ZestMoney’s founders have resigned, several weeks after fintech giant PhonePe decided to halt its proposed acquisition of the buy now, pay later (BNPL) platform.
Lizzie Chapman, Priya Sharma and Ashish Anantharaman, the founders of ZestMoney, informed employees about their decision on Monday. This has put about the 100 employees at the Bengaluru-based firm in an uncertain future. The firm has been finding it challenging to raise fresh capital amid a funding winter, according to the sources.
“Over the last few weeks, we have done a lot of thinking and it has been hard for us to arrive at this conclusion. We have decided to step down from our roles as CEO (Lizzie), CFO & COO (Priya), and CTO (Ashish) at ZestMoney,” said Lizzie Chapman, chief executive officer of ZestMoney in a letter to the employees on Monday evening.
In March this year, PhonePe called off deal to acquire ZestMoney. In April, ZestMoney laid off 100 employees, or about 20 per cent of its workforce. The deal with PhonePe, which was to fetch between $150 million and $300 million, collapsed over lapses in due diligence, disagreement over valuation, business sustainability, and ZestMoney’s shareholding structure, according to people cited above. The deal’s collapse is also being attributed to a slowdown in the financial technology (fintech) sector amid a funding winter, a difficult regulatory environment, and macroeconomic uncertainty, said other sources.
The acquisition was expected to help Walmart-backed PhonePe strengthen its lending services and compete with Google Pay, Paytm, and Amazon Pay in India’s fintech sector, which is to be projected to be worth $350 billion by 2026. PhonePe gave about $18 million as a loan to ZestMoney when it was evaluating the acquisition.
ZestMoney, which is backed by Goldman Sachs and Xiaomi, had about 450 employees, all of whom were expected to be absorbed by PhonePe if the acquisition proceeded. The company is now left with some 100 people.
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“Priya, Ashish, and I started ZestMoney almost 8 years ago with a dream of making life affordable for millions of Indians. We are proud of how far we have come on that journey and the advancement we made in truly democratizing credit availability in the country using our path-breaking technology,” said Chapman in the letter. “We are also immensely proud of the incredible team and the unique culture we have built at ZestMoney - which was only underlined to us in recent weeks as we saw how everyone came together in supporting each other during one of the hardest times a startup can go through.”
When asked to comment about the perception that the acquisition’s collapse had left ZestMoney in distress, PhonePe founder and CEO Sameer Nigam recently said in an interview that it would be “unfair to say that.”
“We pursued five acquisitions last year. We successfully completed the fourth. The fifth didn’t go through, unfortunately, due to a reason that I can’t reveal,” said Nigam. “I think it would be unfair to say that we abandoned anybody. Clearly, four out of five acquisitions is not bad.”
Founded by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman in 2015, ZestMoney allows customers to pay for products over time, but use them right away. Increasing smartphone penetration, the cheapest data plans in the world, and a boom in online shopping have propelled the demand for pay-later offerings in the country.
ZestMoney has a registered user base of 17 million and is live at 85,000 retail touchpoints across India.
There was a media report which said that ZestMoney's tech assets and bad loans are being transferred to PhonePe. However, on Monday night, PhonePe’s Sameer Nigam clarified that PhonePe has not taken any of ZestMoney’s tech assets, intellectual property, clients, and business or non-performing assets. He also said that PhonePe has not taken ZestMoney’s NBFC (non-banking financial companies) business and is not hiring any more employees from the company. “We bought a copy of their tech IP and separately hired about 130 ZestMoney employees, said Nigam in a tweet.
The company had a valuation of $470 million that it achieved in the last funding round. ZestMoney raised $50 million in September 2021, which the company had topped with an additional $20 million raise as part of its Series C round. The firm has raised a total of $140 million from investors such as Australia’s BNPL platform Zip, Goldman Sachs, Quona Capital, and Xiaomi.
ZestMoney’s loss in 2021-22 (FY22) surged 216 per cent to Rs 398 crore, from Rs 125.8 crore in the previous financial year, according to data accessed by business intelligence platform Tofler. Revenue grew 62 per cent to Rs 145 crore in FY22, from Rs 89.3 crore in 2020-21.
“We have immense belief and faith in the potential that ZestMoney has. We will also ensure to provide full support to the incoming management team and do everything we can to support them for the next 4 months to ensure a smooth transition, “ said Chapman in the letter. “Myself, Priya, and Ashish will continue to be significant shareholders in the company and therefore we will continue to be your biggest cheerleaders and supporters in every way.”