LINK INVESTMENT MEMOS
Why Link Ventures invested in PayZen
Investment insights by Link Managing Director, Lisa Dolan
We invested in PayZen for two distinct reasons: the team and their approach to the market opportunity.
PayZen is a fintech company that works with healthcare systems to offer patients zero-interest, fee-free payment plans akin to the buy-now, pay-later options provided by companies like Affirm and Klarna.
The Team
The company was co-founded by CEO Itzik Cohen and COO/CFO Tobias Mezger who worked together at Prosper, alongside CTO Ariel Rosenthal, who worked with Itzik at Beyond Finance. Prior to PayZen, Itzik was the CEO of Beyond Finance and Chief Business Officer at Prosper Marketplace. Perhaps most impressive, his successful entrepreneurial journey is preceded by his successful professional basketball career, playing on the Maccabi Tel Aviv Basketball Club for a decade after graduating from Tel Aviv University.
The company was born from the founders’ prior experiences and a concept proven to Omry Ben David, a partner at Viola Ventures. During our first call, Ben David shared that his concept for the business was born out of personal experience: he was hit with a large bill when his (about to give birth) pregnant wife was treated by an out-of-network doctor who walked in at 4am. We can all relate to this — everyone has experienced being hit by an out of pocket large medical bill, or knows someone who has.
The Market Opportunity is Massive
The Company is solving the massive problem of unpaid out-of-pocket hospital expenses. Insurance patients only pay 15% of their out-of-pocket expenses (Source Crowe Benchmarking data).
Below are annual out-of-pocket hospital care expenses provided by the NHEA. Given the 2019 YoY growth rate, estimated 2020 expenses are projected at $38.77B.
Given that, according to Crowe’s benchmarking data, only 15.51% of self-pay patients pay their out of pocket hospital expenses (after insurance) and 6.06% of those are true self-pay (not insured) patients, the total market size can be estimated to be $290B in 2020.
Furthermore, the Market is growing due to higher premiums.
- “Individuals who rely on employer-based insurance benefits are paying an average of $1,242 in out-of-pocket costs, according to Kaiser Family Foundation’s annual employer benefits survey.” (2019 stat). It has increased to $2k in 2020.
- This is naturally driven by higher premiums: Employer-based insurance for families costs about $20,576 this year, about a 5% increase from last year. Yet families are still on the hook for an average of $6,015 in out-of-pocket expenses, which is about a 71% increase over the past 10 years. (2019 stat).
Sources: HEALTH SYSTEMS TRACKER COMMONWEALTH FUND
Competitive Dynamics / Defensibility
PayZen’s idea is not novel, of course, however there are others who are:
1. Focused further down in the revenue cycle stage — e.g. 4–5 months past due, and more of a collection agency.
2. Not using technology to improve the user experience and who do have PayZen’s optimized underwriting model, which uses alternative and medical data
3. Strictly b2b SaaS businesses and many RMS with similar offerings with no consumer-facing brand.
Growth (users/revenue) vs. Cash Burn
This company requires tech and data development investments early on, which should pay dividends for years to come. Long term, PayZen should have minimized integration and customer service expenses given its laser focus on a superior technical integration experience for providers and end-users.
However, near-term, we expect revenue to ramp slowly as is the nature of its enterprise sales cycles, and for PayZen to win a few massive partnerships a year at a time. That said, PayZen’s fantastic pipeline, driven by Itzik’s sales prowess, may challenge our expectations. E.g. PayZen already received fantastic results from its pilot program with Geisinger.
With margin comes risk…there is underwriting risk. Should they misprice their population’s risk, they are liable for those write offs. In the early days of the Company, such mispricing could be detrimental to their reputation for future lending and provider relationships. Their credit facility relationships are non-exclusive, short-term in duration and can terminate.
All in all, the business model is replicable and delivers win-win economics for the provider, Payzen and patient. And so, given the above, we jumped in headfirst to back the pioneering “care now, pay later” business. There’s no better team to back than Itzik’s. It’s a — no pun intended — slam dunk.
