Divining the real value of my favorite fintech sub-niche 

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Of course, we’re talking buy-now-pay-later (BNPL) companies today, a particular part of the larger fintech world that is more than interesting.
Thanks to recent mega-buys of players in the BNPL space from Square and PayPal, we’ve been getting closer to understanding just what the value of the companies in the space may really be — and for the myriad BNPL startups in the market, it’s big news.
But while I was on vacation (Michael’s fault, it turns out), Goldman Sachs decided to buy GreenSky, a public BNPL company. Which means that we can quickly run some numbers on the deal and add this latest arrow to our How To Value A BNPL Company quiver.
My friend and colleague — and former deskmate, back in the day — Ryan Lawler has an interview with Goldman that is worth reading. The transaction is worth $2.24 billion, per Goldman, driving the value of GreekSky dramatically higher in its aftermath, as investors digested the implied deal premium to the company’s previous share price.
What sort of volume was GreenSky’s home-improvement-focused BNPL doing? Here’s the company’s latest earnings report:

Transaction Volume: Second quarter transaction volume was $1.5 billion, an increase of 14% when compared to the second quarter of 2020. Approved credit lines for the quarter were the highest in Company history and are a positive leading indicator of momentum as home improvement supply chain and labor market shortages ease.
So a $6 billion run-rate at a price of $2.24 billion. That works out to about $0.37 in corporate value for each dollar in GMV that GreenSky handles. Which is the lowest number we’ve seen to date.
As a reminder, here’s what we’ve found more recently, with both of us keeping in mind that not every figure below is perfectly apples:apples; these are directional figures more than absolutes:

Affirm: $2.94 in value per dollar of serviced GMV

AfterPay: $1.84 per dollar of serviced GMV (at Square price)

Paidy: $1.80 per dollar of serviced GMV (at PayPal price)

Klarna: $0.57 per dollar of serviced GMV

GreenSky sits at the bottom of the list. Perhaps growth is the reason? A 14% GMV growth rate doesn’t give the company much leeway to grow, even if it manages a higher take rate. It’s hard to burnish a growth rate that starts with a one, especially if the leading line atop your investor relations page is “GREENSKY, INC. IS A GROWTH COMPANY.”
Akin to how we’ve seen diverging SaaS revenue multiples, striated along the axes of revenue growth and revenue quality, there’s likely something similar afoot here. Loss ratios, take rates, and GMV growth are vectors by which BNPL companies will be valued differently.

The value of software revenue may have finally stopped rising

BNPL startups can find their most accurate comp in growth and loan quality terms, and then work backwards to their present-day market worth. It’s good to have data.
I was going to spend the bulk of this newsletter discussing Mammoth Biosciences, and its plan to Jurassic Park the world, but TechCrunch beat me to it. I spoke to one of its investors — Thomas Tull — about the deal, but will hold onto those notes for a bit. I suspect we’ll need them in time.
One neat funding round to close us out
Disrupt is next week, and with an IPO cycle upon us I’ve fallen behind my usual funding round cadence. (And comms, sorry!) So, here’s a makeup entry for our shared enjoyment: Postal.
The company works in the marketing tech space, operating what its website claims is the “largest” business-to-business “gifting marketplace.” More simply, it helps companies send personalized physical goods to customers. Which it claims has a very high ROI.
In a somewhat ironic twist, I actually have to do some disclosures at this juncture. It turns out the company’s leading investors are Mayfield and OMERS. Those two firms led my former employer’s Series B and C rounds, respectively. But if I didn’t write about companies to which my Crunchbase connection didn’t cause some sort of awkward frisson, I’d have to cut out too large a swath of the market. I’ll just keep bringing up the matter when we have to.
Postal works in a somewhat similar space to Sendoso, though, to my understanding, the latter company deals a bit more with employee gifting over customer-focused efforts. In time they’ll compete directly if they both keep growing. Sendoso raised $100 million earlier this week, because of course it did.
Other players in the space include Reachdesk and Alyce (which raised $30 million earlier this year), among others. The business of building tech to deliver personalized physical goods is pretty big, it turns out. (You can make an NFT joke here, if you’d like.)
PitchBook pegs Sendoso’s new valuation at $640 million (post-money) and Alyce at $135 million (post-money). Present-day valuations for Reachdesk and Postal.io were not available.
Okay that is enough for now. Have a delightful weekend, and I’ll see you at Disrupt! You may see a lot of me on the Extra Crunch stage. — Alex

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