US-based buy now, pay later (BNPL) company Sezzle (ASX:SZL) is staying busy in capital markets after announcing a US$30m equity investment this morning.

SZL announced that NYSE-listed payments business Discover Financial Services will take a $30m stake in the business in a share-based investment.

To complete the deal, Sezzle will issue 4,556,210 new shares at US$6.58 ($8.83), equivalent to US$30m (around $40m).

BNPL financing

In addition to the equity injection, Sezzle said the two companies have also flagged plans for an expanded partnership, including the use of BNPL as part of the Discover Global Network.

The Sezzle investment marks a relatively small BNPL foray for Discover, which has a market cap of almost US$40bn and generated 2020 revenues of around US$13bn.

Discover’s equity stake follows on from a revised debt funding deal in February, when Sezzle expanded its receivables funding facility to US$250m in a deal with Connecticut-based Bastion Consumer Funding and US investment bank Goldman Sachs which included some restrictions on its use of short-term cash.

Around that time, resident BNPL bear UBS bank highlighted the extra activity on capital markets by market-leader Afterpay (ASX:APT), which included a $1.25bn convertible note issue and a separate $1bn equity raise in 2020.

“We believe this vindicates our view that the market continues to mis-price or ignore how much capital is required to fund APT’s growth,” UBS said at the time.

In late April this year, Sezzle also flagged plans to register with the US Securities & Exchange Commission (SEC) for an initial public offering (IPO) on a US exchange.

Shares in the company also got a boost in early June when it announced a partnership deal with retailing group Target.

After getting caught in yesterday’s BNPL sell-off, shares in SZL rose by around 5% in morning trade following the Discover update, and are back trading above $8.

The company is due to release shares from escrow at the end of this month, which will mark the conclusion of the 24-month non-escrow period following its 2019 listing.

Across the sector though there were more falls, as Afterpay and Zip Co (ASX:Z1P) both remained in the red after falling by more than 10% yesterday.

The losses were the result of a strong market reaction to news of more competition entering the base, as tech giants PayPal and Apple both flagged updated BNPL offerings.

With plenty of competition and capital markets activity, investors will be watching closely for Q4 results to see whether the sector has maintained its strong rates of top-line sales growth through the middle of the year.