As retail investors grow and find new opportunities in various financial markets, Los Angeles-based XCLAIM hopes to bring the overlooked world of bankruptcy claims to the masses.
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The online marketplace for bankruptcy claims completed a $ 6.6 million seed expansion after launching its platform in the fall. The round was led by General Catalyst with the participation of First Round Capital, Freestyle VC, Innovation Ventures, Luge Capital, Quiet Capital, Tribe Capital and Strategic Angels. Founded in 2018, the company has now raised $ 10.6 million.
XCLAIM’s marketplace enables both the buying and selling of bankruptcy claims. The theory behind buying a bankruptcy debt is that it will ultimately be paid back, however the amount and timing are uncertain. The uncertainty puts the buyer at risk, while the seller can likely get a payout on the claim faster than waiting for the claim to be repaid.
“It’s a relatively hidden market, but it’s huge,” said Karim Gillani, general partner of Luge Capital. “It’s a market that is opaque to many.”
Buying and selling accounts receivable
The company has claims on the site of $ 1,000 to $ 2 million – and takes a one percent commission on every transaction to monetize the platform.
XCLAIM has managed to digitize the process of buying and selling accounts receivable through exclusive partnership agreements with five of the seven claims agencies that handle bankruptcies in 94 federal courts, said founder and CEO Matthew Sedigh.
Sedigh sees the platform as an opportunity to bring more clarity to an often misunderstood process that can now be open to more than just hedge funds and distressed wealth investors sifting through court records.
“In the hunt for better returns, people are turning to more alternative asset classes,” he said.
The website currently lists more than 2 million creditors with claims of $ 3.5 trillion in unsecured debt, and they have exceeded $ 20 million since trading started on the website.
This isn’t the first time a company has tried to digitize the bankruptcy claims market. About a decade ago, SecondMarket – which primarily tried to help start-up employees sell shares in private companies – also tried to buy and sell receivables, Sedigh said. However, the company hasn’t set up integrations with claims agencies to keep the offering going, Sedigh said.
Sedigh added that trading exploded when the stock market went digital in the 1990s. Something similar is happening in the bond market right now as companies like MarketAxess and Tradeweb have led it into the 21st century.
XCLAIM can have a similar effect on bankruptcy claims, he believes.
“We see ourselves as the NASDAQ of Claims,” he said.
With a large and seemingly open market, Luge is excited to invest.
“When we were doing our due diligence, it was hard to find a match,” he said. “It’s just such a hidden market. The average person on the street doesn’t know that bankruptcy claims can even be traded. “
Illustration: Li-Anne Dias.
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