As retail investors increase and find new opportunities in different financial markets, Los Angeles-based XCLAIM is hoping to bring the overlooked world of bankruptcy claims to the masses.
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The online marketplace for bankruptcy claims has closed a $6.6 million seed extension after launching its platform in the fall. The round was led by General Catalyst with participation from 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 allows for both the buying and selling of bankruptcy claims. The theory behind buying a bankruptcy claim is that it eventually will be repaid, however the amount and timeline are uncertain. The uncertainty does create risk for the buyer, while the seller can receive a payout on the claim likely faster than waiting for the claim to be repaid.
“It’s a relatively hidden market, but it is huge,” said Karim Gillani, general partner of Luge Capital. “It’s a market that is opaque to many.”
Buying and selling claims
The company has claims on the site ranging from $1,000 to $2 million — and takes a one percent commission on each transaction to monetize the platform.
XCLAIM has managed to digitize the process of buying and selling claims through partnership agreements in place with the seven claim agencies that handle bankruptcies in the 94 federal courts, said founder and CEO Matthew Sedigh. Five of those relationships are exclusives for the next several years, he added.
Sedigh sees the platform as a chance to bring more clarity to what is often a misunderstood process, and one that can now be open to more than just hedge funds and distressed asset investors combing through court records.
“In the chase for better yield, people are turning to more alternative asset classes,” he said.
The site currently lists more than 2 million creditors with claims of $3.5 trillion of unsecured debts and since launching trading volumes on the site have surpassed $20 million.
This is not the first time a company has tried to digitize the bankruptcy claim market. About a decade ago, SecondMarket — which primarily tried to help employees at startups sell shares of private companies — also attempted to buy and sell claims, Sedigh said. However, the company did not have integrations in place with claim agencies to keep supply up, Sedigh said.
Sedigh added that when the stock market became digitized in the 1990s, trading exploded. Something similar is happening currently in the bond market as companies such as MarketAxess and Tradeweb have taken it into the twenty-first century.
XCLAIM can have a similar effect on bankruptcy claims, he believes.
“We look at ourselves as the NASDAQ of receivables,” he said.
With a large and seemingly open market, Gillani said Luge was excited to invest.
“When we did our due diligence, it was hard to find a comparable,” he said. “It’s just such a hidden market. The average person on the street does not know bankruptcy claims can even be traded.”
Illustration: Li-Anne Dias.
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