Raylo raises $136M to build out its gadget lease-and-use ‘fintech’ platform • TechCrunch

With the economy heading into recession, and sales of cellphones and other consumer electronics slowing down globally, a British startup called Raylo that leans into both of these themes has raised £110 million ($136 million) to grow its business, and offer consumers access to new gadgets in the form of short-term leases.

The London-based company currently operates in the UK and sells monthly subscriptions for phones, tablets and laptops, and it plans to use the funding both to expand its roster to a wider range of gadgets such as e-bikes, as well as to continue investing in the technology, which includes an AI-based platform to assess the risk of each sale, recommendation technology and a platform called “Raylo Pay” that is embedded by third-party merchants for Raylo to operate leasing services for them.

The circular aspect of the sales model, the company said, is also the basis for another development in the business: Raylo said it now has “B Corp” status – meaning that as a for-profit company, Raylo also operates with an aim to make “a significantly positive impact on society and the environment through their operations,” as determined by the B Corp organization.

Notably, this funding comes mostly in the form of debt, with some as equity, although CEO and co-founder Karl Gilbert won’t disclose the exact amount. NatWest and Quilam Capital are providing that debt, with unnamed previous backers providing equity. (Existing investors include Telefonica, Guy Johnson of Carphone Warehouse fame, Octopus Ventures, Macquarie Capital and others.)

This is a significant injection of funding for Raylo: until now it had raised only around £12m in equity, including $11.5m in 2021, and around £30m in debt. Raising debt is currently significantly easier than equity for many cash-generating startups: they use the funding as they can have a more traditional raise, but without giving up a stake in the company, nor face negative pressure on their valuations as a result of doing so.

“This round transforms our financial infrastructure so that we don’t need a lot of equity going forward,” Gilbert said, adding that the round “is designed for us to achieve profitability.”

Raylo has grown rapidly, with its subscriber base doubling in the past year, and Gilbert noted that it is on track to double again this year, with Raylo Pay growing 10x in the past six months to a “£3bn opportunity. “

The actual number of users and revenues are not shared, but it seems that the activity outside Raylo’s platform is the big prospect: Gilbert describes his company not as an e-commerce platform, but a “fintech” due to the roles of Raylo Tech and the other the technology game, and how all of this aligns the startup more closely with fledgling banks and other financial services startups that use personalization, AI and related tools to better target their services — which again are built not to acquire goods as such, but to help people to manage their money better.

However, when it comes to consumers, the core of Raylo’s business, and what it’s built on, is the idea that people want the latest gadgets – whether it’s phones and laptops, or VR headsets and e-bikes – but most do not have the disposable income to buy outright all the goods they want. And so it has created a platform to accommodate this, offering short-term ownership of these gadgets at a lower price.

The price per month goes down depending on the length of the lease, but currently the cheapest models rent at £7.31/month, tablets at £10.72 and laptops at £17.92. Gilbert tells us that while customers are given the opportunity to purchase the equipment, most do not.

The average loan is 19 months, from a stock pool that is typically 60% brand new and 40% certified refurbs, Gilbert said. Very few choose to purchase products upon termination of these leases.

“The proposal is designed for pure rental,” Gilbert added. Between 5-10% contact the company to keep the items for good, but “it’s rare that consumers want to own the product at the end.”

There are, and have been, a number of other actors in the circular economic landscape. Some like Grover (which also focuses on gadgets and “leasing”), BackMarket (refurbished gadgets) and Vinted (clothing) have scaled up over the years, with lots of funding, big valuations and lots of customers. Others like Lumoid have found it difficult to get the right kind of traction to stick around.

In that context, Raylo takes an interesting approach by focusing on its technology and services for third-party platforms.

“Leasing” phones isn’t a particularly new concept: this is actually what mobile operators offering handset subsidies did for years when they “sold” phones on two-year plans with the idea that a user would theoretically trade it in or return it at the end of it the contract.

This model has proven to be a challenging one for carriers, who in previous years had the double whammy of analysts slamming them for carrying large sums on their balance sheets as handset subsidies, and consumers moving away from these to SIM-only plans to have more flexibility (and churn ability) in the long run. Carriers may still want to offer these options, however, and that’s where a company like Raylo can step in to provide both the lease and the administration of that lease. (Notably, mobile behemoth Telefonica is one of the start-up’s main backers.)

Needless to say, that model has backfired disastrously for some. A startup called Fair, heavily bankrolled by SoftBank, once took on Uber’s car leasing business when Uber found it too much of an operational and financial burden for the business. The logic was that an independent company could do a much better job of managing and developing that business. Alas, it was not to be, and Fair wasn’t doing very well either.

Gadgets move a lot, figuratively speaking, faster – not to mention cheaper – than cars, and so a business that offers outsourced financing for gadget leasing, as Raylo does, may prove to have a better chance of success, facing a market with sellers who may not want to handle that type of business themselves, but have that option for customers who need it.

“We may have started with our own channel, but we see ourselves as a platform that enables others to distribute their brands,” Gilbert said. “It’s like a new category of BNPL, offering important affordable channels, not to mention helping with sustainability commitments, for these brands. from OEMs.”

The focus on sustainability motivates Raylo’s supporters, it seems.

“We are delighted to have been able to support Raylo’s future growth ambitions with this new funding facility. The company’s commitment to changing the way consumer electronics are sold and enjoyed is extremely well aligned with NatWest’s ESG goals and passion for innovation and disruptive technologies.” Milena Sheahan, senior director at NatWest, said in a statement. “Raylo is a progressive, forward-looking business, with a solid platform to positively influence consumer behavior and attitudes towards the use of technology in the future. We are proud to have Rayo join us as a valued customer within NatWest’s specialist finance customer franchise.”