Long-term renting is still trendy, but many Americans dream of being a homeowner. However, the real estate and mortgage businesses aren’t always fair. That’s why entrepreneur Vishal Garg started Better.com. His goal: making the path to homeownership an overall better experience for more people by providing insurance.
Better.com is a relatively new digital platform that helps connect Americans with resources to make homeownership more attainable. The pandemic-driven housing boom has begun to subside, but prices are up more than 23% for the year. People still need to buy homes, and that’s where Better.com comes in. Better.com wants to go public by merging with a SPAC (special purpose acquisition company) by the end of 2021.
TL;DR
- Founded in 2016, Better.com is a digital platform that provides insurance for mortgage, real estate, title, and homeowners.
- After a disappointing attempt at buying a home, founder Vishal Garg started the company with the mission of making homeownership more accessible, simpler, and faster for more Americans.
- The firm is planning to go public through a merger with a SPAC, Aurora Acquisitions Corp., which is sponsored by Novator Capital.
- The newly merged public company anticipates a $7.7 billion post-equity valuation.
- Better.com expects an annual profit of $1 billion on $5.1 billion of revenue by 2023.
A brief company history of Better.com
The chief executive of Better.com, Vishal Garg, founded the company after a disastrous first attempt to buy a home in 2012. He said the experience was fraught with inconveniences, delays, and struggles to find a reputable lender.
With no viable option for home buying that solved these problems, Garg set the goal of making homeownership faster, simpler, and more accessible. The company launched in 2016 under the name Better Mortgage.
Better.com offers fairly standard products such as mortgage insurance, but uses computer algorithms to lower the costs and other barriers to entry for prospective homebuyers. By not using commissioned loan officers and keeping the entire process online, Better.com can offer full mortgage approval more quickly and with much lower fees than with other mortgage lenders.
The firm claims it can reduce the length of time to close on a home purchase from the industry average of 42 days to 21 days (cutting the wait time in half).
Another important benefit of conducting the entire home loan process digitally, CEO Vishal Garg has stated, is that it can reduce instances of bias against minorities in the mortgage approval process.
Better Mortgage launched and received approval as a Fannie Mae servicer and seller in 2016. The mortgage arm of the company offers a variety of home loans: fixed and adjustable rates; conventional, jumbo, and FHA loans; and many types of homes excluding manufactured homes, multi-family units of 5 or more, co-ops, and mixed-use properties.
In 2018, the company launched Better Real Estate, followed by Better Settlement Services and Better Cover in 2019.
Better Real Estate claims to distinguish itself from traditional real estate business models by being “a partner, not a salesperson” that wants to help homebuyers find the right situation for them, without pressure-filled sales tactics.
Better Cover is the company’s segment devoted to helping buyers get quotes and then select and purchase homeowners insurance.
The company made the annual CNBC Disruptor 50 List, coming in at the number 15 spot in 2020. Currently, its services are available in 47 states and Washington, D.C. and the company says it’s working on expanding into every US state.
The company has won a few distinguished accolades:
- Nerdwallet’s Best Mortgage Refinance Companies of 2021
- LinkedIn’s Top Startup of 2020
- CNBC Disruptor 50 of 2020
- One of Forbes’ best mortgage lenders in 2021
Better.com’s private fundraising rounds
Better.com has raised $905 million in seven years:
- Seed Round: In 2014, Better.com conducted a seed funding round in partnership with Avex Funding.
- Series A: The $30 million round took place in July 2016.
- Series B: The Series B fundraising round brought another $15 million in February of 2017.
- Series C: Better.com began its Series C in January of 2019. Activant Capital led this round that raised $160 million.
- Series C: An extension of the Series C occurred in February 2019.
- Series D: L. Catterton led Better.com’s largest funding round yet in November of 2020, which brought in an additional $200 million.
- Secondary Market: A massive secondary round led by sole investor SoftBank added $500 million to Better.com’s capital funding total in April 2021.
Path to the Better.com IPO
Aurora Acquisitions Corp. is a special purpose acquisition company that closed its own IPO in March of this year. Gross proceeds were $220 million before underwriting discounts.
Aurora’s IPO took the shell company public on the Nasdaq Capital Market under the ticker symbol AURCU. As with all SPACs, Aurora was only created in order to find a target company to merge with.
In the Better.com IPO, a subsidiary of SoftBank called SB Management Limited is committed to putting $1.5 billion towards the combined company. These funds will come from a private investment in public equity, or PIPE.
Of that $1.5 billion investment, Aurora backer Novator Capital will drop $200 million.
Following the completion of the merger, all Better.com’s executive leaders are expected to remain in their posts, including Garg as CEO. The CIO of AURCU, Prabhu Narasimhan, will take a spot on the new company board of directors.
When is the Better.com IPO date?
Better.com’s precise IPO date isn’t set yet, but most sources agree the SPAC merger with Aurora Acquisition Corp. is likely to conclude sometime in Q4 of 2021.
According to HousingWire, if Better.com’s valuation is $7.7 billion post-merger, it would become the country’s third most valuable nonbank mortgage company. Only Rocket Mortgage and United Wholesale Mortgage would top Better’s valuation.
Risks and opportunities for Better.com investors
Better.com is a fairly young company, but it has a lot of potential. Its executive team members have a robust set of years in their respective areas of expertise. The company says it closes out 16.9 loans per month on average, which is more than double the MBA industry average of 7.1.
The firm’s growth over the past few years may be a good sign:
- Funded loan volume grew by 490% year-over-year in 2020 compared to 2019.
- Title insurance placement increased in 2020 by 855% year-over-year.
- Homeowners insurance business grew by 300% YOY in 2020.
- YOY growth in real estate transaction volume was 471% in 2020.
Some of Better’s growth may be attributed to the pandemic housing boom.
SoftBank’s PIPE of $1.5 billion is “in effect repricing its own preceding investment,” TechCrunch reported, but cautioned that for SoftBank, this strategy is typical and investors should not read too much into that aspect.
Bottom line
CEO Vishal Garg set out to improve the process and experience of buying a home, but from the perspective of the buyer rather than seller or real estate agent. How lucrative an investment Better.com may turn out to be will depend on a number of factors—like real estate market conditions at the time of the IPO, and whether the company continues to deliver on its promises.