Walnut was founded by Roshan Patel and Yash Joshi to bring the buy now, pay later model to healthcare, arguably the home of some of the least transparent and taxing financial transactions. After being in the inaugural cohort of Plaid’s startup accelerator, the fintech meets health tech play launched last year with millions in venture capital behind it.
Since, the BNPL market — and its most well-known pioneer Affirm — has lost some of its sheen, with slashed public market prices and the feeling of a cooldown amongst investors. Patel agreed with this characterization, saying that the BNPL model is “one of the first things cut in a market downturn” because it encourages discretionary spending. Yet, he thinks Walnut is still safe.
“For healthcare, it’s non-cyclical, and people always need it and I think being able to help patients with something that they really need versus what they want is really helpful in a market downturn,” he said. Patel pushed back to say that he hasn’t seen any decrease in utilization among customers in need of different ways to finance healthcare checks. Walnut claims it has grown revenue 50% every month for the last six months, and now helps “thousands” of patients break up their bills and pay them into smaller chunks.
Investors have taken notice of the growth. The startup is back with fresh funding, this time in the form of a $110 million Series A round. The round is divided into two tranches: $10 million is equity financing and $100 million is debt financing. The equity round was led by Gradient Ventures. Existing investors participated in the round, including Newark Ventures, Afore Capital and 2048 Ventures, as well as new investors such as AngelList, Weekend Fund, Company Ventures, Banana Capital, Goodwater Capital and Muse Capital. Founders and executives from Ramp, Teachable, Clearbit, Afterpay, PillPack and Giphy are also investors.
Fundraising had a different temperature to it this time around says Patel, who closed Walnut’s seed a little over a year ago. The founder said that he got more questions about profitability and unit economics, “which really never came up before” but clearly weren’t an issue to answer. He didn’t disclose the valuation of today’s round but did say that they probably could have gotten around a 50% higher valuation if they raised in Q4. Ultimately, he says it was a “great valuation.”
The $100 million debt financing portion, led by ClearHaven Capital, will help Walnut address its biggest challenge, which is the balance of underwriting a lower-income population, paying healthcare providers upfront and collecting money from patients in the back end. Since the startup has launched, Patel says that the default rate — or percentage of patients who are not able to pay us back — has been “a lot better than expected” and comparable to more mature lenders. “The ability to price and assess risk is really important in a BNPL, and we consider our underwriting skill as one of our core technologies,” he added.
At its core, Walnut is a point-of-sale lending company that helps patients pay for healthcare over a period of time. Walnut works with healthcare providers so that a patient’s bill can be paid back through $100-a-month increments for 30 months, instead of one aggressive credit card swipe
Many BNPL startups, Walnut included, do cash-flow underwriting, in which the company connects to users’ bank accounts to see daily income, spending patterns and savings to see if a loan will likely get repaid by the end of month. Because this method doesn’t look at credit scores, it is considered to be a more accessible way to decide if someone is able to handle a loan.
One year in, the startup has evolved from selling to small private practices to largely serving other venture-backed digital health startups. For these startups, Walnut can work as a platform layer (and perk) for customers. However, in order to truly be impactful, Walnut needs to make sure it’s meeting lower-income demographics where they’re at (and that may not always be a tech startup). Patel noted companies like Juno and Curai as companies they work with that are lowering the cost of care, and they’re specifically targeting a lower income demographic.
He noted that the most popular specialty amid Walnut users is behavioral health services, an expensive but aggressively important corner of healthcare. He thinks that this sector has a good amount of startups that are working on decreasing the cost of care for patients, so Walnut is able to have a higher impact compared to if it were to focus more on fertility, which is inherently expensive. The startup also doesn’t charge any interest or fees to consumers.
The startup is aiming to grow its service nationwide, and expand staff from 15 to 50 people, by the end of the year.
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https://techcrunch.com/2021/09/10/buy-now-pay-later-boom-bnpl/
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