Topic: [Funded] Tangible Cryptography LLC seeks LoC to expand working capital (Read 2841 times)

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Update:
Over the past month Tangible Cryptography, LLC has aggresively called existing notes to pay down outstanding debt.

Total debt obligations (including all prior auctions) as of 04/04/2013: 
Loc C: 400 BTC
Loc D: $45,000 USD
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All executed promissory notes have been funded.
We were unable to reach terms with one lender and will not be reopening the bidding.
This resulted in a slight reduction in the amount borrowed.

Total debt obligations (including all prior auctions) as of 2/12/2013: 
Loc C: 1,000 BTC
Loc D: $95,000 USD

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Closed.  Lenders with winning bids will be contacted this evening (probably late EST) with funding instructions and promissory notes. Thank you to all participating lenders.

A lender has placed a bid for Loc D.

LOC C current bids:
150 BTC @ 4.5%
350 BTC @ 12.0%

LOC D current bids:
$50,000 @ 24%

Bidding will close in roughly 3 hours at 23:59:59 UTC (http://www.worldtimeserver.com/current_time_in_UTC.aspx).
In the event there is a bid in the final hour the auction will be extended by one hour.

To bid on either Loc a potential lender must underbid the existing offers. 
The minimum bid increment is 0.25%

No it is a good question.  Demand is still growing faster than our ability to keep our accounts funded.  While the blockchain is instantaneous the fiat world isn't.  Funds received from bitcoin sales on exchanges have a lag time. So while the company never "runs out of money" often money is in the wrong place or form.  When that happens we have to turn away sales which result in loss profits and reduced customer satisfaction.

So while the company could retain ~500 BTC more in company wallet rather than sell it that would mean ~$10,000 less available to purchase more coins.  Since we payout using a variety of mechanism (PayPal, Dwolla, ACH, Bullion, etc) that means to be ready for a sale regardless of which method the client would like to be paid in we need funds available in all those accounts, all the time.  Accounts like PayPal have a 4 day lag in funding which means the amount in that account today needs to be sufficient to cover the next four days of sales (which can vary wildly) or we run out and lose potential sales.  

If you wanted to look at it as a formula

ideal working capital = (avg daily sales) * (avg lag time in reloading accounts payable)

While our working capital is growing (as the company retains profits.  Sales volume is growing faster.  Until such time as we catch up the loan enables the company to not lose potential sales.

That was somewhat verbose, right now borrowing 500 BTC has a lower cost then having losing sales due to insufficient amount of funds in the right account.

As an example we ran out of funds in our PayPal account on Monday and lost potential sales. I was being conservative with the funds transfer to PayPal and demand was higher than I projected.  By the time we ran out of funds another ACH was already inbound but it didn't clear until just now.  I don't like turning away clients.

Eventually growth rate will slow and we will end up in a situation where the company has more capital than it can deploy effectively.  At that point it will not longer make sense to borrow funds we can't effectively use, and the company will pay off the lines of credit.  In that event the USD line would probably be paid off first as it has a higher cost.  It is hard to predict when that will occur which is one reason why the notes are open ended and allow repayment at anytime without penalty.

I'm not clear on the motivation for this. If you've made 3.87% on $600k in the last 30 days, that $23k or 1100 BTC. Why pay interest on a loan for 500 BTC when you could set that amount aside from profits of 1/2 month of business? You could loan that money to yourself.

Apologies if I'm missing something obvious here...

By taking out a loan in BTC and converting to USD we would essentially be shorting BTC.  While the interest would only be 4.5% if BTC:USD exchange rate were to rise say 70% the true cost of that loan would be very high.

Loc C serves a different purpose.  The funds secure will remain as BTC and be kept in the company wallet.  We can draw against that and while we technically are going short when doing so, this is a short term action as we have a near continual supply of acquired coins.  1,000 BTC is more than sufficient to cover these short term needs and it wouldn't be in the best interest of the company or lenders to borrow more.

If Loc D doesn't fund fully it doesn't present any significant disruption.  The operation currently throws off close to $25,000 a month in free cashflow.  We can build out the working capital organically it just means taking things slower.  $50K gives us a couple months "head start".  Even with a cost of capital at 24% our IRR is closer to 200% annually.  That obviously will fall as volume scales up but we have a comfortable margin.   If ever capital isn't productive (i.e. our return on borrowed funds is less than what we are paying for them) the note structure gives us the ability to pay it off or down without penalty.  Since the funds will be used for working capital and not capital expenditures we don't face any liquidity issues where we could become trapped by a high interest cost and are "equity rich but cash poor".

Thank you for your interest in the loan.


 

If I were you, I would convert LOC D into a BTC LOC as it's clear you can get a lower interest rate and apparently greater fundings.  You could always immediately convert BTC to USD if you want a USD LOC.  From a business perspective, it would be foolish to pay 24% interest when you're receiving offers in BTC as low as 4.5%.

Best of luck with your loans.

Yes and fixed.  It is possible that Loc D will not fund fully.  In that case we will not extend the auction and just close on the portion that is funded.  Loc D is less critical than Loc C as it is much easier to find alternative sources of USD based financing.

Shouldn't this be $45,000?

A lender has placed a bid for Loc D.

LOC C current bids:
150 BTC @ 4.5%
350 BTC @ 12.0%

LOC D current bids:
$5,000 @ 24%
$45,000 - open

A lender has placed a bid for Loc C.
150 BTC @ 4.5%.

LOC C current bids:
150 BTC @ 4.5%
350 BTC @ 12.0%

LOC D current bids:
$3,000 @ 24%
$47,000 - open

Links to prior loans:

Loc C & D (currently open) 9/30/2012
https://bitcointalksearch.org/topic/funded-tangible-cryptography-seeks-line-of-credit-to-expand-working-capital-114507

Loc A & B (paid in full)  8/7/2012
https://bitcointalksearch.org/topic/funded-tangible-cryptography-llc-seeks-loc-to-expand-working-capital-99034

As requested included below is a sample promissory note.  The note below is for USD based loans.  The note for BTC based loans is similar.

A lender has placed a bid for Loc D.
$3,000 @ 24%.  $47,000 remaining at current interest rate.

There has to be a more efficient way to be doing this.

A lender has placed a bid for Loc C.

500 BTC @ 12%

To place a bid for all or part of Loc C you would need to offer 11.75% interest or lower.

Correct.  Fixed.

Sure that will be fine.

This is how you make a good post.

This is a typo, correct?

Solid post as usual.  Is Mtgox USD accepted for the USD LoC?

Tangible Cryptography LLC seeks Line of Credit to expand working capital

Background:
Tangible Cryptography LLC is a manager-managed limited liability company registered in Virginia.  It is privately held with three members (LLC equivalent of shareholders).  Tangible Cryptography has operated the FastCash4Bitcoin service profitably for roughly nine months.  During that time it transitioned from a manual service to provide quicker Dwolla withdrawals for a certain exchange to an independent sales portal which offers same day payouts on bitcoin sales.  The daily volume exceeds many major exchanges.  Our customer feedback continues to be spotless with no unresolved issues.  When we buy a client's coins it is because we can pay them.  Despite nearly quadrupling monthly sales volume in 2012, sales volume in January was 37% higher on a USD basis and 11 higher on a BTC basis compared to the prior month.  
 At the current time the company has ~$190K in cash (and cash equivalents) and ~$260K in total assets.  The company's only debt at this time is Loc C & D which consist of 500 BTC and $50,000 USD.  Loc A & B have been paid in full.  Interest obligations on existing debt is less than 5 BTC and $1,000 USD per month.  Sales volume for the prior 30 days was ~$600,000 and the company collected a gross profit margin of 3.87%.  

Operation:
We purchase bitcoins from clients using our FastCash4Bitcoins service.  These purchases are made at a discount to the "MtGox last price".   The amount of discount used varies base on current volatility, and current fund balances (BTC vs USD).   Since 01/05 we have opted to keep the discount fixed at 2.99%.  The acquired coins are then sold on multiple exchanges, to other bitcoin related companies, or in “direct sales” to large buyers under the brand name Bitcoins Direct.  Bitcoins Direct has helped us convert coin liquidation from a cost to a secondary source of income.   For the prior 30 days coin sales contributed 0.88% of the gross margin of 3.87%.  We have discontinued our CellCoin and escrow services in order to refocus on our core business model.  

Purpose & Scope:
The purpose of the loans hasn't changed since we originally sought the funds in Loc C & D however our daily volume has increased by roughly 71% since we originally secured those notes.  In order to meet the needs of increased working capital we are seeking to double the Loc C from 500 BTC to 1,000 BTC and Loc D from $50,000 USD to $100,000 USD.  The loans are interest only with no defined maturity date.  The note will be repaid in full within 30 days once called by lender.   Tangible Cryptography can repaid part of all of the principal at anytime without penalty.

Notes proposed:

Line of Credit C (LocC)
Current Bid:  150 BTC @ 4.5%, 350 BTC @ 12%
Amount: 500 BTC
Denomination:  Bitcoins
Repayment:  Interest only payment made monthly.  When note is called principal will be repaid within 30 days.
Interest: max of 12% annually - note bidding is a reverse auction which ends 2/6/2012 @ 23:59:59 UTC.


Line of Credit D (LocD)
Current Bid: $50,000 @ 24% annually
Amount: $50,000 USD
Denomination:  USD
Repayment:  Interest only payment made monthly.  When note is called principal will be repaid within 30 days.
Interest:  max of 24% annually - note bidding is a reverse auction which ends 2/6/2012 @ 23:59:59 UTC.
This note is denominated in USD.   The note can be funded with BTC transfer, cash deposit, bank wire, or MtGox USD code.   Repayment of interest is available as BTC transfer, ACH, MtGox USD code, or if a creditor is owed more than $500 by Bank Wire.  If BTC transfer is used for funding or repayment the exchange rate used will be the "MtGox 24 hour volume weighted average price" at the time of the payment.  

Lender risks and mitigation:

Risk: hacking or other bitcoin loss resulting in inability to repay.  We used encrypted offline wallets (commonly called a "cold wallet").   which is kept offline.  Encrypted backups are maintained as well as encrypted paper printouts of private keys.  Both digital and paper backups are stored offsite to provide redundant backups.  All of our exchange, bank and PayPal accounts employ strong passwords and two factor authentication.  Bitcoins are spread out across the cold wallet and exchange accounts minimizing the number of coins that would be affected by any single breach.  We used dedicated server (no VPS accounts with super admin backdoor).  While the risk of a hack can never be eliminated our technology and business processes are used to minimize the risk and compartmentalize any loss that would result from a breach.

Risk: closure of account or freezing of funds by Dwolla or PayPal. Company policy limits either account to no more than 10% of our working capital in accounts with either provider.  We use these accounts "one way".  The accounts are funded by bank transfers and used to payout clients.  We never allow clients to send us funds by PayPal or Dwolla which eliminates the risk of chargeback or disputes that could result in account closure.  We have provided information to Dwolla compliance department on our business procedures however despite multiple inquiries they have no provided us with written approval to operate as a "virtual currency exchange".  The PayPal account is a corporate account in the name of Tangible Cryptography LLC.  We always pay PayPal for using their service and don't attempt unsustainable hacks like marking payments as “gifts”. Since we offer a diversified set of payment options a freeze on one of these accounts would make us less attractive to customers it wouldn't be fatal to the company.  Payment by PayPal and Dwolla represents roughly 11.6% and 7.2% of total volume respectively.  

Risk: lendee has no intention on repaying (aka "scam").  While this is a risk in any loan, Tangible Cryptography LLC is registered with the Virginia Corporation commission.  Our business model provides a high return on invested capital (ROIC) and our "brand" would be destroyed by a default.  Simply put we make a good margin off your money and there is no reason to change that.  We have been doing this for nine months now and are solidly profitable.  

Why not seek traditional funding:
We have a significant amount of goodwill towards the lenders who stepped up when we needing funding in the past.  While other lenders were busy defending the sustainability of 7% per week ponzis some lenders were willing to accept more sensible returns.  They haven't lost their principal and we have paid out consistent interest payments.   The lending forum being filled almost exclusively with HYIP scams and "payday loan" offers 100%+ APR) does the community a disservice.  We hope to offer an alternative.   We feel this can be a win-win for both creditor and debtor.  For a small startup a bank loan is simply not going to happen.  At this point we are not willing to accept the dillution which would come from venture capital.

How to bid:
Send a PM with the LoC, the amount, and the min interest rate you will accept (annually).  In the event our offer is oversubscribed we will take lowest bids (reverse auction).   We will leave the offer open until 2/6/2013 @ 23:59:59 UTC.  If a bid is received within one hour of the auction end the auction end will be extended one hour.  To reduce the processing work the minimum amount per creditor is 100 BTC or $1,000 USD.  Interest rates should be in increments of 0.25%.   These notes are debt only they offer no equity or equity derivatives (options, warrants, revenue sharing contract, etc).  We are not entertaining any offers for equity sale at this time.  

Thank you for your consideration,

Staff
Tangible Cryptography LLC