ZestMoney founders resign weeks after PhonePe calls off to acquisition

ZestMoney’s founders have resigned, several weeks after fintech giant PhonePe decided to halt a proposed buy-now, pay-later (BNPL) platform.

Lizzie Chapman, Priya Sharma and Ashish Anantharaman, co-founders of ZestMoney, informed employees of their decision on Monday. This has put around 100 employees of the Bengaluru-based company in an uncertain future. The sources said the company is finding it difficult to raise new capital amid a funding winter.

“Over the past few weeks, we’ve done a lot of thinking and it’s been difficult for us to come to that conclusion. We have decided to step down from our roles as CEO (Lizzie), and CFO,” ZestMoney CEO Lizzie Chapman said in a letter to employees on Monday evening. COO (Priya) and CTO (Ashish) at ZestMoney.

In March this year, PhonePe canceled a deal to acquire ZestMoney. In April, ZestMoney laid off 100 employees, or about 20 percent of its workforce. The deal with PhonePe, which was set to fetch between $150 million and $300 million, collapsed due to lapses in due diligence, disagreement over valuation, business sustainability, and ZestMoney’s stake structure, according to the people named above. Other sources said the deal’s collapse was also attributed to a slowdown in the fintech sector amid a funding winter, a tough regulatory environment, and macroeconomic uncertainty.

The acquisition was expected to help Walmart-backed PhonePe boost its lending services and compete with Google Pay, Paytm and Amazon Pay in India’s fintech sector, which is expected to be worth $350 billion by 2026. The loan to ZestMoney when She 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 went through. The company is now left with about 100 people.

“Priya, Ashish and I started ZestMoney nearly 8 years ago with a dream of making life more affordable for millions of Indians. We are proud of how far we’ve come on that journey and the progress we’ve made in truly democratizing the availability of credit in the country with our groundbreaking technology,” Chapman said in the letter. “We’re also very proud of the amazing team and unique culture we’ve built at ZestMoney – which has only been emphasized to us in recent weeks as we’ve seen how everyone has come together to support each other through one of the toughest times a startup can go through.”

When asked to comment on the perception that the collapse of the acquisition left ZestMoney in distress, PhonePe founder and CEO Sameer Nigam recently said in an interview that it would be “unfair to say that.”

“We made five acquisitions last year. We successfully completed the fourth. The fifth, unfortunately, didn’t go through for a reason I can’t disclose. I think it would be unfair to say we’ve given up on anyone. Clearly, four out of five acquisitions are 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 immediately. The increasing penetration of smartphones, the cheapest data plans in the world, and the boom in online shopping have fueled the demand for pay-as-you-go offers in the country.

ZestMoney has a registered user base of 17 million and is live at 85,000 retail touch points across India.

There was a media report that said ZestMoney’s technical assets and bad loans were being transferred to PhonePe. However, on Monday night, Sameer Nigam of PhonePe clarified that PhonePe has not taken any of ZestMoney’s technology, intellectual property, customer, business or non-operating assets. He also said that PhonePe has not taken on ZestMoney (Non-Banking Financial Corporation) NBFC and is not hiring more employees from the company. Nigam said in a tweet: “We purchased a copy of their technical IP and separately hired about 130 ZestMoney employees.

The company was valued at $470 million in its latest funding round. ZestMoney raised $50 million in September 2021, which the company had topped with a $20 million increase as part of its Series C round. The company has raised a total of $140 million from investors such as Australian BNPL platform Zip, Goldman Sachs, Quona Capital, and Xiaomi.

ZestMoney’s loss in 2021-22 (FY22) rose 216% 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 by 62% to Rs.145 crore in FY22, from Rs.89.3 crore in 2020-21.

“We have great faith and great faith in the potential that ZestMoney has. We will also ensure that the incoming management team is fully supported and will do everything we can to support them for the next four months to ensure a smooth transition,” Chapman said in the letter. “Priya, Ashish and I will continue to be important shareholders of the company and hence we will continue to be your biggest cheerleaders and supporters in every way.”