When officials at online mortgage business Better.com decided to go public earlier this year, they opted for a direct listing rather than a typical IPO. Instead, better go public by merging with Aurora Acquisition Corp, a blank-check provider, in a SPAC deal valued at $7.7 billion. While the stock performance of post-merger SPAC companies has been shaky at best this year, the Better team believed they were getting a better deal by combining with Aurora (and receiving additional funding from SoftBank) than if they went through a traditional IPO roadshow to pitch bankers and institutional investors.
“There’s no guarantee of a pricing or certainty of execution when investment bank signs on to sell your stock to the public,” said Better CEO Vishal Garg. “We just didn’t have confidence in the investment bankers’ ability to perform.” That lack of confidence cannot be blamed entirely on Better’s leadership. Two more online mortgage lenders, Rocket Companies and loanDepot launched through typical IPOs in the last year, both of which were below range due to a lack of institutional demand.
The same thing happened to Compass, a real estate company that cut its target range on the day of its IPO and has seen its stock price fall since then. “For a tale that your standard investment banker can understand and categorize,” Garg added, “a traditional public offering makes sense.” “A public offering makes sense if you can readily be classified as an enterprise SaaS company or a payments company.”
However, the Better team has broader goals than simply being viewed as a mortgage lender when compared to other financial services firms. Better has introduced a number of new products and services to its mortgage lending business, including realtors, title insurance, and homeowners insurance. Better intends to launch home services and improvement loans in the second half of this year, with ambitions to eventually expand to additional financial and insurance products such as personal, auto, and student loans, as well as life and disability insurance. “We’re not readily categorizeable,” Garg explained.
Better, like many other digital disruptors attempting to upend established businesses, began as a one-person project to remedy a personal need. Vishal Garg, a founding partner of One Zero Capital and the founder of the online student financing startup MyRichUncle, was expecting to buy his “dream home” in 2012 but has been stuck in the mortgage process lost out to a buyer who could close the deal faster. There were few choices for someone wishing to apply for and acquire a mortgage online — or even get a mortgage pre-approval letter, according to the mythical foundation narrative. As a result, Garg set out to construct it.
“The original goal was to make the transition from a renter to a homeowner as simple as possible. “It’s going to be cheaper, faster, and easier,” Garg said. “Instead of five days or five weeks, we designed a product that allowed you to acquire a pre-approval letter online in five minutes.” Better was able to achieve its aim of being authorized for a mortgage faster by using its technology to assess borrower risk, according to Sarah Pierce, who joined the firm as one of the original 30 workers and now oversees all sales and operations.