Build it Series: I Got Scammed Trying to Finance My Fashion Tech Startup!

The Financial Scam:
Have you ever found yourself tangled in a financial scam, when all you were trying to do was fuel your entrepreneurial dreams? Brian Yurachek, the founder and CEO of New York Culture Club, reveals his own unfortunate experience with an advance fee scam during his quest for a business loan to finance his fashion tech startup. We unravel the emotional turmoil that Brian endured and the resilience he had to muster up to get through it, a cautionary tale underscoring how startups, particularly those without substantial credit histories, are vulnerable to scams.

Financing Fashion Tech:
We explore the delicate balance between equity fundraising and debt financing, with insights into how emerging technologies like blockchain and NFTs are reshaping fundraising landscapes. In the previous episode we heard how Brian's passion is fuelling the build of his fashion IoT solution, but that passion overrode his vigilance. In a world where scams lurk around every corner, Brian's experience is a potent reminder of the need for thorough verification before parting with money. We discuss practical strategies to safeguard your business, such as cross-checking information and maintaining direct communication with financial institutions. Our chat also highlights the significance of prioritising product development over securing finance prematurely.

Find out more about NYCC: nycultureclub.com/
Connect with Brian: linkedin.com/in/brianyurachek

Chapters

• 0:00 Scammed Business Loan Recovery Journey
• 12:15 Navigating Emotions and Funding Strategies
• 26:01 Entrepreneurial Passion and Vigilance
• 30:17 Avoiding Scams in Business Transactions

Transcript

Peter Jeun Ho Tsang: 0:00

Hello, I'm Peter Jeun Ho Tsang, founder and CEO of Beyond Form, and welcome to the special series Build it, where I speak to founders and their clients as to how they're building fashion technologies. This series gives you a glimpse into topics such as personal struggles, technical challenges, working in fashion and more. On today's episode, I'm back again with Brian Yurachek, founder and CEO of New York Culture Club. Now for startups, cash flow is always king, but many startups fail, up to 50%, because of cash flow issues or because they find it very difficult to actually finance their company. Many take on business loans, and this was way that Brian thought he could fund his business moving forward, however, he recently got scammed.

Brian Yurachek: 0:51

At first I did go through a wave of emotions.

Brian Yurachek: 0:53

You're angry. You're angry with yourself, you're angry at those people, you're angry at the world. You're just gonna say 'why me?', the part of me, that kind of kicked in that's, that's had some muscle memory with this now from the past two and a half years, is I step back from that situation, try to just creatively problem solve and understand that like cursing the world or cursing those people or cursing myself is not really be productive or move forward and everybody makes mistakes and things and.

Peter Jeun Ho Tsang: 1:23

Let's get this conversation going with brian on this episode of Venturing Into Fashion Tech.

Peter Jeun Ho Tsang: 1:30

How are you today, Brian?

Brian Yurachek: 1:32

I'm doing great. How are you, Peter?

Peter Jeun Ho Tsang: 1:34

I'm good, thank you.

Peter Jeun Ho Tsang: 1:35

I wish we were recording this episode on better grounds, but today's episode is going to get really raw, where we're going to be talking about how you got scammed. But before we get stuck into the questions, I want to give some context to the listeners in regards to financing and managing cash flow within the startup world. So many studies suggest that between 70 to 90 percent of startups fail within the first five years of operations, so that's a super high number. One of those major factors is, of course, down to financing and making sure there's enough cash in the bank. 40 to 50 percent of startups that fail set up, major reasons being a lack of financing and essentially running out of cash.

Peter Jeun Ho Tsang: 2:26

Loans are a popular way of funding new startups. For example, the UK government-backed startup loan scheme provides up to £25,000 per startup. You're in New York City, so you're not necessarily tapping into a UK government scheme, but you are going after a loan in order to finance New York Culture Club. However, with startups being money hungry pretty much all of the early days all the time. It makes them very vulnerable to scams, because you're wanted to make you know very quick decisions about how to finance the business. One such scam is an advance fee scheme, whereby the borrower needs to advance a fee to access the business. One such scam is an advance fee scheme whereby the borrower needs to advance a fee to access the loan, which is what you did and unfortunately, you got scammed, brian. So let's get stuck into this conversation. You recently got scammed with what you thought to believe was a genuine business loan. So what happened, brian? Tell us how it is.

Brian Yurachek: 3:28

Yeah Well, it's kind of a complex situation but I'll break it down in its most simple form. I was in conversations and I'll leave, obviously, names and things out of this, but in conversations with an acquaintance he and I had discussed some technology development. He let me know that they did business with a particular third-party loan facility who provided small business loans with certainty, regardless of a lot of assets to be able to back it or perfect credit. So, as you said, many entrepreneurs are looking for quick money, can't necessarily go through tons of processes and if the particular business in our case our business doesn't have a lot of credit because I never took credit out on the business, so we just have a credit history which larger banks don't really lend to. So a lot of the times in the States we go to these third parties and financial institutions in the middle.

Brian Yurachek: 4:28

My understanding was this was one such entity. We did all the necessary paperwork requirements. I checked the website, I set up an account station that is typical to obtaining a loan. I even shared financial statements right that were sent to this facility to make a determination because, although obviously credit may not be the largest factor for them, they did want to make sure that there was some access to this particular loan.

Brian Yurachek: 4:56

And then, like you said, I was told that there was a 10% advancement that was going to be out in escrow against this loan as collateral. Um, advancement that was going to be held in escrow against this loan as collateral and again in the states not atypical of somebody who wants to make sure that they have some amount of money there to recoup should you skip town or fail on the loan. So what, uh, that escrow entity ended up being was a fraudulent entity in cahoots with the lender, and so when I made the deposit of those funds into escrow, it was actually an extortion scheme, so they tried to ask me for more money to have that money released. That's the story.

Peter Jeun Ho Tsang: 5:36

Well, of course, I'm really sorry to hear that because, obviously, you being one of my portfolio startups who won the best for you, and, of course, being scammed is one of those challenges that, of course, we have to work over together, more you than myself. Being from the UK myself, I have taken the startup loan that I discussed in the intro. I've also taken a business loan from a more traditional bank as well in the past. I have never heard an advance fee until you told me, actually, that this had happened. So, for those that are unfamiliar with such a process and that aren't from the States, like, what is the essence of an advance fee and why would a potential loan provider ask for one?

Brian Yurachek: 6:19

Yeah, so to dig in that a little further, essentially for people who either don't have credit or have poor credit, a lot of the times, like I said, it goes to kind of those different elements that you could loan. At the end of the day, most people will review oil bridge accounts and business accounts and technology the business may own, or different hard assets that that business may own, assets that that business may own. Do you own art? Do you have furniture and office space, any physical assets that could be liquidated to pay that creditor back? Typically you have to provide a schedule on those things and then show some sort of cash. A lot of institutions will require some sort of amount of that money to be in cash and not just furniture or technology. That tends to be something and in certain cases, with a small business that either has no established credit or just our particular case, they will require that you hold back monies to back that particular loan.

Brian Yurachek: 7:19

I had never really been involved in obtaining debt in this sort of manner. I've worked in the banking industry, as you know, for over 10 years, mainly in the markets, and the banks Work with banks. So while I was probably new enough to be dangerous here, this was not new to me. This was not new to me, but when they asked me to put up 10% of the total amount of the loan, it wasn't surprising to me that they would want that amount at least that amount and the fact that they were using an escrow company and that I checked out that escrow company and they were seemingly real, which they had assumed the digital identity of an escrow company. So that was another element of this that made it a very high fidelity scheme. These organizations appeared to check out and even had licenses that were appearing to check out. So you know, it's definitely something in a small business capacity or someone with very poor credit.

Peter Jeun Ho Tsang: 8:26

The whole reason why you and I wanted to record this podcast episode is because we did want to make it aware to listeners out there, viewers out there if you're looking on YouTube is that this does actually happen to small business owners, and I'm pretty sure you're not the only person that this has actually happened to. So you wanted to bring awareness that even if financial products, such as a loan, look good on the surface, it's just to be really, really diligent as to who you're taking it from. My previous experience it was through somebody that I trusted very well, because it was actually through my past university, for example, that were authorized to give out these government loans. So at this moment in time, I didn't necessarily have to dig into it as much as necessarily you did. I think the fact that you know we did explore this in our previous episode together that you do come from a finance background as well, maybe that lowered bit your guards at the same time like a little bit of a curse, because you were not necessarily not used to seeing such a product and such a process put in place.

Peter Jeun Ho Tsang: 9:34

I think, of course, now you being in the startup world, it's kind of just put. This particular situation has put you in a different mindset and perspective. When you first told me this story, you were actually extremely calm and quite level-headed about the whole situation, which hats off to you, but you did tell me as well that you had processed it emotionally. What were you feeling when you were going through this ordeal? Because you feel like when incognito for like 14 days and we obviously didn't know why until you told us.

Brian Yurachek: 10:05

But you, you were quite calm about it, yeah um well, having been an entrepreneur for a little over two years now, I've been rolling kind of with the punches there's. There's been things that I tried to coach myself to absorb those things to your relationship. You need to somewhat forgive yourself. I beat myself up a lot at first over this. Obviously, having a background in the financial industry and having something like this happen is a blow to honestly. You didn't need to. All right, you said at this big shit, but you hit on.

Brian Yurachek: 10:41

A really key thing earlier is the desperation and kind of the haste to move forward and to get you know monies to be able to continue to build something that in this case I'm very passionate about, sometimes caused an overlooking of the details. All of this and looked at all of it, there was tiny things we have a few weeks and such that I should have put together. And in just busyness and dealing with a lot of different clients and situations I was not heavily focused on kind of seeing that entire picture. So at first I did go through a wave of emotions. You're angry, you're. You're angry with yourself, you're angry at those people, you're angry at the world. They're just gonna say why me the part of me, that kind of kicked in that's, that's had some muscle memory with this now from the past two or nine years yourself, is I step back from that situation, try to just creatively problem solve and understand that like cursing the world or cursing those people or cursing myself is not really gonna be productive or move forward and everybody makes mistakes and things and it's deal with those things and you know, dealing with those things basically.

Brian Yurachek: 11:59

So I definitely went through those emotions. I was careful not to spread those emotions across a bunch of people before I was ready to have conversations, and I think that that's a really important thing as an entrepreneur as well is it's okay to feel some of those things. Give yourself a few days when there's a big moment like this or something that happens like this. It could be a win or it could be a loss, but a lot of times you want to give yourself like a 24 to 48 hour period of time to kind of absorb that thing and then go talk to people publicly about it. It helps you just grab yourself better and say what you want to say. Express yourself more authentically.

Peter Jeun Ho Tsang: 12:40

The keyword that I picked up there was gracefully and you certainly did come across gracefully when you were telling me this story at first, and I think that's a big lesson for any entrepreneur listening to this episode, whether that's about finances or another subject is that how would you go about regulating your emotions when you're an entrepreneur and most of the time you are in high stressful situations? Every day is something new. Every day you're dealing with a client that is being really difficult, as in your case, you've lost money and not, you know, small money, but you've lost quite a huge chunk as well, which could go towards funding something else within the business, and I think it's really important that entrepreneurs, right at the start of the journey, think about how they might deal with those emotions at a personal level, and I really like what you said there about, ok, before you go, spreading those emotions to the external world. It's like how do you want to come across and how do you want to then position yourself? So, okay, make it productive, move on from it, use it as a lesson and then put it as a notch in your battle wars your battle scars, shall we say as an entrepreneur.

Peter Jeun Ho Tsang: 13:59

Obviously, for startups, cashflow is king and it can kill them at any moment, especially when we're talking about the fashion industry Very high profile liquidations administrations in the past 12 to 24 months across a myriad of industry companies large and also small, heritage brands as well that have gone under because of those cash flows issues and debt has mounted up. Hence, while you've embarked on your fundraising journey, why have you decided to fundraise and watch a strategy? Because obviously you didn't just wake up one day and decide to take a loan.

Brian Yurachek: 14:41

No, I think that when you're communicating kind of new ideas and in this case we're kind of inventing new things, right. So New York Field Communications and RFID and software has been around forever and RFID and software has been around forever, but we're kind of re-imagining it in a new way and we're piecing together these new social e-commerce programs as well as ways to better track and sort and their physical maintenance options. Doing that all into this new kind of holistic system. It can be difficult to convey to others what that is at first. Right, and if you had to pitch somebody the internet earlier, on which we've seen this, you know the biggest interviews of Bill Gates and Letterman and other things people said what is the internet? And the first thing Bill does is focus on something that David Letterman cares about golf, right. So he says, well, you golf, and grounds it in a particular subject. Because if he said, well, the internet's going to do everything, it's going to solve everything, it's going to sell everything, that would be too much. And so in a lot of ways I have tried to take larger ideas and bigger visionary ideas and try to distill them down better. But that can take longer with uh formal, uh money parties, like for a bunch of capital firms or people who want to do a lot of due diligence on something. If you were talking to me I'd share.

Brian Yurachek: 16:04

And no one knew what that was. No one even thought there was maybe a market. Listen, yellow Caps in New York City and other places. They have a battalion system. They've got it all figured out. It's already done.

Brian Yurachek: 16:16

And someone tried to say, oh, this app is going to illuminate a much. You know a hundred billion dollar market that you all don't know about. And a lot of people said no, and rightfully so, because it was a scary new thing. But in many ways, if you have the patience to kind of see something unfold, it can become that unicorn or that great thing. We think we have one of those things and it takes longer to communicate those types of ideas. So in this particular moment, instead of I haven't obviously stopped the fundraising effort in that capacity as far as taking equity, but in this case we need money quicker and that can be less emotional, because that person isn't necessarily investing for the long term or attaching themselves to, you know, the long-term success of your business. They just kind of share that the financial metrics of that loan work out right, that you pay this thing back and that you're paying your interest right, so it's much less emotional and so in this sense it fit really well as a timing.

Peter Jeun Ho Tsang: 17:23

And, as you said there, it is a lot less emotional, but in some ways it's also a lot cheaper as well. Every startup fund I have in me they always want to raise investors for somebody to come into their cap table and they don't consider the debt instruments possible out there and they forget. Okay, it might seem cheap right now, at this moment in time, when you're small, but eventually that equity that an investor is taking in the longer run is potentially going to be worth millions and hence it's going to be a lot more expensive as you get more successful. In terms of the market, you mentioned that, of course, fundraising is also very dependent on the market conditions right now. So how are you finding the market for your type of solution?

Brian Yurachek: 18:14

You know it's actually easing up a lot. So for a while there was kind of a stigma around blockchain, NFTs, emerging technologies, metaverse, all these things right. Some of what we're doing does involve some of those things and some of what we're doing has nothing to do with that. In many ways, what we're doing is using traditional technologies in a more creative way. So if something involves blockchain or augmented reality or mixed reality or something like that, it's because we monitor if that makes sense. So the investment markets around this, they've been developing a lot.

Brian Yurachek: 18:48

As far as people's understanding of where we're going socially moving forward is adapting. I've seen a lot more of an appetite for these types of solutions, not only in kind of the real world asset space, right, so that's what everybody's really calling. A lot of this now are pairing kind of digital assets or digital solutions with physical products. So the appetite is increasing for understanding that derivatives can kind of be built upon physical products. So as far as track and trace and authenticate and account for physical product, especially within the fashion and textiles industries. So there's actually been a lot of interest around this. And again, when speaking to a venture capital firm or a professional money firm, a lot of the times, they're trying to check a lot of those boxes. And there's just some of these things with emerging technology or the way that we're pairing these things together, that they're not going to meet your traditional metrics, they're going to be a little outside of the scope, but again, that's what presents such an extraordinary opportunity.

Brian Yurachek: 20:12

And I say this sometimes having been on the investment side of the coin, right, where I evaluated investments for people for over 10 years.

Brian Yurachek: 20:22

I say to people sometimes don't always be looking for problems to solve, Be looking for opportunity and illuminating opportunity where it never existed, right? And that's kind of the Uber example, right, that's something that just kind of comes out of nowhere and you create something for nothing, right? A car was depreciating in a driveway and someone made a hundred billion dollar business out of employing that person, deploying that car in a better capacity, and all it was was a little mobile application sitting in the middle. So it's very easy to create a solution that is sitting right in front of us by just being a little more creative about how to put it together. But yeah, I'm very encouraged by where the investment landscape is moving, but there's still those same practices of wanting to kind of check all the boxes and wish you were strict. Larger venture capital firms, although they say they want that unicorn, unfortunately the recognition sometimes passes over those unicorns, and we know because Uber and those people who created those companies come back and tell us those stories about how they got 100 no's before.

Peter Jeun Ho Tsang: 21:28

someone said yes, so you feel hopeful then I'm hopeful, yes, if we can.

Brian Yurachek: 21:33

Our seeking of debt right now, in this particular moment, was entirely a timing issue and, like you said, the amount of money that we needed in that amount of time made it such that it was cheap and easy to seek it out that way, right?

Brian Yurachek: 21:46

So if we're seeking $1.2 million which we are right, that is better for somebody who may have a longer charge to make that type of investment, where taking a loan of $1.2 million out on the company and then, depending on when that interest kicks in and there's all sorts of considerations on how you manage that cash flow For larger dollar amounts before the business is kind of really really going, can be problematic with the debt instrument because, again, depending on when that accrued interest starts to come due, if you can't defer that, then it becomes cash flow issues. So, still very hopeful, and in multiple conversations right now with parties who are very much interested In fact, one of those parties in Europe is involved with international tariffs and laws around that and so, as you can imagine, the ability to trace, authenticate product and understand how that's moving into different international jurisdictions is very valuable information.

Peter Jeun Ho Tsang: 22:55

And, as we've kind of established already, you're very confident with numbers and understanding finance. But for many fashion tech founders and just founders in general, and especially fashion people, they really struggle with the number side of things Like how does one get finance savvy? How did you get finance savvy? Is it about practicing spreadsheets or reading books or just doing countless calculations to get good at it?

Brian Yurachek: 23:21

well, I guess I'm a little old school in the sense that, um, you know practice. Yes, I've done it a lot and I was genuinely interested from a very young age in investing in capital markets. So I was kind of that weird kid who was 12 years old and was looking, you know what GE and Google were doing, but that was somewhat from my father and some interest that he had in the markets. But I would say for today, fast forward to today. There's so many tools at your disposal, so many different softwares that can make this easy. And I'm not saying don't learn the fundamentals right and don't do some of the rudiments or don't do some of these things yourself.

Brian Yurachek: 23:59

I think that the best thing when you want to learn something new is to start at those basics. And start at the fundamentals and start with educating yourself in what has come before and what. Where did this thing start? Right, if, if somebody, it who invented it? How did this journey occur?

Brian Yurachek: 24:18

Going back to the beginning is really great, but then utilizing fresh tools that we have today to cut down on time massively with some things like manipulating spreadsheets or doing balance sheets and income statements and things like that, there's software now that will make that so much easier for a business owner who otherwise should probably focus on other things or core competencies that they have, or get the money to hire that person, which may be why they're fundraising. You got to hire into that position to get somebody who's genuinely interested. I just happen to wear the CFO and the CEO hat in this company. Like you said, it's because I have that interest and I have that ability. But if not, I'd be hiring for that position or utilizing a piece of software in many cases right now for crunching numbers like that.

Peter Jeun Ho Tsang: 25:04

Yeah, absolutely Good tip from my side. I use a platform called Anna which actually connects to your bank accounts and actually connects to the HMRC as well so that is the UK's government for processing tax and finances and so forth. As you said, it's all automated. Of course, you have to pay a small fee, but it's now a lot easier to get a grasp of what's happening in your bank account Hands up. When I first started out in business, I was literally terrified of numbers as well and, as you say, it's something that you do have to practice. It's something that you have to do over and over again to be really comfortable, actually. So let's kind of bring it back around to NYCC. Then, Obviously, financing and product roadmap and product building go hand in hand. It's a very you know, very subtle dance between the two. How is it? How has it affected the growth of NYCC?

Brian Yurachek: 26:00

Over the last six months. It's been difficult because we have a lot of interest and we can't necessarily meet that interest the way we would like to. Right now I'm doing the best I can, but with limited resources and a smaller team at this moment it's very difficult to get on every single key area of the business Like I said I run the finances, I do the legal.

Brian Yurachek: 26:22

That's an area where marketing is somewhere that that's a full-time job in and of itself. We know that right Content creation, putting out things, new business through different means of marketing and advertising where we've really needed to put some resources. So that's an area where we've been hurt a little. However, we've been blessed with overwhelming interest in the technology and what we're working on in different ways that we can utilize IoT solutions to help people better understand their physical products and collect goals in the art.

Peter Jeun Ho Tsang: 26:57

I say to the rest of BeyondForm team that Brian is a real New york hustler. To be honest, whenever you come into a call with us, you have to like a new client and you've all of a sudden got over this month's financial issues and you're really forging ahead, and I think it's off to you.

Brian Yurachek: 27:18

If all of the startup founders that we worked with had that New York essence, I think it would be a lot easier to work with them honestly, what it is is just passion for this, you know, and and it's funny because we watch interviews of Steve Jobs and all these other people who come back and they try to tell us these stories, um, and and I used to look at those interviews or you know, those clips and things with admiration and say, wow, steve Jobs was a great guy. Now I understand those things. I don't just watch them, I understand what they're saying. And what they're saying is you almost have to be obsessive. There are always bad things that are going to happen, right, happen right.

Brian Yurachek: 27:57

Probably the most influential person, when I kicked off this journey, told me there's going to be a lot of scary people who come out of the woods on your hero's journey and you need to keep resolute on your path and don't let those things scare you off your path.

Brian Yurachek: 28:19

And so I've always kind of gone back to that and had the courage to maintain passion and vision for what I know is so important, and it's not even just the technology, it's about educating and empowering others. And so many people who I've bumped into over the past couple of years, whether they bought a product from us or not, many of them did, but many of those people left that conversation or that moment with either myself or someone from our team genuinely excited about this or wanting to implement something for themselves, even if they didn't have a budget or the scale to do it, they got educated and they got interested. So that's what I'm really passionate about is educating others, and if I can do that on a larger scale and make a great business out of it, and if we can package culture in ways that allow us to really make meaningful change through fashion and art large, that's something that I will fight for constantly it's one of those entrepreneurial traits that keeps you moving forward.

Peter Jeun Ho Tsang: 29:16

So then, just finishing up this conversation, back about the scam again, now that you've been through this ordeal and you kind of alluded to it earlier. There were some red flags along the way. The listeners out there, how can they be vigilant against these scams?

Brian Yurachek: 29:37

Get somebody on the phone, ask questions early on, ask a lot of questions, ask guidance of people around you. I probably should have asked yourself or Michael more about these things. Cross-check different emails, search things if you're gonna engage in such a large financial transaction. Cross-check things on the internet. Look at ratings. Make sure the website's legitimate. There's software to even check whether something's legitimate. Check people's licenses. Unfortunately, in many of these cases I did some of these things and that still was a problem which made this really high fidelity. But there are things you know and if you cross-check a lot of those things, you should be able to keep yourself fairly safe. But if you're ever sending somebody money or money does need to be held in escrow or for some reason there's a clout involved, I would have that person on the phone, check with that person's bank and make sure all that's on the up.

Peter Jeun Ho Tsang: 30:49

It's a big lesson learned. So I just want to finish off this conversation with a quick fire round of questions. The first answer that comes to your head Are you ready? Yep, finance first or getting the product developed first? Product developed first. One word to describe scammers Sad, sad, sad Fundraising. Go with the flow or attack head on Attack. Thank you so much for your time today, brian.

Brian Yurachek: 31:12

Thank you, Peter.