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You need to have at least 6 figures to deal with the "float" problem (7 or 8 figures if you're successful) What's your modeling look like here? They capture p

by patio11 12y ago

You need to have at least 6 figures to deal with the "float" problem (7 or 8 figures if you're successful) What's your modeling look like here? They capture payment on day 0, are sent an ACH from Stripe on day 2, and physically have it in the bank on day 3~5. The worst possible credit terms they'll have with vendors is "We put it on our Amex on day 0, are invoiced by Amex on day 15, and pay the invoice on day 22." That lasts until they can tell without-loss-of-generality 1800Flowers "We did 100k with you last month. Give us 30 day net on a rolling monthly basis. [+]" My back-of-envelope math suggests they have ~15 days of float at present and will have ~40 days once they have direct relationships with suppliers. They're almost certainly generating tremendous positive cash flow, limited only by their ability to generate transactions. [+] That will not be the only ask in that conversation, believe me. I'd take pertinent note that 1800Flowers has fat, fat margins and is willing to pay affiliates 25% commissions, then ask them for their top-tier affiliate offer. Who benefits from that discount? Magic, because they're selecting for price-insensitive customers. If 1800Flowers doesn't want to play ball, you just update your CS docs to say "Our preferred flower vendor is $EMPLOYS_SANE_BD_TEAM."

downandout 12y ago
> "We put it on our Amex on day 0, are invoiced by Amex on day 15, and pay the invoice on day 22." Despite what people think, Amex is not unlimited [1]...in fact it has a limit, they just don't tell you what it is. Although he edited the comment, a very ignorant person posted below that they could just charge a few million dollars to their Amex, and pay it off at the end of the month. No, they couldn't. When you hit the Amex limit you don't know about, your card gets declined. That's why they don't say "unlimited," they say "no pre-set spending limit". So that may have been good for maybe $20K or so (depending on the credit of the person whose card it was) but that doesn't get them anywhere near the finish line if they really had 17K requests in the first 2 days. I agree with you that they could work out discounts/affiliate agreements with some large merchants, but given that this is a long-tail business, that won't be the norm. [1] http://www.moneyunder30.com/american-express-cards-do-have-spending-limits http://www.moneyunder30.com/american-express-cards-do-have-s...
- patio11 12y ago
  A few Internet buddies of mine did affiliate marketing, which has roughly similar cashflow issues. If you need to charge $100k in a day, and you can demonstrate capability to pay $100k in a day, Amex will happily accommodate your business. The main question is whether you can scrape together $100k~200k for your first 48 hours. I don't know what to say about that other than "It's clearly doable." (Anecdata: My personal credit limits total about $100k and have since BCC was my main source of income. That's the "No phone calls required" number for what a young professional with a fairly modest income and good credit habits can have just lying around. Do I have difficulty thinking that a team in Silicon Valley can float $X00k for N days? Not in the least.)
  - downandout 12y ago
    >A few Internet buddies of mine did affiliate marketing, which has similar cashflow dynamics to this. If you need to charge $100k in a day, and you can demonstrate capability to pay $100k in a day, Amex will happily accommodate your business. Possibly, but I don't think that consists of calling Amex and telling the phone rep to log into your Stripe account to check out your mind blowing pending balance. Anyway all I was saying is that this was a weekend project of a YC company that had already (presumably) burnt through a good portion of their cash on their initial idea. You are right though, if you're a YC company, there are people you can call to deal with cash flow issues.
    - patio11 12y ago
      I would suggest that anyone who wants to run a business approach this and other issues with a mindset of "This is a problem which I can trivially solve." rather than "This is a problem which would be trivially solved for me if I were member of a special elect, but given that I'm not, boo hoo." Chase bank didn't give me a $25k credit line because they're uber impressed with my HN karma. That's basically their get-you-in-the-door offer if you have good credit. Amex has floors of people who do underwriting and convincing them to let you give them money is by far not the hardest sale required of a startup founder. (An early tactic to try: "Would you accept written confirmation from our accountant that we added $100k in accounts receivable in the last 24 hours and will probably add $100k in AR in the next 24 hours if we can get a credit limit increase from you? I can have him fax it to you on letterhead. This is time-sensitive and while I'd greatly prefer to work with Amex you are not the only bank with a fax machine.") Stripe is full of friendly and accessible people, and should you be cursed with $100k of transactions on launch day (oh noes!), you have options including "Use the HN search function to find the CEO's email address and ask him for help, which he'll happily give you, because it makes his company very happy when non-fraudulent operations rack up $100k of transactions in a day. If he had a magic wand that could conjure up businesses like that he'd do virtually nothing other than wave it."

by patio11 12y ago

downandout 12y ago

> "We put it on our Amex on day 0, are invoiced by Amex on day 15, and pay the invoice on day 22." Despite what people think, Amex is not unlimited [1]...in fact it has a limit, they just don't tell you what it is. Although he edited the comment, a very ignorant person posted below that they could just charge a few million dollars to their Amex, and pay it off at the end of the month. No, they couldn't. When you hit the Amex limit you don't know about, your card gets declined. That's why they don't say "unlimited," they say "no pre-set spending limit". So that may have been good for maybe $20K or so (depending on the credit of the person whose card it was) but that doesn't get them anywhere near the finish line if they really had 17K requests in the first 2 days. I agree with you that they could work out discounts/affiliate agreements with some large merchants, but given that this is a long-tail business, that won't be the norm. [1] http://www.moneyunder30.com/american-express-cards-do-have-spending-limits http://www.moneyunder30.com/american-express-cards-do-have-s...

patio11 12y ago
A few Internet buddies of mine did affiliate marketing, which has roughly similar cashflow issues. If you need to charge $100k in a day, and you can demonstrate capability to pay $100k in a day, Amex will happily accommodate your business. The main question is whether you can scrape together $100k~200k for your first 48 hours. I don't know what to say about that other than "It's clearly doable." (Anecdata: My personal credit limits total about $100k and have since BCC was my main source of income. That's the "No phone calls required" number for what a young professional with a fairly modest income and good credit habits can have just lying around. Do I have difficulty thinking that a team in Silicon Valley can float $X00k for N days? Not in the least.)
- downandout 12y ago
  >A few Internet buddies of mine did affiliate marketing, which has similar cashflow dynamics to this. If you need to charge $100k in a day, and you can demonstrate capability to pay $100k in a day, Amex will happily accommodate your business. Possibly, but I don't think that consists of calling Amex and telling the phone rep to log into your Stripe account to check out your mind blowing pending balance. Anyway all I was saying is that this was a weekend project of a YC company that had already (presumably) burnt through a good portion of their cash on their initial idea. You are right though, if you're a YC company, there are people you can call to deal with cash flow issues.
  - patio11 12y ago
    I would suggest that anyone who wants to run a business approach this and other issues with a mindset of "This is a problem which I can trivially solve." rather than "This is a problem which would be trivially solved for me if I were member of a special elect, but given that I'm not, boo hoo." Chase bank didn't give me a $25k credit line because they're uber impressed with my HN karma. That's basically their get-you-in-the-door offer if you have good credit. Amex has floors of people who do underwriting and convincing them to let you give them money is by far not the hardest sale required of a startup founder. (An early tactic to try: "Would you accept written confirmation from our accountant that we added $100k in accounts receivable in the last 24 hours and will probably add $100k in AR in the next 24 hours if we can get a credit limit increase from you? I can have him fax it to you on letterhead. This is time-sensitive and while I'd greatly prefer to work with Amex you are not the only bank with a fax machine.") Stripe is full of friendly and accessible people, and should you be cursed with $100k of transactions on launch day (oh noes!), you have options including "Use the HN search function to find the CEO's email address and ask him for help, which he'll happily give you, because it makes his company very happy when non-fraudulent operations rack up $100k of transactions in a day. If he had a magic wand that could conjure up businesses like that he'd do virtually nothing other than wave it."