GreenSky, which facilitates loans for home improvement projects via a smartphone app and has quietly become one of the largest financial technology companies in the country, made its public debut on Thursday.
The Atlanta-based company saw shares fall to $22.50 in the first few minutes of trading, which was below the $23 set on Wednesday evening. GreenSky had originally priced shares between $21 and $23 apiece. It also ultimately sold 38 million shares, above its original expectations to sell 34 million shares.
GreenSky raised $874 million in going public and plans to use the proceeds to allow its management team and investors take some chips off the table. “We’ve been building this company for the last 12 years and investors and the original founding team has sold a relatively small portion of ownership,” says cofounder and CEO David Zalik in a phone interview. He personally held onto a majority of the company, giving him a net worth of $2.5 billion, through Thursday.
The company has quickly and quietly become one of the largest (and most profitable) financial technology upstarts in the nation. It was founded by serial entrepreneur and math whiz Zalik in 2006 and offers loans of up to $65,000 on home improvement projects like a new roof or a pool. It’s a classic digital-era middleman, relying on contractors to pitch the loans and banks to fund them, and since its inception has sat in the middle of $12 billion in loans to 1.7 million consumers.
Before going public, it raised $560 million in financing from an all-star investor roster including the likes of PIMCO, TPG and ICONIQ Capital. After its last infusion of funding in December, it fetched a valuation of $4.5 billion. Investors have been attracted to the company’s track record of profitability, which has lasted for the previous six years and counting. In 2017, it recorded a profit of $139 million on $326 million in revenue, according to a regulatory filing. That’s up from a profit of $124 million and revenue of $264 million in 2016.
In 2016, it began a foray into the healthcare space, partnering with doctors and dentists to offer GreenSky financing on elective procedures like LASIK and teeth straightening to patients. It has also experimented with financing furniture and other big-ticket online purchases, but that venture hasn’t taken off and faces intense competition from players like Affirm, Klarna and PayPal Credit.
Because of its place in the online lending space, it will invite comparison to marketplace lenders like LendingClub and OnDeck, which have struggled mightily as public companies. However, GreenSky has always been a different breed. It transfers much of the risk inherent to lending to its deposit-rich bank partners, like SunTrust, Regions and Fifth Third, who fund the loans and hold them on their balance sheets. GreenSky itself isn’t on the hook for defaults. (Its pay from the banks, however, does vary based on loan performance.) Not only that, but it profits from the relationship: Banks pay GreenSky an estimated 1% of the balance each year to generate and service the loans.
GreenSky also has 12,000 active contractors doing much of the heavy lifting. They pitch home improvement loans of up to $65,000 to homeowners—and then pay GreenSky, on average, 6% of the loan amount for the opportunity.
GreenSky has capitalized on the billions of dollars that Americans spend on home improvement every year—to the tune of $315 billion in 2017, according to the Joint Center for Housing Studies of Harvard University. However, in its regulatory filings, it warns investors that its success depends on the health of the economy and going interest rates. It is acknowledged that it is dependent on the continuing participation of its banking partners and contractors. Nearly 90% of its funding comes from just four banks: SunTrust, Regions, Fifth Third and Synovus.
Zalik came to the U.S. from Israel with his parents when he was four, then went on to start his first business at the age of 14, buying computer parts from distributors and assembling them himself. He never attended high school (opting to enroll at Auburn University straight out of eighth grade) and then dropped out of college so he could devote his time to his growing computer business.
“I never thought I would be a public company CEO,” said Zalik. The 44-year-old has spent the last decade with his head down, largely shying away from interviews, press releases and conference invitations, as he built his business. Will that change? He says he is looking forward to participating in earnings calls, but sounds less committal about whether he’ll be taking the stage at conferences anytime soon.
Zalik, who has taken cash out of the business before, will now take the opportunity to sell over 18 million shares, according to filings. These shares were valued at $414 million at the high end of the pricing. He says will remain CEO and possess nearly 50% of the voting power through his ownership of Class B shares, which have ten votes to every one vote for Class A shares. Regular investors will have just 2.8% of the voting power.
GreenSky listed its stock on Nasdaq under the ticker symbol GSKY. The lead underwriters on the offering were Goldman Sachs, J.P. Morgan and Morgan Stanley.
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