Luge Invests in XCLAIM’s $6.6M Round to Build a Marketplace for Bankruptcy Claims

We announced today a new investment in Los Angeles-based XCLAIM, a digital marketplace to trade bankruptcy claims as a modern asset class. Luge Capital participated in the USD $6.6 million round, led by General Catalyst, alongside First Round Capital, Freestyle VC, Correlation Ventures, Quiet Capital, Tribe Capital and strategic angels. In less than a year since launch, XCLAIM has quickly become the destination for buying and selling insolvency claims, and they are redefining the market for distressed debt.

In May 2020, Hertz, the giant car rental company filed for bankruptcy. With more than $19 billion in debt, the company was forced to reorganize after the COVID-19 pandemic nearly erased all demand for its rental cars. The legal proceedings started, and anyone with an unpaid receivable due from Hertz was required to submit their claim for repayment, pending the outcome of the bankruptcy process.

More than 60,000 vendors, suppliers, landlords, and other businesses ultimately filed claims against Hertz. They ranged in size from less than $1,000 to more than $60 million. Impark, one of the largest parking management companies in North America, filed a claim against Hertz for $9,286.69 with the court-appointed agent, Prime Clerk. A typical bankruptcy process can take years to resolve, and after Impark filed their claim, all they could do was wait.

With the launch of XCLAIM, creditors like Impark are able to access instant liquidity by selling their claims to institutional investors, who are either willing to hold the claim in the hopes of getting paid out, or flip it to another investor through a secondary market sale. These investors assume the risk of repayment by buying the debt at a discount, betting on a greater recovery to generate a return. For Impark, they would get immediate cash and wouldn’t have to deal with the uncertainty of the bankruptcy timeline and outcome. Everybody wins.

There are currently $3.5 trillion in outstanding bankruptcy claims in the US, and approximately $40 billion was traded last year. However, those trades are being sourced by investors using antiquated methods such as cold-calling and mass-mailings. Hedge funds are manually contacting creditors one at a time using information pulled from a court filing, and trying to convince a stranger to sell their claim to a voice on the other end of the line. It feels uncomfortable and makes you wonder if it’s a scam. Yet, it happens, in a market that is entirely opaque.

XCLAIM is bringing transparency and efficiency to the bankruptcy claims market, so that creditors can understand that they have a sellable asset, and ensure that they get a fair price for that asset. Buyers can compete for claims in real-time and sellers can choose to whom they want to sell. XCLAIM has essentially unlocked a new asset class that is liquid, and available on an open digital exchange.

“It’s not often that an opportunity arises to revolutionize an entire financial market. We started XCLAIM to build an enduring company and solve for the inefficiencies plaguing all market participants”

-Matthew Sedigh, CEO of XCLAIM

The economic impacts of COVID-19 have exacerbated the need for a digital solution in the bankruptcy space. When a company goes through an insolvency process, there is widespread anxiety across everyone who has ties to that company. Bringing an extra layer of transparency can help alleviate some of that anxiety. And with interest rates as low as they are, investors are turning to alternative asset classes to generate returns. XCLAIM offers that opportunity with the click of a button.

-Karim Gillani, General Partner, Luge Capital

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XCLAIM is currently hiring for the following roles:

• Growth Marketing Manager
• Product Marketing Manager
• Customer Success Associate
• Marketplace Operations Associate

Please apply here: https://jobs.lever.co/x-claim

About Luge Capital

Luge Capital is a FinTech-focused venture capital fund, investing in early-stage teams shaping the way the world experiences financial services. We invest in fintech and AI solutions applied to financial services and love when entrepreneurs challenge the status quo. We work with dedicated founders who are driven to solve real problems that affect people on a global scale. We are an experienced team of operators with a deep industry network to help leaders build successful companies.