[FUNDED] Tangible Cryptography seeks Line of Credit to expand working capital.

[TangibleCryptography]

Tangible Cryptography LLC seeks Line of Credit to expand working capital

Background:
Tangible Cryptography LLC has operated the FastCash4Bitcoin service profitably for roughly six months.  During that time it transitioned from a manual service to provide quicker Dwolla withdrawals for a certain exchange to an independent sales portal which offers same day payouts on bitcoin sales.  It now has daily sales volume which rivals many major exchanges.  Our customer feedback continues to be spotless with no unresolved issues and we have not had any orders which were unfunded for more than twenty four hours.  Despite increasing our fees (to dampen volume without dampening free cashflow) and offering “direct sales” (which have a faster turnaround on capital) we still run into situations where we lack available funds and must halt new sales.  We halt new sales until we have available funds because we never "float" sales.  If we buy a client's coins it is because we can pay them.  Although our working capital has expanded and our "turnaround" (time from USD -> BTC -> USD) has been reduced our volume continues to grow.   Our month over month growth for the prior month was over 27%.  Tangible Cryptography is a manager-managed limited liability company registered in Virginia.  It is privately held with three members (LLC equivalent of shareholders) and a single manager.  The company has ~$120K in cash and cash equivalents, and ~$230K in total assets.  The company's only debt at this time is Loc A & B (see below). If both new LoCs are funded and LoC B is retired total indebtedness would be 1,000 BTC and $50,000 USD.  Interest obligations would be roughly 16 BTC and $800 USD per month.  Our monthly sales volume for the prior 30 days was ~$338,500.  Sales volume was conservatively reduced by $100,000 to $150,000 due to insufficient available funding.

Operation:
We purchase bitcoins from clients using our FastCash4Bitcoins service.  These purchases are made at a discount to the "MtGox last price" which we designate the "margin". Our margin varies depending on current volatility, the difference between the price on MtGox vs other exchanges, and our currently fund balances (BTC vs USD).   Over the last 30 days our margin has a volume weighted average of 4.38% and floated in a range of 3.99% to 4.97%.  We disburse the proceeds of the sale to our clients via the method of their choice.  The acquired coins are then sold on multiple exchanges or by “direct sales” to large bitcoin buyers under the brand name Bitcoins Direct.  Our Bitcoins Direct program is an attempt to shorten the "turnaround" and thus improve the efficiency of our working capital.  Bitcoins Direct sales volume has grown significantly since we introduced it two month ago and now represents roughly 40% of our daily sales volume.  We also acquire bitcoins from our CellCoin service, and our escrow services but so far these property have been underdeveloped.  

Purpose & Scope:
The purpose of the loans is to expand our working capital, reduce the occurrences where we exhausted available funds, and allow the company to handle higher sales volume.  We are seeking two lines of credit.  Both would be open ended (no fixed maturity) with periodic interest only payments. While we use the term Line of credit (LoC) we intend to draw the full amount upon funding, and simply reserve the right to pay down some or all of the principal at any time without penalty.  Interest payments will be made monthly (first of the month).  The creditor has the right to call the note at any time, and for any reason.  Repayment will be made in full (with all accrued and unpaid interest) within 30 days of the note being called.

The company currently have two lines of credit already funded.  LocA is 500 BTC LoC.  Although it is funded at a higher interest rate we intend to keep this line as a thank you to our existing creditors.  LocB is $20,000 USD denominated line (~$18,000 USD outstanding).  It is our intent to pay off this line with the proceeds from this debt sale.  In the event we don't secure new funding we still intend to pay off LocB within 60 days using a portion of our free cashflow.  

Notes proposed:


Line of Credit C (LocC)
Amount: 500 BTC
Current Bid:  500 BTC @ 0.85% per month
Denomination:  Bitcoins
Interest: max of 1% monthly (12.68% APR) - note bidding is a reverse auction which ends 10/5/2012 @ 23:59:59 UTC.
This line of Credit (along with existing LocA) provides a cushion between purchases and sales.  It improves our liquidity and allows us to rapidly resell coins purchased from clients while keeping us hedged against exchange rate changes.  LocA has greatly improved the efficiency of our operation but as our daily sales volume continues to expand we have found our current line to be insufficient to meet daily needs.  This line will provide an expansion to ~1,000 BTC total.

Line of Credit D (LocD)
Amount: $50,000 USD
Denomination:  USD
Current Bids: $50,000 @ 1.6% per month
Interest:  1.6% per month (20.98% APR) - note bidding is a reverse auction which ends 10/5/2012 @ 23:59:59 UTC.
This note is denominated in USD.   Creditors can funds this line with BTC (using current MtGox price at time of funding) and can opt for payments in BTC however the obligation is denominated in USD.  Lenders should consider that they will not be long BTC.  This note may be attractive to lenders who want to maintain an effect short bitcoin position, are seeking to hedge long bitcoin exposure, want to acquire bitcoins over an extended period of time (dollar cost averaging), or need to balance other bitcoin denominated investments.  We are flexible in deposit and repayment options.  Deposit by BTC is an option but so is deposit in USD using any option we allow in Bitcoins Direct.   Interest payments can be paid out in BTC or in USD by company check or ACH.

Lender risks and mitigation:

Risk: hacking or other bitcoin loss resulting in inability to repay.  We employ encrypted cold wallet which is kept offline.  Encrypted backups are maintained as well as encrypted paper printout of private keys stored offsite (failsafe recovery in event of flaw in wallet format).  All of our exchange accounts employ strong passwords and two factor authentication.  Our working bitcoins are spread out across the cold wallet and exchange accounts minimizing the number of coins that would be affected by any single breach.  For example in the bitfloor breach we lost less than 200 BTC (a fraction of a single days volume) and were able to resell that debt for 170 BTC resulting in a net loss of only 30 BTC.  Our bank accounts and PayPal account are also protected by two factor authentication.  We are in the process of transitioning our sites to a dedicated server (no backdoors or super-admin accounts, OS installed remotely by DeathAndTaxes on bare metal).

Risk: closure of account or freezing of funds by Dwolla or PayPal. Company policy limits either account to no more than 10% of our working capital in accounts with either provider.  We accept no PayPal or Dwolla transactions from customers which means we have no risk of chargeback or disputes that could result in account closure.  We have provided information to Dwolla compliance department on our business procedures however they have not as of yet certified us as an approved digital currency merchant.  The PayPal account is a corporate account and we pay a fee to PayPal for every payment sent.  We don’t defraud PayPal by using “gift” or “personal” payments.  The Dwolla and PayPal payment options while popular (in terms of number of sales) tend to have smaller average payouts and as such combined they represent only 22% of total sales (in USD).  While a freeze on one of these accounts would make us less attractive to customers it wouldn't be fatal to the company.

Risk: lendee has no intention on repaying (aka "scam").  While this is a risk in any loan, Tangible Cryptography LLC is registered with the Virginia Corporation commission.  Our business model provides a high return on invested capital (ROIC) and our "brand" would be destroyed by a default.  Simply put we make a good margin off your money and there is no reason to change that.  Supporting docs for the company will be made available (within reason, please provide specifics on type of documentation needed).

Why not seek traditional funding:
We have a significant amount of goodwill towards the lenders who stepped up when we needing funding in the past.  While other lenders were busy defending the sustainability of 7% per week some lenders were willing to accept more sensible returns.  They haven't lost their principal and we have paid out consistent interest payments.   The lending forum being filled almost exclusively with HYIP scams and "payday loan" offers 100%+ APR) does the community a disservice.  We hope to offer an alternative.   We feel this can be a win-win for both creditor and debtor.  For a small startup a bank loan is simply not viable.  We could use a member's credit card at a lower interest rate but that doesn't provide any benefit to the company (improved trust, improved credit).

How to bid:
Send a PM with the LoC, the amount, and the min interest rate you will accept (monthly).  In the event our offer is oversubscribed we will take lowest bids (reverse auction).   We will leave the offer open until 23:59:59 10/05/2012 UTC.   To reduce the processing work the minimum note amount is 100 BTC or $1,000 USD.  Interest rates should be in increments of 0.05%.  

These notes are debt only they offer no equity or equity derivatives (options, warrants, revenue sharing contract, etc).  We are not entertaining any offers for equity sale at this time.  

Thank you for your consideration,

Staff
Tangible Cryptography LLC
 

On edit: fixed some typos & added clarification to some points.  Indicated interest bids should be in 0.05% increments (i.e. 1.00%, 0.95%, 0.90%, etc).

[TangibleCryptography]

How do I send funds?  How will I be paid interest & principal?
For Loc-C it is simple, all payments will be handled by Bitcoin transactions.   For Loc-D through our two services (FastCash4Bitcoins & Bitcoins Direct) we are already setup to handle fund transfers in a variety of methods.  Disbursement and repayment are creditors choice.  Creditor can change methods or use one method for disbursement and one method for repayment (i.e. send funds by BTC, get repaid by monthly ACH, or send funds by bank wire and get repaid by monthly BTC payments).

What are your objections to an equity offering?
The three major roadblocks are legal, taxation, and scope. 

Legal:
The SEC makes it very tough for US small business to raise capital through equity offerings.  Even the exceptions can be a nightmare to navigate and in the US one has to worry about both federal and state requirements.  While this is not impossible it certainly does raise the cost and complexity of compliance.

Taxation:
Our LLC currently has a partnership tax structure.  We will likely be changing that to a C-Corp tax structure but it requires some consultation with our accountant.  A partnership tax structure is likely not going to be desirable to outside investors as any tax liability is shared by all partners.  So if the company generates $300,000 profit but retains $200,000 towards growth and disburses $100,000 the partners share $100,000 in profits but $300,000 in tax liability.  For our small company with all partners having an active role that potential is understood.  With outside passive investors that can be a bitter pill to swallow.

Scope:
We have no interest in selling less than $200,000 in equity.  At this point $200K is "the next step".  It will allow at least one partner to work for TC LLC full time.  It will ensure the company has sufficient working capital to handle expansion up to ~$10 mil in annual revenue, enables us to retire all debt (improved ROIC%), and allow the company to move towards enterprise scaled operations.  A small scale equity offering gives up a "chunk" of the company at a much higher cost of of capital, without materially changing the financial outlook.   The partners are unanimous in that equity shouldn't be offered unless it enables the company to move to "the next level".  At this point the company financials are too short/limited to provide any meaningful due diligence for an investment of that size.

The above should be considered information and is not a solicitation for investment.

[TangibleCryptography]

Sample Promissory Note.  Reasonable changes and additions are possible.

PROMISSORY NOTE

Borrower:   Tangible Cryptography LLC a Virginia Limited Liability Company
237 HANBURY ROAD E SUITE 17-165
CHESAPEAKE, VA 23322

Lender:      [LENDER NAME]

Principal Amount:   $xx,xxx.xx USD

1.   FOR VALUE RECEIVED, the Borrower promises to pay the Lender, the principal sum of [PRINCIPAL AMOUNT] ( $xx,xxx.xx USD ) USD, with interest payable on the unpaid principal at the rate of [INTEREST RATE] percent per month, calculated monthly.

2.   For periods of less than one Month due to disbursement, transfer, sale, or repayment in full, the interest payable on the unpaid balance shall be [INTEREST RATE / 30.5] per day.

3.   Lender will disburse the principal amount to the Borrower by [Cashier's Check | Bank Wire, Local Branch Cash deposit | Bitcoin transfer]. Loan is deemed funded and interest will accrue when Lender is in possession of certified funds.  If Bitcoin transfer is utilized the USD equivalent of the bitcoins transferred will be based on the 'Mt Gox Last Price' at the time of the transfer.

4.   Borrower will make monthly periodic interest payment to Lender in a manner, and to an address designated by the Lender as may be provided in writing to the Borrower.

5.   This Note will be repaid in consecutive monthly installments of interest only on the first day of each Month commencing the Month following the execution of this Notes until the Lender has provided the Borrower with written notice (“Notice of Demand”).

6.   Upon Notice of Demand Borrower will repay the outstanding Principal amount in full to include any accrued and unpaid interest.  Principal Repayment will be completed no later than thirty days after Notice of Demand.

7.   At any time while not in default under this Note, the Borrower may pay some or all of the oustanding balance then owing under this Note to the Lender without further bonus or penalty. 


7.   Upon Notice of Sale from Lender, Borrow will transfer the Note and all future proceeds to a party designated by the Lender.  Lender agrees to provide the acquiring party a copy of this Note, and Acquiring party agrees to be bound by the terms of this note as condition for the sale.

8.   This Note will be construed in accordance with and governed by the laws of the Commonwealth of Virginia.

9.   All costs, expenses and expenditures including, and without limitation, the complete legal costs incurred by The Lender in enforcing this Note as a result of any default by the Borrower, will be added to the principal then outstanding and will immediately be paid by the Borrower.

10.   This Note will enure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns of the Borrower and <LENDER NAME>. The Borrower waives presentment for payment, notice of non-payment, protest and notice of protest.

Borrower:   


_______________________________________
Tangible Cryptography LLC
By: ___________, Executive Manager



Lender:   


_______________________________________
<LENDER NAME>

[TangibleCryptography]

We received a bid for the full amount of LoC C at 1.00% per month.   Loc C is only available in the event a creditor is willing to underbid the rate.

[Starcraftman]

I just want to say goodluck with this and lets hope for the best!

[aznjack31]

Same here, goodluck!

[TangibleCryptography]

We received a bid for the full amount of LoC C at 0.95% per month.   
Loc C is only available in the event a creditor is willing to underbid the rate (0.90% or less per month).

[repentance]

Just want to say what a pleasure it was to read such an informative request for funds.  Other borrowers should take note and endeavour to provide a similar level of information upfront instead of forcing potential investors to try to drag it out of them.

Good luck!

[BitcoinINV]

Hope all goes well for you and you expand, your service is great and I have used it and continued to use it.

[TangibleCryptography]

We received a bid for the full amount of LoC C at 0.95% per month.   
Loc C is only available in the event a creditor is willing to underbid the rate (0.90% or less per month).

We received a counter bid for the full amount of LoC C at 0.90% per month.   
Loc C is only available in the event a creditor is willing to underbid the rate (0.85% or less per month).

[TangibleCryptography]

We have received a bid on Loc-D for $10,000 @1.6% per month. $40,000 USD still available @ max rate.

[TangibleCryptography]

We have received a second bid on Loc-D for $2,500 @ 1.6% per month.  $37,500 still available @ max rate.

[zebedee]

We received a bid for the full amount of LoC C at 0.95% per month.   
Loc C is only available in the event a creditor is willing to underbid the rate (0.90% or less per month).

We received a counter bid for the full amount of LoC C at 0.90% per month.   
Loc C is only available in the event a creditor is willing to underbid the rate (0.85% or less per month).

Wow, amazing.  Well done!

[TangibleCryptography]

We received a bid for the full amount of LoC C (500 BTC) at 0.85% per month.
Loc C is only available in the event a creditor is willing to underbid the rate (0.80% or less per month).

[TangibleCryptography]

We received another bid on Loc D for $1,500 @ 1.6% per month.
There still is $36,000 available @ max rate.

[TangibleCryptography]

We have received a bid for the final $36,000 in Loc D @ 1.6% per month.

As we now have full funding for both Lines of Credit, further bids are only possible if a creditor is willing to underbid the current rates by at least 0.05% (per month).

Current bid totals:
Loc C - 500 BTC @ 0.85% per month.
Loc D - $50,000 USD @ 1.6% per month.

There is roughly 3.5 hours remaining.  I do not anticipate any further underbids but in the event they are made they must be made by 10/5/2012 23:59:59 UTC.  Due to the fact that all potential creditors have made bids in private in the event there is a further underbid between now and auction close the affected creditor will be given an option to counter.

Settlement:  
I am traveling in DC right now and won't be online this evening.  I likely will be unable to get final contracts and deposit instructions to all creditors this evening however they will be sent Saturday morning.

I want to thank all bidders who showed interest & trust in our company.

[TangibleCryptography]

Update:  Less than 90 minutes remaining.
Any final bids must be submitted (by email or private message) by 10/5/2012 23:59:59 UTC.

[TangibleCryptography]

From my phone ....

Auction is closed.  There were no new bids, so if you were advised you were a winning bidder you still are.  Will contact creditors tomorrow to arrange settlement.