The program, called “mine now, pay later,” will work as an alternative to traditional means of financing such as equity or debt, which are expensive for the companies and their shareholders.
“We’ve created a trading platform that allows companies to sell recurring revenue stream generating products and services to institutional investors,” Harry Hurst, co-founder and co-CEO of Pipe, said in an interview with CoinDesk.
The buyers of these contracts are institutional investors, including banks, hedge funds, pension funds and family offices, that have a fixed-income mandate and are looking for recurring payout generating assets, Hurst said.
A company signs contracts with its customers for a recurring payment schedule, and then puts those contracts into Pipe’s platform for trading, where investors will buy the contracts. In turn, the transaction becomes an instant source of funding for the company, which it can use to fund its growth without diluting the shareholders by offering equity or locking in an expensive debt facility.
“The financing solution is a little bit like hardware financing, but much more efficient because it's on a trading platform and diversified,” Hurst explained.
Pipe earns a fee on trades that get executed through its platform. The trade fee is up to 1% and varies depending on the trading volume, Hurst said.
Pipe has been working for several months with bitcoin mining service provider Compass Mining, which is the first company to broadly offer this new form of financing.
The funding alternative comes as cryptocurrency and broader markets have retreated from their peaks last year, damping euphoria among investors and making access to capital via traditional means harder and more expensive for bitcoin mining companies.
“Together with Pipe, we are accelerating the growth of bitcoin mining by democratizing access to the critical financing options that traditional banking institutions have ignored,” Compass Mining CEO Whit Gibbs said in a statement.
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