Online mortgage lender Better.com is making its public debut Thursday on the Nasdaq Capital Market under the ticker symbols “BETR” and “BETRW.”
After merging with SPAC Aurora Acquisition Corp., the combined entity is called Better Home & Finance Holding Company. The deal unlocks about $565 million of fresh capital for Better.com, including a $528 million convertible note from affiliates of SoftBank and additional common equity from funds affiliated with NaMa Capital (formerly Novator Capital) -- an investment firm that sponsors Aurora. As reported by Financial Times, "Garg has personally guaranteed any losses SoftBank may suffer if it chooses to sell the debt. Meeting the terms of the guarantee could force Garg to sell his Better shares and drive down the stock price, a filing warned."
Still, the company could use the funds. Better.com posted a net loss of $89.9 million in the first quarter and slashed about 91% of its workforce over an approximately 18-month period. While the startup has narrowed its loss compared to a net loss of $327.7 million in the first quarter of 2022, it clearly still has been struggling amid high mortgage interest rates and a national housing market slowdown. The company also suffered significant damage to its reputation since December 2021, making the move from a private entity to a public one in this case a particularly bold one. Better has made headlines for multiple botched layoffs, poor treatment of current and former employees, admitted financial missteps, high-profile executive departures and other allegations.
In a written statement, Arnaud Massenet, former CEO of Aurora and now a director of Better Home & Finance, said: “I am proud of the role Aurora has played in bringing Better to the public market. When we launched Aurora in March 2021, we did so to find a high-quality, tech-focused, business disrupting the status quo in its sector. Through our business combination with Better, we have now successfully fulfilled that aim and, over the past two years, Aurora has worked to deliver over $1.3 billion to Better’s balance sheet. We believe this transaction will deliver long-term value for our shareholders and we look forward to being part of the next stage of this journey.”
Better touts that its Tinman platform, which the company describes as a unique “supervised learning model” in the mortgage business, allows it to service its customers “faster and cheaper due to less personnel overhead costs.” Specifically, Better claims that it offers home loans that are 45 bps (basis points) cheaper than other lenders on average, “saving customers 10s of thousands of dollars on a 30-year mortgage" and that it is the first fintech lender to do $100 billion in loans.
I recently sat down with Better.com CEO and co-founder Vishal Garg and Nick Calamari, former general counsel and chief administrative officer, to discuss the company’s foray into the public market and plans for the future.
This interview has been edited for brevity and clarity.
TechCrunch: You've had plans to go public for two years. Did you ever reconsider going forward with a SPAC and not going public at all?
Vishal Garg: I think honestly, there were a lot of times where we thought maybe we should try to do something private instead and/or stay private. But ultimately, we thought that with going public, the important thing is that we would get an additional $550 million of capital from SoftBank. And that capital would allow us to grow the business, to get rates cheaper to our customers, to prove our technology that makes our loan processing times even faster. And ultimately, we decided that being public and having access to that capital was a much better outcome than being a private company...I would be lying if I told you I didn’t have any jitters.
How is the company's cash flow?
The company is still losing money. Interest rates went up a lot more than we expected. The mortgage market has shrunk a lot faster than we expected. And housing supply has been a lot more limited than we expected. So we went from creating this awesome company that was able to refinance mortgages and do 100 billion of them within a space of six or seven years to having to pivot really hard to doing purchase mortgages, and to try to get good at it within the space of 18 months. Ninety percent of our mortgages are now purchase mortgages. We really hard-pivoted to do a different product, and we've had to focus on things that matter to the purchase mortgage customer like speed and certainty and ease of use, not just the thing that we were known for, which was lower rates. But we’ve taken $1 billion out of recurring costs. (Note: The company also says it has has decreased quarterly losses by 73% YoY).
What percentage of business was refinancing versus new purchase previously?
Previously, 90% of our business was refinances and 10% purchases. That has now flipped.
What are your revenue sources?
The places where we're generating revenue today is our mortgage revenue -- which is revenue from selling our mortgages to the institutional investor community, and through title insurance, homeowners insurance, realtor match and then also through our U.K. platform. During the pandemic, we bought a mortgage lender and a bank in the United Kingdom. So we have an international revenue source as well.
What is your plan for the capital from SoftBank?
The goal is to effectively reinvigorate ourselves. Our goal is to be prudent and weather the storm still out there. Goldman Sachs economists forecast that rates will be coming back down in June of 2024. We’ll keep investing in technology that makes the process faster for our customers. Ultimately it’s still a pretty broken process; it takes 51 days for a consumer to get a mortgage. We’ve launched something called One-Day mortgage that would take the consumer from click to a commitment in one day. But then there's still friction associated with getting titled, getting an appraisal, getting closed. We have a long way to go before we can make the process of being able to finance or refinance a home in one day. And that's what we're gunning for.
How many employees does Better.com currently have?
Just under 1,000.
How have you worked to rebuild trust within, and outside, the company?
A lot of leadership training. I think I was very mission-centric, customer centric, and really, really focused on what it took to drive growth. And I think I've learned now that in order for our customers to be delighted, our teammates also have to feel delight. So I've worked really, really hard to change the way that I show up to the team every day, and to be more empathetic and to treat them with the same level of kindness that I showed our customers.
And then the second thing is we've continued to innovate on our mission, which is to make homeownership more affordable and more accessible, and ultimately the 1,000 people that are at Better.com today are driven not just by me but really by our mission, which is to make homeownership more affordable and more accessible.
Do you anticipate having to conduct any more layoffs?
I can't honestly tell you whether or not we have any layoffs in the future. I think a lot of that depends on the mortgage market. But we think that we're appropriately staffed and actually we're adding headcount in a variety of areas to drive growth.
How do you feel about the SEC’s determination from 10 days ago?
I was very positively relieved because we had always felt we did nothing wrong. It’s really great to see that outcome. I feel blessed to have this second chance to build this amazing company.
Are there still issues with laid-off employees not receiving unemployment?
Nick Calamari: We did do some significant restructuring over the past 18 months and none of that always goes smoothly or perfectly. But I do think that we've done our best to try and treat all of our current and former employees with not just respect, but with care. And so yes, were there times where we needed to address certain problems like unemployment? Yes, but those were addressed and resolved and we're going to continue to do that for everyone going forward, just like we have in the past.
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