GiftCardRescue.com, a former "Shark Tank"-winning business in Columbia that buys and sells unwanted gift cards, has shut down after eight years, leaving customers in limbo over payments totaling thousands of dollars.
Founder and CEO Kwame Kuadey, who started the company as a Johns Hopkins University business school project, blamed the abrupt end of the business on rapid growth without adequate financing to keep it going.
Kuadey said the business had $12 million in sales last year and was on track to reach $24 million this year but was forced to close July 15 after a lender won a loan default judgment, freezing the firm's bank account.
"We needed financing to afford that type of rapid growth," Kuadey said Friday. "I really did not think I was going to find myself in this position. I sincerely regret the impact this has had on our customers. They've been very loyal to us. It breaks my heart that things have come to this point."
The Better Business Bureau serving Greater Maryland announced the shutdown Friday. On the GiftCardRescue website, where cards are bought and sold at a discount, Kuadey posted a message telling customers that cards bought before July 15 have been sent to buyers, while sellers' cards that were received within the last two weeks and had yet to be processed are being returned to senders.
In recent and pending complaints to the business bureau, consumers say they were promised anywhere from $35 to nearly $200 for their gift cards.
The business bureau has gotten about 300 complaints about the website over the past three years, but most — about 250 — came in over the last year, typically from card sellers who did not receive payments, said Angie Barnett, president and CEO of the business bureau. Since the last day of June, another 31 complaints came in with a dollar value of $13,500, Barnett said.
"Early in the business, they were able to fully pay on the cards," Barnett said. "They were able to deliver what they promised. ... It's just in the last year we have seen that they have not been responding to consumers."
Kuadey said he worked with the Better Business Bureau to resolve complaints and that most sellers were paid eventually. He estimated about 100 sellers remain unpaid.
Barnett said a certain number of complaints are to be expected for a large, national business.
"What's alarming to the BBB is the number of complaints in the past 12 months," she said. "In our opinion, that spike of that volume of complaints, that's a signal that the business may be experiencing some challenges that may be adversely impacting consumers."
Since the business has closed, Barnett is now referring consumers with complaints to the Maryland attorney general's office. That office has received and worked to mediate 44 complaints about the website in the last year, also a spike compared with the previous two years, said Karen Straughn, an assistant attorney general and director of the mediation unit.
Kuadey said he has been trying to raise money for the past year, working with an investment bank to find a buyer and more recently talking with competitors to try to reach a deal. Meanwhile, he tried unsuccessfully to renegotiate loan terms with lenders to be able to afford the debt while looking for additional financing.
Such challenges are common for small but growing businesses, said Karyl Leggio, a finance professor at Loyola University Maryland.
"A lot of companies judge their success by how much sales or revenues grow, and that's one metric, but when you are growing very rapidly, you've got a number of issues," she said, such as difficulty controlling costs and burning through capital and added competition. Also, "access to capital for a small business is a big issue."
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It's possible that with the problem of internet fraud, "the viability of buying and selling gift cards may not be as viable as it was a few years ago," she added.
Still, she said, the gift card site lasted longer than many startups.
Kuadey said his business idea got the boost it needed from the "Shark Tank" reality show in August 2009. He pitched the idea during the show's first season, when investors contributed $200,000 for a stake in the business.
"Shark Tank was pretty much when we got on the map," Kuadey said. "People didn't know they could sell their gift cards for cash. It gave us access to a national audience."
Now, Kuadey said, the shuttered business — and the outcome for unpaid sellers — is in the hands of the company's senior lender.
"If there was a pot of money to distribute, we would," he said. "I'm in a waiting mode. Lenders own the business and get to decide what will happen."