Beleaguered buy now pay later provider ZestMoney has raised $5-7 million in funding from investors, including existing backer Quona Capital. The funding comes in the wake of payments major PayU writing off its investment in the company. Last fiscal, PayU’s close to 15% stake in ZestMoney was valued at $38 million.
“The equity infusion will help keep the company on track while it attempts to turn around after the failed acquisition bid by PhonePe,” a senior executive of a fintech company told ET, requesting not to be named.
Zip, Omidyar Network India, Flourish VC, and Scarlet Digital are the other entities which are understood to have participated in the latest funding round. ET had written on May 17 that ZestMoney’s existing investors were trying to come together and pump in funds.
“ZestMoney has continued to scale effectively since the DLGs were announced in India, and we have been impressed with the company’s progress,” Ganesh Rengaswamy, managing partner at Quona Capital, had said on May 17. “ZestMoney’s credit quality remains high and the company is close to breakeven. We are happy to support this next chapter for ZestMoney…”
One of the persons cited earlier said the current management has offered 15-20% increase in salary to some of its key employees to keep them motivated and help drive the turnaround.
ZestMoney is currently being led by Mohit Chhajer, Mandar Satpute and Abhishek Sharma. They were given charge of ZestMoney by its cofounders–Lizzie Chapman, Priya Sharma and Ashish Ananthraman—who had quit in the middle of May.
Looking for a turnaround
The investors who led the last few funding rounds at ZestMoney are hopeful that offering the right products to the same customers will not only keep the business alive but will also help fashion a turnaround.
ZestMoney had a large business and a large base of customers. Last year, the company had said that it has around 15 million customers.
“Zest is a pretty big brand when it comes to buy now, pay later in India, so the idea is to keep the existing business going, and this round will be fresh oxygen for the company, showing that a clutch of its existing investors still have confidence in the company,” said a source.
The company is in a cost-cutting mode and is reducing expenses under promotions and marketing. Its employee costs have been reigned in as some 130 of its employees had earlier left for PhonePe while Zest laid off around 100 workers.
In FY22, ZestMoney reported a revenue of about Rs 146 crore and overall expenses of Rs 543 crore, leading to an overall loss of around Rs 386 crore.
Competitive market
In India, the fintech space is perhaps one of the most competitive sectors in the startups arena, and getting back on one’s feet after a strong fall can be tough.
ZestMoney faces two major challenges. One, it needs to restart work with its business partners to ensure that business continues as usual. And second, it needs to attract deep-pocket investors.
ET had written on May 17 that ZestMoney’s funding partners were shutting down their lending taps. It had to scale down its loan disbursals to somewhere around Rs 200 crore annual run rate after achieving a high of Rs 600 crore. Over the last few months, this has gone down to around Rs 50 crore, one of the persons cited earlier said.
One of the persons quoted earlier said the company needs to give confidence to its lending partners that its business fundamentals are solid and it will be able to manage their credit lines properly. As of now lenders have mostly stayed away.
“Also, the PayU markdown is a big dent to their brand value, while everyone understands that PayU has gone cold in India, still they will need to show good numbers very quickly to give confidence to the other investors on board,” the person said.
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