Better.com Digital Mortgage Provider Raises $200M in Series D Round
Better.com, the fast-growing digital mortgage platform, recently raised $200 million in a Series D round. Observers value this New York-based digital-first homeownership startup at around $4 billion.
L Catterton, a private equity firm based in Greenwich, Connecticut, led the Series D round. Other participants in this Series D round included Activant Capital, Ally Financial, American Express Ventures, Ping An Global Voyager Fund, and 9Yards Capital. This latest fundraising round comes ahead of Better.com’s plans to gear up for a potential IPO in 2021. The company selected Morgan Stanley and Bank of America to be the lead underwriters for its planned 2021 IPO.
Michael Farello, a partner at L Catterton, stated: “Better.com has overhauled the process of getting a mortgage, making the process faster, easier and cheaper for Americans. We’re proud to support them.”
How Better.com Works
Better.com digitizes the mortgage process in order to make the home financing process more transparent and efficient. It offers mortgages and a range of insurance products including real estate, title, and homeowner’s insurance. Since its founding, Better.com has funded over $25 billion in home loans. It has also provided $7 billion of insurance coverage through its in-house insurance programs. Better.com’s main service is Better Mortgage, its online mortgage provider. As part of its mission, Better Mortgage is commission-free and does not charge lender fees.
The in-house insurance agency of Better.com has a better-known name, Better Cover. Better Cover enables customers to find policies tailored to their needs alongside their mortgage applications with Better Mortgage. Better Cover quickly provides customized quotes from digital insurance companies. These companies include Lemonade and Hippo as well as traditional insurance carriers. For title insurance coverage, Better.com offers Better Settlement Services to provide competitive rates to customers. Better Settlement Services also integrates with customers’ mortgage applications with Better Mortgage.
From Fast to Rapid Growth
The digital mortgage startup has grown rapidly since its founding in 2014. In its first year, Better.com made over $525 million in mortgage loans. That set a record for the largest amount of loans by a fintech company in its first year after launching. It acquired a Silicon Valley-based mortgage lender in 2015. Then, it re-engineered the lender to assist with the mortgage origination needs of its digital platform. The company changed to a no-commission model and revamped the acquired mortgage lender to fit an online model.
Since 2019, the company has experienced a period of particularly rapid growth. In the past year, Better.com’s funded loan volume has expanded over four-fold. It is on track to generate $800 million in revenue this year. The company now has over 3,000 employees, and it is looking to hire considerably more employees to meet accelerating demand. About 500 of these employees are non-commissioned loan officers.
Better.com Wants to Remove Barriers to Home Ownership
Better.com is dedicated to making the homeownership process more accessible to millions of Americans. The company is active in providing its mortgage and insurance services across the United States. CEO Vishal Garg stated, “Better was founded to help eliminate unnecessary barriers to home financing. We’re committed to working tirelessly for our customers, growing our team and building out our technology to provide them the best possible experience when pursuing homeownership.”
Vishal Garg was motivated to found Better.com after experiencing his own challenges in navigating the home buying process. Despite Garg and his wife were both young professionals with reasonable access to capital. Nevertheless, they struggled to obtain pre-approval for a mortgage. By the time they were finally able to obtain mortgage financing, they lost the house they wanted to another buyer. The competing buyer was able to act faster with an all-cash offer. This harrowing experience inspired Garg to create a mortgage platform based on a digital model, which would increase the speed of obtaining a mortgage. It also inspired the introduction of the startup’s other features such as a commission-free structure, with the goal being to level the playing field for consumers.
Competition from Rocket Mortgage
Better.com faces competition in its mission to upend the traditional mortgage industry. Competition is stemming both from traditional retail banks working to technologically modernize their mortgage services. There are also a number of other digital mortgage providers that are relative newcomers.
Rocket Companies, a Detroit-based mortgage and real estate services platform, is a formidable competitor. It is the parent company of Quicken Loans. The company went public with a $1.8 billion IPO in August. Rocket Mortgage, currently the largest mortgage lender in the United States, has been an innovator in the fintech space. In as little as eight days, clients can create a Rocket Mortgage online account and sign closing documents. The widespread adoption of its digital tools has enabled the company to provide $145 billion of mortgage loans across the United States in 2019.