Anatomy of a SPAC: Inside Better.com’s ambitious plans

When executives at online mortgage company Better.com decided to take their company public earlier this year, they elected not to go the traditional IPO route or direct listing. Instead, Better will hit the public markets by merging with blank-check company Aurora Acquisition Corp in a SPAC deal that values it at $7.7 billion.

While the stock performance of post-merger SPAC companies has been shaky at best this year, the team at Better believed they were getting a preferable deal through their combination with Aurora (and additional investment by SoftBank) than if they decided to pitch bankers and institutional investors through a traditional IPO roadshow.

“When an investment bank signs up to sell your stock to the public, there’s no guarantee of a price or no certainty of execution,” said Better CEO Vishal Garg. “We just were not confident that the investment bankers were going to be able to execute.”

You can hardly blame Better’s leadership for that lack of confidence. In the past year, two other online mortgage lenders — Rocket Companies and loanDepot — were listed through traditional IPOs that priced below range due to lackluster demand from institutional investors.

The same thing happened to real estate brokerage Compass, which lowered its target range on the day of its IPO and has seen its stock price continue to slide since going public.

“A traditional public offering makes sense for a story that your traditional investment banker can understand and categorize,” Garg said. “If you can be easily categorized as an enterprise SaaS company or a payments company, then a public offering makes sense.”

But the team at Better has bigger ambitions than just being seen as a mortgage lender and compared with other financial services companies. With mortgage lending at its core, Better has added a number of additional products and services, including realtors, title insurance and homeowners insurance.

In the second half of this year, Better plans to begin offering home services and improvement loans, and eventually will expand to other finance and insurance products like personal, auto and student loans, as well as life and disability insurance.

“We aren’t so easily categorized,” Garg said.

Making mortgages cheaper, faster and easier

Like many digital disruptors seeking to upend established industries, Better was borne out of one person seeking to solve a problem for himself. Sometime around 2012 Vishal Garg, founding partner of One Zero Capital and founder of the online student lending company MyRichUncle, was hoping to buy his “dream home” but got hung up during the process of securing a mortgage and lost out on the bidding to a buyer who could close the deal faster.

As the apocryphal founding story goes, there were few options available for someone looking to apply for and secure a mortgage online — or even get a mortgage pre-approval letter. So Garg set out to build it.

“The original vision was to make the process of going from being a renter to a homeowner. cheaper, faster and easier,” Garg said. “We built a product that let you get a pre-approval letter online in five minutes, instead of five days or five weeks.”

According to Sarah Pierce, who joined the company as one of its first 30 employees and now runs all sales and operations, Better was able to fulfill the goal of getting approved for a mortgage faster by using its technology to assess borrower risk.