Funding winter strikes again: ZestMoney bows out to funding woes in fintech

ZestMoney, a once-prominent Buy Now Pay Later (BNPL) fintech startup, announced its closure amidst struggles to revive its business under new management and regulatory uncertainty. This revelation came during a town hall meeting held on December 5, where the management disclosed the winding down process, leading to the unfortunate laying off of the remaining 130 employees.

The changing leadership landscape

Back in May, ZestMoney witnessed a significant shift in its leadership structure. Following the departure of three co-founders, the Goldman Sachs-backed fintech startup appointed a new leadership team to steer the ship. Abhishek Sharma, Mandar Satupte, and Mohit Chhajer assumed key roles, hoping to navigate ZestMoney through the challenging waters it was facing.

The acquisition hurdles

The departure of ZestMoney's founders, Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, coincided with the decision by fintech giant PhonePe to halt its proposed acquisition of the company. This unexpected turn of events left ZestMoney employees in a state of uncertainty, compounded by the firm's struggle to raise fresh capital amid a funding winter.

Deal fallout and financial struggles

The collapse of the deal between PhonePe and ZestMoney in March dealt a severe blow to the company. In April, ZestMoney had to make the tough decision to lay off 100 employees, constituting approximately 20 percent of its workforce. The deal's failure was attributed to various factors, including lapses in due diligence, disagreements over valuation, concerns about business sustainability, and challenges related to ZestMoney's shareholding structure.

PhonePe, during the evaluation phase of the acquisition, extended a $18 million loan to ZestMoney. However, when the deal fell through, ZestMoney found itself in a precarious position, with over 100 employees left without a clear path forward. The fintech firm, supported by heavyweights like Goldman Sachs and Xiaomi, had initially boasted a workforce of about 450 employees.

ZestMoney's rise and peak

Founded in 2015 by Chapman, Sharma, and Anantharaman, ZestMoney gained prominence by offering customers the flexibility to pay for products over time while enjoying them immediately. The rise of smartphone usage, coupled with affordable data plans and a surge in online shopping, fueled the demand for such pay-later services in India. At its zenith, ZestMoney boasted a registered user base of 17 million and was accessible at 85,000 retail touchpoints across the country.

Valuation and funding rounds

During its peak, ZestMoney achieved a valuation of $470 million in its last funding round. In September 2021, the company successfully raised $50 million, followed by an additional $20 million as part of its Series C round. Notable investors such as Australia's BNPL platform Zip, Goldman Sachs, Quona Capital, and Xiaomi contributed to ZestMoney's total funding of $140 million.

Financial performance in FY22

Despite its earlier successes, ZestMoney faced a significant setback in the fiscal year 2021-22. The company reported a staggering 216 percent increase in losses, reaching Rs 398 crore, up from Rs 125.8 crore in the previous financial year. However, amid these challenges, ZestMoney's revenue managed to grow by 62 percent, reaching Rs 145 crore in FY22, compared to Rs 89.3 crore in 2020-21.

The demise of ZestMoney highlights the volatile nature of the fintech sector, where even well-established players can face insurmountable challenges. The journey from a valuation peak of $470 million to closure underscores the importance of adaptability and resilience in the ever-evolving landscape of financial technology.

As ZestMoney bids farewell, its story serves as a cautionary tale and a reminder of the complexities inherent in navigating the competitive and unpredictable world of BNPL.