a garbage truck all morning and I focus on what’s in store for me that day. If I have a big deal, I recite in my head [from the truck] how I’m going to report to my client. So when I get into the office, I dial up and I already know how the conversation is going to go. I have my rebuttals in my head, I have the direction, I have everything ready to go so that when I get on the call, I’m fully prepared.
Will you quit your morning job?
No. When my pension kicks in, I’ll leave. But I told myself the day I started this and the day I started seeing the return, “I’m never leaving sanitation. I won’t.” I made that promise to myself. There’s been days when I’ll have a five figure commission day and the next morning it’ll be pouring rain out, and I’ll say to myself, “Man, I just want to take the day off.” But no, I made a promise. I go in.
Why?
It keeps me grounded, it’s a stress relief. It’s what I am. It’s what I do.
