Our investment in Raylo

19 Jul 2021

By Uzma Choudry

The way we access our smartphones is broken. Customers are expected to spend upwards of £1,000 to purchase a new device where monthly installment options are limited to expensive bundled network contracts or unbundled device finance that only prime customers can access. And when the devices are upgraded after two to three years, most end up tucked in a drawer or thrown out, creating unnecessary environmental damage, and providing no residual value to the customer.

That is why we are very excited to lead the latest $11.5m funding round into Raylo, alongside Macquarie Group, Guy Johnson, Samir Desai and other investors. Raylo aims to transform how we all access and use our smartphones with simple subscription pricing, great value and embedded sustainability.

Why now?

Regulatory changes and shifting consumer preferences are leading to a rapid transformation of the distribution model in mobile. The COVID-19 pandemic has accelerated these trends and presents a massive opportunity for innovation.

Ofcom and its counterparts across Europe have caused a wave of unbundling with a series of new legislation, including a ban of long-dated bundled contracts and mandatory customer communications to force fairer and more transparent pricing.

Consumers are rethinking “ownership” of their products and services and it stands to redefine access in this market. Though Uber and Airbnb define the first wave, we at Octopus Ventures believe that there are many more markets where old ownership models and purchase journeys are waiting to be disrupted. Our investments in companies like Cazoo, Depop, and Whirli reflect this belief. Surprisingly, this innovation had yet to reach the most important, high-value, high-usage item in of our lives: our smartphones.

A growing focus on sustainability is reshaping the choices consumers make here. Where the sharing economy introduced a new way of thinking about access, the circular economy has introduced a new way of repurposing and extending use. More than ever, this means that the average consumer cares not only about minimising environmental waste but also about making sustainable choices. New EU proposed legislation to restrict “premature obsolescence” and single use of consumer electronics reflect this growing desire to shift from unbridled consumerism to more sustainable use.

How is Raylo solving this problem?

The Consumer Product

Raylo’s strength lies in the simplicity of its end-to-end consumer offering: access to premium, SIM-free smartphones on a simple monthly subscription. To the customer, the first hook here is low prices on the top devices, achieved by eliminating unnecessary ownership costs and unbundling the device from a SIM contract. The second hook is the freedom of choice that a subscription model offers: a New or Raylo Certified Refurbished device, and the choice of upgrade frequency. Finally, all of this is wrapped up in a service offering that customers rave about: next day delivery, insurance, a complimentary case and screen protector, and excellent customer support define the Raylo brand.

The Financing Model

Underneath this consumer offering lies the heart of its innovation: a proprietary credit model powered by alternative data sources, including open banking data, and a financing platform that efficiently syndicates the consumer credit risk and device residual value risk to the wholesale capital markets.

By operating this model, Raylo has been able to realise efficiencies and value at parts of the operation that other players cannot, thereby pushing significant cost savings to the end customer.

What is most exciting is the potential to scale beyond D2C. By purposely building with a modular approach, Raylo can plug discrete aspects of its platform into other device retailers. This provides a tremendous opportunity for Raylo to power the D2C distribution of Original Equipment Manufacturers (OEMs) and retailers alike, bringing operational efficiencies, financial value and enhanced customer experience compared to existing “Buy now pay later” services.

Why did we invest?

We initially came across the founding team at Raylo while researching new approaches of bringing financial inclusion to consumer credit. What immediately blew us away then (and still continues to) was the tremendous founder-market-fit here. Karl, Richard and Jinden have demonstrated an excellent track record of building high-quality consumer fintech products, managing complex operations and executing large-scale capital markets transactions. It was of little surprise that they had achieved significant growth and attracted impressive partners in the short time period between co-founding Raylo and when we first met them.

Sustainability & Financial Inclusion

At Octopus Ventures, we have a natural desire to support companies that drive financial inclusion and sustainability. Raylo’s focus on alternative data sources significantly expands the addressable market to include “thin file” and “near prime” customers – those who most need an affordability solution to access a great smartphone.

It’s embedded circular model means Raylo can more than double the utilisation period of the average device by re-leasing returned devices under its Certified Refurbished Brand. This delivers value to its customers in the form of lower prices and better experience, and significant CO2e savings.

Market opportunity

We are excited about the ambitious opportunity that Raylo is tackling in transforming access and usage in the UK and beyond. Raylo aims to rapidly grow not only within the large smartphone market but also the broader consumer electronics space. By broadening access to these products while offering a quality of service that customers rave about, Raylo is well-positioned to redefine the way we all access and use our trusted electronic devices. The team has demonstrated tremendous progress to date, and we are excited to support them now and in the stages to come.