10 ms·
Pipe – Instant access to your annual cash flow
- toomuchtodo 6y ago@Pipe folks: faq doesn’t mention what institutional investor requirements are. Is there information available without going through the Contact Us funnel?
- ryan_j_naughton 6y agoSome of my friends and old colleagues are co-founders of Pipe. Let me ping them and ask them to jump on HN to answer questions.
- blntechie 6y agoThis sounds very similar to lot of invoice based cash advance services in India. As invoices for recurring or one time services rendered to other companies are generally T+30 or even longer, small and mid size companies uses these invoices for getting cash in advance to keep their cash flow going. And the invoices are rated like loans based on how trusted the company who is being invoiced is. It is a very interesting business I learned about only few years back but must have been in some form or other since when invoice like instruments began to be used.
- vishnugupta 6y agoYeah. Some of my friends lent through https://www.kredx.com/ https://www.kredx.com/. They made good returns initially but it all quickly unraveled during NPA mess and of course the pandemic.
- danmur 6y agoSounds like a payday loan
- mandelbrotwurst 6y agoIt's a B2B product.
- indolering 6y agoA B2B payday loan.
- lunatuna 6y agoB2B payday loan + shark tank = pipe
- 0xB31B1B 6y agofor real 99% of the economy runs on B2B payday loans
- danesparza 6y agoThis is a sad statement and may be very true. It doesn't mean this product is good for anybody. It just means your entire business is essentially in debt to somebody else. Debt = risk.
- dillondoyle 6y agoI wonder if that is actually a good idea for disruption that could also do a lot of good for underbanked and underprivileged. Looks like Pipe offers a trading platform to bid and buy something kind of like a collateralized 'bond' (future monthly income). I would assume you could bring the 'spread' down and thus the pay day borrower gets a lower interest rate (is spread the right word?) Given the huge profit of predatory lenders there is room to lower rates. Definitely big challenge that might not work is how to assign a risk rating to a single human with no banking/credit history. Maybe another idea could use ML & more consumer data to create fairer & more predictive credit ratings.
- tptacek 6y agoIt's (essentially) factoring. https://en.wikipedia.org/wiki/Factoring_(finance) https://en.wikipedia.org/wiki/Factoring_(finance)
- pbourke 6y agoSo a payday loan with a fancy name?
- tptacek 6y agoNo? Again: factoring.
- andreareina 6y agoHuh, I'd previously thought that transfer of risk was an integral component of factoring, but apparently not: > If the factoring transfers the receivable "without recourse", the factor (purchaser of the receivable) must bear the loss if the account debtor does not pay the invoice amount.[1] If the factoring transfers the receivable "with recourse", the factor has the right to collect the unpaid invoice amount from the transferor (seller).
- adaml_623 6y agoDifferent terms and conditions on the contract will lead to different fees and discounts, etc. Even in a scenario where the transfer specified "with recourse" there is no guarantee that the seller will still be solvent so there is a risk to the purchaser.
- postingawayonhn 6y agoAustralian company Greensill that is involved in this area of finance has just become insolvent. They had Softbank backing.
- tptacek 6y agoAnd? Banks have become insolvent too; doesn't say much about the viability of banking.
- wdb 6y agoThis website isn't really user friendly I still don't know what the product is. Sounds like you can sell your customer subscriptions to someone else and get cash now.
- throwaway_1237 6y agoCall 877 cash now
- nielsbot 6y agoSounds similar to what Stripe and Square offer: ------ Stripe Capital (https://stripe.com/capital https://stripe.com/capital) "Eligibility is determined based on a combination of factors, including overall processing volume and history on Stripe. ... Repayment is collected automatically through a percentage of Stripe sales" ------ Square Capital (https://squareup.com/us/en/capital https://squareup.com/us/en/capital) "Get a customized offer based on your card sales through Square... Repay it automatically with a percentage of your daily card sales through Square." (edited formatting, added info)
- toomuchtodo 6y agoSlight differences. Square and Stripe extend the credit themselves, where Pipe is acting as a securitization platform for the committed revenue. It’s all credit card revenue factoring essentially, but the nuance is important depending on if you’re the business, the acquirer, or an investor, what your borrowing cost or yield expectations are, and if this type of financing product (if you’re the business) is a better deal than going to get a loan or diluting your equity.
- nielsbot 6y agoThanks. Re: the last part, sounds like Stripe and Square also don't charge interest or equity. (I don't have any stake in any of these companies, but I do run a small business)
- toomuchtodo 6y agoThe one time fee they’re charging could be considered front loaded interest. You have to take fees and interest * duration into account when comparing a loan’s total cost apples to apples. To your point, all of these products preserve your equity arrangement.
- heliodor 6y agoThey try very hard to not make you think in terms of APR for the loan they're giving you. There's no competition and the interest rate is plenty high.
- todd3834 6y agoI love seeing ideas like this that seem like a clear win-win. I’m a little nervous about what the fees might be for this service. I wish it was more transparent so you know what to expect. Assuming the fee is reasonable, this seems like it could be a great idea for both sides.
- tom_mellior 6y agoThis sounds like a useful service. But let's get our terms clear: > no debt You get money now for money you are expected to give back later. That's debt. (It's not a loan as such.) > no discounts Their own screenshots show an example where you only get 94% of the expected annual dollar value of your contracts. That's a discount. (That you grant to your investors, not to your customers.)
- OJFord 6y agoYeah, the FAQ makes it sound like it's different because they 'buy your recurring revenue'.. but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt. 'Supply' chain financing for hip small SaaS businesses.
- tom_mellior 6y ago> but I'm sure if you lost that overnight you'd still owe back the... 'sale price', so it is just plain old debt I'm actually not sure about that. Maybe it's the buyer who carries the risk of the customer not paying for the contract. Maybe. It would be great if a company that provides financial services actually explained said services.
- sgerenser 6y agoIf they carried the risk the discount would be much more than 6%.
- aparsons 6y agoThat part is not clear. From the buyer perspective though, unless I intend to use it, or the seller gives me a pretty steep discount, this is equivalent to buying “cash”... so it’s generally a bad investment? I think the numbers may work for the seller because the incremental cost of an additional SaaS subscriber is about $0. But a company needing funding doesn’t inspire a lot of confidence to buy a low upside asset from.
- rrrazdan 6y ago
- iamleppert 6y agoWhat are the benefits of doing something like this vs. just getting a loan from a bank? If you already have ARR it’s easy to get a loan. A loan seems both more flexible and cheaper than this.
- texasbigdata 6y agoAssumes you can get a loan, and that the cost of capital of said long won't have an equity like instrument attached as a "kicker". Think SVBs venture debt and the 0.25% warrant attached to sweeten the return. Also covenant package, personal guarantee, etc.
- Dirlewanger 6y agoI imagine startups don't do traditional loans because a bank will probably take one look at them and attach an sky-high interest rate due to the risk profile, if they even decide to lend at all. Also, if said startup has other investors, I don't know if they'd approve of them using their funds to pay off debt instead of using it to grow the company.
- andygcook 6y agoMost standard bank loans won't give money to SaaS companies because they don't have physical assets to back up the loan and the founders won't make personal guarantees. SVBs venture debt is really only available to venture-funded businesses that are likely to raise another round. There are specialized lenders now though that know how to properly vet and value recurring revenue: Lighter Capital Clearbanc Capchase Flywheel by HustleFund And many, many, others.
- ericcholis 6y agoThis raises a wild thought exercise for me. Barring any similarities to a Pay Day loan. Would you use a service like this for your own annual salary? What could you do with the lump sum that you would otherwise have trouble accomplishing?
- vineyardmike 6y agoI would consider this on an occasional basis (eg example 1 once a lifetime). You could (for example) buy a house by using the money as a down payment. Useful if the timing of lease ending/buy opportunities don’t line up with savings schedule. Smaller opportunities for house renovations or remodels etc. You could invest that cash flow up front. 2020 was a very profitable year in the stock market... especially if you invested after Feb 20th. You’d make more money than if you invested in 24 chunks bimonthly. So if you had this service you could make some money when you see an opportunity (also risky). “Time value of money”. On the smaller scale, you could use a similar advance service to semi-monthly buy bulk food purchases if you typically don’t make enough to afford big shopping trips. Not everyone is wealthy, and being poor is expensive. Being able to buy food you know you use in bulk will be cheaper per meal, you just need enough in your checking account to afford that one big expense.
- doovd 6y ago> You could invest that cash flow up front. 2020 was a very profitable year in the stock market Yes, investing borrowed money is an excellent idea. /s
- Nbox9 6y agoThat really depends on the interest rate, your familiarity with the investments, your debt/asset ratio and your expected ROI. I would argue every mortgage, real estate loan and small business loan is borrowing money to invest.
- doovd 6y agoMeh, stock market is mostly a casino for the retail investor. If you told the bank you want a loan to pop in the stock market they'd reject you rightly so :-)
- benjaminjosephw 6y agoIt's a scary time in tech when end-users are literally seen as an unrealized capital asset to be speculatively sold directly to investors. There's something dehumanizing about this that I can't quite put my finger on.
- nc 6y agoWait till you see how financial markets work.
- echopom 6y ago> scary time in tech when end-users are literally seen as an unrealized capital asset That's my conclusion after trying to raise capital. VC and Angels seemed disconnected from the reality and behave as pure financial analyst. No emotion or even interest on the idea just : "How much ARR ? Churn ?". Was really shocked how people behaved , but it's better to have a cold shower now than in ten years i guess. I feel like software industry is now tightly integrated with capital market , it's saddening to see that.
- WJW 6y agoVenture _capitalists_ and angel _investors_ are money focused? Who would've thought it. They want to buy a portion of your business because (they hope) it will make them richer, if they also think it's a good idea that is just a bonus.
- garmaine 6y agoWhen was that not the case?
- zie 6y agoJust before the year 2000 tech bubble popped? :P So 20-ish years ago.
- rkachowski 6y agowhen was it different?
- 1f60c 6y agoWhat's the catch?
- alborzb 6y agoThe catch is that their slogan is just falsehood. > No discounts, no debt, no dilution. It is debt, because it is a loan. Just financed in a different way. and the no discounts part is just untrue, their own screenshots and examples show a fee. That fee is the discount.
- nojvek 6y agoYeah. This is very sleezy marketing.
- aparsons 6y agoIt’s a payday loan for businesses from what I can tell. I see about 10 ads a day from these guys, so some more things I observed: - They’re trying to build a capital market aspect on payday loans - essentially, turn “SaaS subscription stock” into “SaaS subscription future” and let people trade it... except, that is a terrible investment with little to no upside. The company can go under, reduce prices, and in general a subscription worth $k is equivalent, at best, to holding $k in cash with no interest. - So to make investors “buy”, you give them a discount. Which means, for all intents and purposes, there is interest. There is debt (where does accounts payable go on a balance sheet?) contrary to their marketing material. Debt + interest, with your future earnings as collateral = payday loan. Plus some lipstick to distract you from this fact.
- jacurtis 6y agoThe "catch" is that they take a 6% rake off the annual amount. This means you get 94% of the annual contract value. So for a $1,000 agreement, you would keep $940. Still a pretty good deal if you ask me. Its also pretty nice because they calculate it off of the extrapolated monthly term, which is already priced higher (usually) than the annual term. What i mean by this is how often have you seen a SaaS service that sells a product for $99 per month, OR $999 per year? Pretty common, right? Well in this case the SaaS is already offering the customer a 20% discount for paying annually upfront. But in the case of Pipe, they take the $99/mo customer, extrapolate the total they will pay for the year out to $1,188. That is what they pay you out on, so they take a 6% rake from that, which means the company gets $1,116.72. That's higher than the $999 they ask for annual agreements with customer's directly. So it's a pretty good deal for the company.
- herodoturtle 6y agoThis sounds a bit like Factoring to me: https://en.m.wikipedia.org/wiki/Factoring_(finance) https://en.m.wikipedia.org/wiki/Factoring_(finance) Factoring service providers have been in business for a very long time. It's a good business model with win-win implications if it's done right.
- eli 6y agoI had the same thought. Actually a very old fashioned way of raising cash flow. Still commonly used in the fashion industry because the clothing maker normally doesn’t get paid until the item sells all the way through to the end customer.
- boyband6666 6y agoIsn't this extremely similar to Supply Me (SYME), except they use a lot more buzzwords; blockchain, AI, etc
- te_chris 6y agoI work for an e-commerce company and we've used something similar with clearbanc to pay for marketing spend - they hook into your stripe and use 'AI' to work out eligibility, then take a percentage of the sales made to repay the loan. It's been great, allowing us to pay for much more marketing than our funding rounds would have allowed without having to sacrifce as much equity. Essentially you get to elastically scale your variable costs with demand.
- akrymski 6y agoWould love to know the deal you got from them, any chance you can share the numbers?
- te_chris 6y agoNot my side of the business, but don't think it was anything different to their normal offer. It scales based on sales, so good sales in a month unlocks greater credit in following months. https://clearbanc.com/landing/uk/cold/ https://clearbanc.com/landing/uk/cold/ this covers it i guess.
- deleted 6y ago[deleted]
- moonbug 6y agoThis is offering invoice factoring, an idea as old as commerce.
- nt2h9uh238h 6y agoHow do they make Money?
- DavidPeiffer 6y agoMatt Levine wrote about this topic on his newsletter yesterday. He went into more detail and a funny situation that came up, but from what I can tell Greensill (company he focused on) and pipe are doing very much the same business model. "A basic dumb rule of thumb for big companies is that investors (1) do not like debt (ooh, scary debt), but (2) love accounts payable (ooh, you’re so powerful and so efficient with your cash, you can get your suppliers to wait a long time for payment so you can hang on to your cash). So transforming “debt” into “accounts payable” is a good accounting trick; it makes a company look more valuable, without actually changing anything of substance. Good accounting tricks are worth money, to big companies, and Greensill could profitably sell this trick." I understand the time value of money and all that, but at a certain point it really feels like a waste to do all this financial voo-doo. Like, if a company wants to change from 30 to 45 day payment terms, I have to take my standard price if someone pays immediately, then adjust for 45 days, and possibly factor in that they won't pay on time anyways because they're a megacorp and have no reservations about stretching accounts payable on a small business. I can always sue them, but it'll be small-time lawyers versus big corporation lawyers, and I'll be burning the bridge if I do so. How much effort is spent trying to collect payment for no-BS "we performed to the letter of the contract, you agree, so pay us as the contract stipulates" situations? It'd be nice if companies would pay at time of service, across the board, but any one company trying to do this would get the short end of the stick. While their suppliers would be enthusiastic, their customers wouldn't want to switch. https://www.bloomberg.com/opinion/articles/2021-03-10/citi-is-still-mad-about-that-500-million https://www.bloomberg.com/opinion/articles/2021-03-10/citi-i...
- ectopod 6y agoUnusally, I think Matt Levine's explanation is confusing. > Big companies buy stuff from smaller companies, and have to pay for the stuff within, say, 90 days after delivery. Greensill pays the suppliers, say, 30 days after delivery, but at a discount; the big company now owes the payment to Greensill. It pays the full amount, to Greensill, 90 days after delivery. Greensill has effectively loaned money to the big company; the difference between the discounted price that Greensill pays and the full price it receives is effectively interest on that loan. This seems backwards; the big company isn't borrowing anything. In conventional factoring small companies make these deals to get their cash early, and they give up a percentage as payment. It makes no difference to the big company, which pays the same amount after 90 days either way. Unless... the big company is working with the finance company to actively sell these deals to their suppliers. In which case the big company will be getting a slice of the percentage fee paid by the small company. Levine concludes: > The thing about Greensill’s business is that it doesn’t sound that … hard? Like, once you have introduced a customer to the idea of supply chain finance, I am not sure why the customer should be particularly loyal to you. Anyone who offers a better rate, or the same rate but a better promise not to blow up, should be fine. This emphasises the point that this is normally nothing to do with the big company. The small suppliers can go elsewhere. There's something I'm missing here, and I think Levine is too.
- h1fra 6y agoIs that a PaaS? Ponzi as a Service
- AlexMoffat 6y agoThis sounds like bill discounting, as described in 1874 in https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_of_the_Money_Market https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
- srhyne 6y agohttps://founderpath.com https://founderpath.com by Nathan Latka also does this.
- ryanmarsh 6y agoThe first thing I saw thought when I saw this is, liquidity for other industries should but just as simple. Unfortunately liquidity for most businesses is a complex zoo of companies that want to fuck you out of your cashflow.
- kcolford 6y agoWhat happens in this case if a customer cancels their subscription? Do you suddenly owe Pipe a bunch of money?
- akrymski 6y agoYes. In their words: If a customer churns before the 12 month period that you traded, you have two options. You can rebate the capital you received upfront on a prorated basis for the churned period with no penalty or fees. Or, Pipe can auto-swap another contract to cover the rebate of the churned customer.
- kristjansson 6y agoA thought: presumably the institutional investors are going to be both better equipped and more eager to extract money owed to them, whereas a SaaS business is more likely to cut losses, offer discounts, deferrals, free months to customers facing hardship. Does Pipe control and allow for those sort of factors? Is the client business on the hook for the revenue every month? Or does a customer of a business that sells its receivables through Pipe suddenly find themselves counterparty to (w.l. o. g.) BlackRock?
- rmrfrmrf 6y agoWe wanted flying cars, instead we got 140,000 fintech companies
- jareklupinski 6y agoit's a lot easier to move millions of dollars than a half cubic meter of water
- ab_testing 6y agoHow did you get to acquire the pipe.com domain. That must have cost a fortune ?
- nojvek 6y agoThe issue with turning monthly contracts into annual contracts is that folks on monthly contracts usually are there because they want to de-risk and pay for a couple of months as a test drive before forking up an annual contract. They’re inherently more likely to churn than customers on annual contract. At-least that was my observation working at different startups. The pricing strategy of annual with 1-2 months free attracts a lot of long term retained customers. Also monthly payments had other headache with credit cards getting declined. We spent a lot of energy chasing failed monthly payments. Pipe is a great idea, just sleezy marketing.