British Fintech Zilch Secures $125 Million Debt Financing From Deutsche Bank, Setting Stage for IPO
In a strategic move that signals its ambitious growth plans, British fintech firm Zilch has secured $125 million in debt financing from German banking giant Deutsche Bank. This injection of capital will enable Zilch to triple its sales over the next two years and pave the way for an initial public offering (IPO) within the next 12 to 24 months. Zilch, a leading player in the buy now, pay later (BNPL) space, offers shoppers the convenience of purchasing items and paying them off in monthly, interest-free installments. The newly secured financing, structured as a securitization, allows Zilch to leverage its impressive growth trajectory and solidify its position amidst a shifting landscape for BNPL services.
Key Takeaways:
- Strategic Debt Financing: Zilch has successfully raised $125 million in debt from Deutsche Bank, a move that will fuel its expansion plans and accelerate growth.
- Accelerated Growth: The financing will enable Zilch to triple its sales within the next two years, positioning the firm for a strong IPO in the near future.
- IPO Timeline: Zilch is currently aiming for an IPO within the next 12 to 24 months, with its new funding providing the necessary capital and momentum.
- Flexible Terms: The deal offers Zilch more flexible terms compared to its previous credit arrangement with Goldman Sachs, reflecting the company’s maturity and increasing capital needs.
- BNPL Market Dynamics: This deal highlights the continued expansion of BNPL services, even as larger players like Apple and Goldman Sachs are retreating from the market.
From Goldman Sachs to Deutsche Bank: A Shift in Strategy
Zilch initially secured credit from Goldman Sachs’ private credit arm, a partnership that proved fruitful for the young and rapidly growing startup. However, as Zilch matured and its capital needs escalated, the company sought a more flexible credit arrangement. Phil Belamant, Zilch’s CEO and co-founder, explained that the terms of the agreement with Goldman Sachs were initially beneficial but ultimately became too restrictive. The securitization deal with Deutsche Bank provides Zilch with greater flexibility and the ability to draw down up to $315 million in credit, opening up new opportunities for expansion.
Belamant highlighted the significance of this move for Zilch: "For us, we think it’s a major milestone in the company’s growing stage… We’ve gone through the line we have with Goldman, it’s been a brilliant relationship and partnership. But now we’re stepping it up to securitization… so we [can] continue scaling."
Navigating an Evolving Landscape
Zilch’s success comes amidst a notable shift in the BNPL industry. While the sector once enjoyed widespread momentum, recent developments have seen larger players retreat. Apple, for instance, announced it would shut down its BNPL program, Pay Later, and integrate third-party services from firms like Affirm instead. Goldman Sachs also recently offloaded Greensky, a BNPL firm it acquired in 2021.
This trend underscores the evolving nature of the BNPL market, with established players prioritizing different strategies. The recent sale of Greensky can be attributed to factors like regulatory scrutiny and changing consumer behavior, prompting Goldman Sachs to focus on core areas of operations.
Fueling Growth, Driving GMV, and Targeting IPO
Zilch’s strategic deal with Deutsche Bank comes at a pivotal moment in its growth journey. The company expects to generate $3.75 billion in gross sales by 2026, leveraging the $125 million funding to achieve this ambitious target. This growth is driven by Zilch’s efficient model, where every $1 of debt raised generates $30 of gross merchandise value (GMV). The company projects nearly $10 billion in GMV by 2026 upon reaching the maximum funding threshold of $315 million.
Since its inception in 2018, Zilch has already achieved notable success, generating over £2.5 billion in GMV and recording revenues of £30 million ($38 million) in the 12 months ending March 2023. While the firm acknowledges losses totaling £71.7 million, these are marginally down from the 2022 loss of £78.3 million, demonstrating progress in financial management.
Looking Ahead: Navigating Uncertainty and Seizing Opportunities
The future holds significant potential for Zilch, with the company poised to capitalize on the growing demand for flexible payment solutions. However, Belamant acknowledges the presence of market uncertainty, including the upcoming UK election and broader economic conditions.
Despite these uncertainties, Zilch’s commitment to innovation and strategic partnerships provides a solid foundation for future success. The company’s strategic decision to shift from a partnership with Goldman Sachs to a securitization deal with Deutsche Bank showcases its ability to adapt and secure optimal financing terms as it scales. As Zilch continues to expand its reach and refine its operations, its ability to navigate the evolving landscape of the BNPL market will be a key factor in its journey to IPO.
