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Lender ZestCash Wins $73 Million in Funding

January 19, 2012
by Sarah McBride

Online lender ZestCash snagged $73 million in its second funding round as the firm tries to update the workings and image of subprime lending. The round comprises $23 million in equity and $50 million in debt financing to back its loans. New investor Matrix Partners led the equity portion, while Victory Park Capital provided the debt financing. Matrix’s Dana Stalder said his past experience as an executive at eBay’s PayPal, which helped drive acceptance of online payments without credit cards, helped him size up ZestCash. “There are a lot of parallels between what PayPal did in the payment space and what ZestCash is doing in the lending space,” Stalder said, particularly among subprime borrowers. “It’s a category that has been absent of innovation for decades.” ZestCash applies Google-like algorithms to find likely loan candidates among its pool of applicants. The company will use the cash to expand into new states, perhaps around 10 more in the next year, said co-founder and chief executive Douglas Merrill, formerly chief information officer at Google. Currently, ZestCash operates in Idaho, Missouri, South Dakota, and Utah.

It will hit its 10,000th loan sometime this quarter, Merrill said, a little more than a year after making its first loan in October 2010. The company seeks to provide loans to people who don’t quite make the cut for a traditional loan or credit card, but are still a decent credit risk.

Unlike payday loans, where large sums come due all at once, ZestCash loans are set up so the borrower repays principal along with interest each month, with the goal of making the loan easier to pay off, Merrill said. A typical ZestCash loan is in the $500-$600 range and extends about a few months, Merrill said. A $500 loan for five months would end up costing roughly $860 including fees—a lot, but cheaper than the $1,400 or so a customer would end up owing a payday lender if they rolled over a $500 loan for five months. The average borrower uses the cash to pay for health-care expenses or car repairs. Previous investors Lightspeed Venture Partners, GRP Partners, Flybridge Capital Partners and Lighthouse Capital Partners also participated in the funding round. (Reporting By Sarah McBride; Editing by Bernard Orr) Keywords: VENTURE/LOANS (sarah.mcbride@thomsonreuters.com)(415 677 2547) COPYRIGHT Copyright Thomson Reuters 2012. All rights reserved.

Lender ZestCash Wins $73 Million in Funding

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