There’s a contractor in your living room, pitching a $15,000 home-improvement job.
You want to do it, but you don’t have that kind of cash just lying around. Then he dangles cheap financing: He asks for your driver’s license, flips it over, and scans the bar code. Forty seconds later, you have a loan—not just preapproved, but actually approved. No interest and no payments for the first 12 months. You sign the contract.
This is the business model of GreenSky LLC, a $3.6 billion company that helps merchants close sales by matching customers with lenders at the point of sale. The Atlanta company recently came out of nowhere to rank third in the U.S. by valuation among financial technology companies that are privately held and backed by venture capitalists. That ranking is according to CB Insights, a database that puts only Stripe and SoFi, two much better-known companies, ahead of GreenSky on its list of “fintech unicorns.”
The unicorn is born
The majority owner of GreenSky, David Zalik, has appeared on the media radar just as suddenly. He moved from Israel to Alabama with his family at age 4, skipped high school, enrolled in Auburn University (where his father worked) at 14, and then dropped out to focus on a computer-assembly company he had founded. Despite his unique personal history and precocious business success, he’s managed to dodge almost all attention. It took me eight attempts—via phone calls, e-mails, social media, and communications with people who know him—to get a call back. When Zalik, 42, visited Bloomberg’s headquarters in New York on Aug. 31, he said “this is the first interview I have ever done.”
Avoiding attention is getting harder for Zalik. On Sept. 14, Fifth Third Bancorp of Cincinnati announced a partnership with GreenSky and simultaneously bought a $50 million stake that implies a value for Zalik’s company of $3.6 billion. The deal was enough to earn the startup a story in the Wall Street Journal. Contrast GreenSky’s rising fortunes with the struggles of LendingClub, which has been losing money and has seen its stock market value fall 78 percent since its 2014 peak.
Zalik “never really saw a need to put a press release out before now. He just didn’t see any value in PR,” said Steven McLaughlin, a former Goldman Sachs banker whose firm, Financial Technology Partners, advised GreenSky on the Fifth Third transaction and a previous investment. McLaughlin, while hardly impartial, proclaimed last month that GreenSky “is the single best fintech company created in the last 10 years, by far.”
How does this all work? GreenSky doesn’t make loans. Instead, it signs up merchants who sell big-ticket items such as furniture and home improvement projects, including window replacement, aluminum siding, or roofing. (It recently expanded to handle even elective medical procedures.) Then it matches the merchant with one of a group of banks willing to extend loans to qualified consumers.
GreenSky doesn’t work with overextended borrowers: Most of its customers take out loans for convenience rather than necessity, Zalik said. Their FICO scores average 760, ranging from the mid-600s to the mid-800s.
Michael Redman, owner of Home Value Renovation in Indianapolis, said financing via GreenSky has saved numerous sales for his company. “People say, ‘We need to think about it, Mike, figure out where to get the money.’ I’ll say, ‘Well, folks, we do have promotional financing.’” One standard offer is zero percent for 12 months, after which the rate jumps to 17.99 percent. Redman said the vast majority of customers who take that offer pay off their balance before hitting the higher rate. Those who aren’t sure of their ability to come up with the scratch within a year tend to opt for the 6.99 percent rate, he said.
An unconventional path
Zalik was only 12 years old when, after he achieved an exceptionally high standardized test score, Auburn University asked him to come take courses. He did so for two years, riding his bike to the campus after school, until he enrolled at Auburn full time. As he got busier with his computer assembly company, called MicroTech, “I started taking fewer and fewer classes,” Zalik said. He eventually dropped out.
Zalik said he sold MicroTech in 1996 for “a few million dollars” and, at age 22, moved to Atlanta, where he started investing in commercial real estate. His timing was good; prices were rising. But after a few years he got itchy to try something new and started a web and mobile-development consulting firm called Outweb. Among his customers were Coca-Cola Co., Home Depot Inc., Benjamin Moore & Co., and Stanley Works, the toolmaker. He says the idea for GreenSky grew out of those consulting projects. He founded the company with a partner named Larry Smith, who has since retired.
It wasn’t until the past three years that GreenSky was solidly in the black, Zalik said. He had borrowed heavily to launch the company, preferring to surrender as little equity as possible. “Three years ago,” he said, “I didn’t know if I was going to be able to qualify for a mortgage for a new house.”
That’s clearly not a problem anymore. GreenSky has about 650 employees, and Zalik said the company facilitated about $2 billion in loans last year and will be close to $4 billion this year. His goal is to reach $20 billion by 2020.
To be sure, something could knock GreenSky off course, such as a deep-pocketed competitor or an economic downturn that dries up loan demand. Although GreenSky isn’t exposed to defaults because it isn’t a lender, it does earn fees for originating and servicing loans. For a company such as GreenSky, the trick is to cut back quickly when business goes away, a strategy one of the company’s investors called the equivalent of being an accordion.
Then again, a guy who started studying at Auburn at age 12 ought to be able to learn to play the accordion.