XClaim Inc. — Notices of Appearance/News

This week we welcome Matt Sedigh, the Founder and CEO of XClaim Inc., a new online bankruptcy claims trading marketplace that hopes to “revolutionize the bankruptcy claims market by unleashing digital efficiencies of scale.” It sure sounds like Matt is trying to disrupt things. We dig it. The platform launches THIS WEEK (and they’re hiring!).

Let’s find out more…

PETITION: Let’s put this in venture capital parlance. What is the “problem you’re trying to solve” with XClaim?

All markets evolve over time to become more efficient, but trading bankruptcy claims is still an opaque and inefficient market. There has been absolutely zero innovation in the space since the code was enacted in 1978. Every trade that has ever occurred has been the result of a financial institution scouring a publicly available claims register to identify a claim as an attractive investment opportunity. Without a pre-existing relationship, prospective buyers solicit creditors to sell their claims, usually by way of a mass-mailing or cold-call. It is not uncommon for a trade to take months to settle due to manual data entry processes and errors from ink on paper documentation.
XCLAIM solves for these inefficiencies by aggregating and organizing the universe of claims from every case and every court onto a single platform – we solve for the supply side. In addition, we eliminate paper by converting all documentation to digital contracts and automating any manual process with technical integrations for an end-to-end trading experience. In the context of a financial market, these efficiencies enhance the liquidity of an illiquid asset class.

PETITION: We understand that others have trodden this ground in the past and failed. Why will XClaim succeed in this area where others haven’t?

Those groups didn’t appreciate the extent to which the buyers in this market would resist their innovation. Buyers in this market are sophisticated distressed investors. Creditors, on the other hand, are relatively unsophisticated and motivated to sell – they just want to collect on an open receivable. An opaque market inures to the benefit of only one side of that transaction.
XCLAIM has approached this problem differently. First, our value proposition for the buy-side is solving for their greatest pain-point: sourcing. By having all claims on a centralized platform we can instantly provide access to any creditor in any case. Second, the efficiency we create comes from speed (i.e. liquidity). We facilitate trading by allowing buyers to make a bid and transmitting that bid directly to creditors. Creditors then have the ability to accept, counter, or reject that bid without either party making public disclosure of the economics of the trade. It’s all private sale.

PETITION: Walk us through the tech and how your platform benefits both sellers and buyers.

It’s actually quite simple. We’ve been working with each of the Claims Agent groups to synchronize their publicly available claims register databases with our marketplace. That’s our supply. In their capacity as an outsourced clerk of the court they can’t be a marketplace themselves. So by working together we actually improve their processes by providing the claims register with accurate claim ownership data in real-time.
In addition, we’ve also built electronic contract negotiation tools and e-sign capabilities for buyers and sellers to easily conduct a trade.
Lastly, we’ve integrated our tech with the courts and their CM/ECF systems to automate the process for filing Rule 3001 notices to the docket.
All of this culminates in a seamless process where buyers benefit from instant transfers and creditors get an immediate recovery.

PETITION: What are you projecting for bankruptcy filings going forward? Given the state of the economy, you may have lucked into the most opportune time imaginable, right?

Since COVID started impacting filings in March, we’ve seen more than a doubling of large Chapter 11’s over the same period last year. As you’ve written about before, most of the filings to date have been companies that were already teetering. I think it’s widely expected that we will be seeing many, many, many more filings over the next several years until this crisis is behind us.
This economic environment is certainly a tailwind for us but we are building something that’s inevitable. The claims trading market, like every other market on Earth, cannot avoid technology forever. It’s better to be lucky than good. We are both.

PETITION: We like to talk about tech and venture capital from the lens that it’s important to know what’s coming to understand what is. You’ve raised money from venture capital firms. Tell us about that process and how hard it has been to educate folks about the crazy-a$$ restructuring space?

VC is an entirely different world from where I was coming from. I suppose it’s understandable that after spending my entire career around troubled businesses I had grown to become extremely risk-averse. VC’s on the other hand are the most risk-tolerant people on the planet.
The greatest hurdle has definitely been educating potential investors. Few of them had any idea that this market even existed, and trying to make something as unsexy as bankruptcy into a compelling investment opportunity was counterintuitive to them. I met with 85 investors and ended up receiving 10 term sheets so I must’ve said something they liked.

PETITION: You were a Managing Director at Conway MacKenzie before jumping ship to scratch the proverbial entrepreneurial itch. Tell us about that leap and how has your experience at Conway prepared you to build and lead your own company?

I really wrestled with the idea of leaving a good job that I had been working towards for my entire career. I tried to convince myself of a reason that this wouldn’t work. I couldn’t.
When I got into restructuring I remember thinking that I always wanted to have my own business one day but didn’t know what it would be. I figured that learning from the mistakes of other people would be an invaluable education for whenever that opportunity arose. I was right. I became a bankruptcy expert after more than 50 engagements advising debtors, senior lenders, and creditor committees. I was hired as a CRO on three separate occasions. That was stressful, knowing that thousands of jobs were dependent on me making the right decisions. In comparison, launching a startup is just pure fun.
In the end, my wife was totally supportive and said to me, “make two promises; one, see it all the way through wherever it goes, and two, don’t lose the house”. I figured those were two promises I could keep, so I surrounded myself with an amazing team and together we are building the future of this industry!

PETITION: We like asking people about resources that have helped frame perspectives. What are some books or podcasts that have helped you get to where you are today?

Not long after founding Amazon, Jeff Bezos gave an interview where he described his decision-making process for leaving his job to become an entrepreneur. He came up with a “regret minimization framework” which made it an easy choice for him. He realized that he would never regret trying and failing to make his idea a reality. Conversely, not trying would haunt him forever. That message really spoke to me.
Peter Thiel gave a lecture at Stanford a few years ago that was turned into an audiobook; “Zero to One”. I’ve easily listened to it 20 times. It provided a great basis for understanding the singular act of creating something from nothing. What we’re building has never been done before and there can only ever be one first time for anything.
Last but certainly not least, I’m an avid reader of PETITION. You keep me informed and thinking about the macro and micro and everything in between. You also make me laugh during a time when laughter is in short supply. Thanks for that!

PETITION: Good luck, Matt. And thanks for the gratuitous plug! 😜