ZestMoney Founders To Leave Company After PhonePe Deal Fails

ZestMoney Founders To Leave Company After PhonePe Deal Fails

‘We have been thinking about this for the last few weeks, and it has been hard for us to reach our conclusion. Our roles of CEO (Lizzie), CFO, COO, and CTO (Priya) at ZestMoney are being ended,’ CEO Lizzie Chapman wrote in an email to employees on Monday evening. 

Among the company’s officers were Priya Sharma, who served as director of finance and operations and Ashish Anantharaman, who served as director of technology. Chapman said the three will remain shareholders and the company’s biggest cheerleaders.

About 130 Zest employees have moved to PhonePe in the past few months. The person, who requested anonymity, said more are expected to do the same. There were around 500 employees at this fintech last December, but there are now just a hundred left. 

Emailed queries sent to ZestMoney and PhonePe went unanswered. In 2019, ZestMoney acquired Nahar Credit, a non-banking financial company (NBFC) that provides instant digital loans to customers through its Buy Now, Pay Later platform. In November 2022, PhonePe and ZestMoney began discussions about a deal. 

A $200 million-$300 million deal was reported when it reported that PhonePe would buy ZestMoney. All fintechs want to acquire NBFCs, and PhonePe would have had access to Zest. However, ZestMoney’s loan book was deemed unsuitable, resulting in the cancellation of the acquisition. 

A person familiar with the developments told me that after months of due diligence, the valuation dropped to $40 million-$50 million, leading to the acquisition’s cancellation. Upon examining ZestMoney’s loan book, PhonePe found some serious problems.

Despite its revenue numbers, Zest suffered a credit loss ratio of 1.5x its revenue. Because of that, PhonePe was dragging its feet and willing to pay much less than was expected, even less than Zest had raised. Several NBFCs have been reported to be exposed to ZestMoney’s loan portfolio. 

With about $140 million raises from investors, including PayU, Zip, Ribbit Capital, Quona Capital, Xiaomi, and Omidyar Network, the fintech startup was founded in 2015. In its fiscal year that ended 31 March 2022, ZestMoney’s revenue rose by 63% to Rs 145 crore from Rs 89 crore in the prior year. While losses increased from 125.8 crores to 398.8 crores, they were more than doubled from the previous year’s.

ZestMoney Layoff

There are 17 million registered users of ZestMoney, and the service is available at 85,000 retailers in India. A media report claimed PhonePe is taking over ZestMoney’s bad loans and tech assets. PhonePe’s Sameer Nigam, however, clarified on Monday night that PhonePe does not own any tech assets, intellectual property, clients, or non-performing assets of ZestMoney. 

Further, PhonePe will not be hiring any more employees from ZestMoney because it has not taken over its NBFC (non-banking financial companies) business. Among the 130 ZestMoney employees we hired separately, we bought their tech IP, Nigam tweeted. At the time of the last funding round, the company was valued at $470 million. 

ZestMoney raised an additional $20 million in September 2021 as part of its Series C round. The startup has raised $140 million from investors such as Goldman Sachs, Quona Capital, and Australia’s BNPL platform Zip. 

ZestMoney’s loss from the financial year 2021-22 (FY22) increased by 216 per cent to Rs 398 crores from Rs 125.8 crores last year. From Rs 89.3 crore in 2020-21 to Rs 145 crore in FY22, revenues grew by 62 per cent.

As of March this year, PhonePe has halted its acquisition of ZestMoney. Around 20 per cent of the employees at ZestMoney were let go in April. People cited above say the deal with PhonePe collapsed because of lapses in due diligence, disagreements regarding valuation, business sustainability, and ZestMoney’s shareholding structure. 

Also contributing to the deal’s collapse is a slowdown in the financial technology sector, a challenging regulatory environment, and macroeconomic uncertainty. In India’s fintech sector, which is anticipated to be worth $350 billion by 2026, the Walmart-backed PhonePe acquisition was expected to help it compete with Google Pay, Paytm, and Amazon Pay.

The ZestMoney acquisition was evaluated by PhonePe, which loaned the company about $18 million. Assuming the acquisition proceeds, PhonePe will absorb the 450 employees of ZestMoney, which Goldman Sachs and Xiaomi back. There are now only about 100 employees left at the company.

ZestMoney, based in Bengaluru, laid off nearly 100 employees last month due to a 20 per cent reduction in its workforce. As of last year, the company had 75,000 physical stores and more than 10,000 online partners. With 17 million registered users and 85,000 retail touch-points in the country, it reported having an 85,000 retail customer base.

Proofread & Published By Naveenika Chauhan