General Catalyst, one of the largest US venture capital firms, has started a fund to purchase sales contracts from tech start-ups, adding to a growing roster of companies hoping to profit from the strategy.
In a regulatory filing, General Catalyst said it planned to start an investment strategy focused on “the purchase of account receivables from operating companies”. General Catalyst aims to raise up to $300m for the first fund in the series, according to a separate filing, which said one investor had committed $100m.
General Catalyst, which manages more than $8bn in assets, declined to comment on the filings.
The new strategy, dubbed Structured Opportunities, would be one of the first and largest funds focused on purchasing sales contracts from tech start-ups, a niche but fast-growing strategy that has taken off during the pandemic.
Start-ups including Capchase and Pipe, both founded in the past two years, allow companies to sell rights to their future revenue streams for discounted sums upfront. In the UK, Greensill, a SoftBank-backed company that allowed companies to forward-sell their invoices, collapsed spectacularly earlier this year.
The transactions are largely modelled on invoice factoring and marketed towards business software companies, which have revenues that investors tout as highly predictable.
Pipe chief executive Harry Hurst said this month the company had begun handling “tens of millions” of dollars in volume on its busiest days. The company, which investors have valued at $2bn, matches companies to buyers of the contracts, taking a fee of up to 1 per cent from both sides of the transaction.
Capchase, which uses debt to finance its deals, said in June it had issued $390m in capital to more than 400 companies.
While the deals can allow companies to raise new funds without reducing the stakes of other shareholders, some structured finance experts have warned that the offerings are untested and can be more costly than traditional debt.
Companies that sell one year of revenues at 92 cents on the dollar, for instance, would pay the equivalent of more than 15 per cent in yearly interest for upfront cash.
General Catalyst, based in the Boston area, is best known for venture capital investments in companies such as Snap and Stripe. The firm has already begun making investment offers out of the Structured Opportunities fund, said one person briefed on its activities.
In filings, General Catalyst said it would use a “machine-learning engine” to analyse investments. The firm said purchasing accounts receivables from companies could present similar conflicts of interest as debt investments, though the investments are “not considered debt”.