Founded in 2014 by Vishal Garg, the Better Mortgage company – an online mortgage startup – is experiencing the strongest growth from the borrowing surge compared to any other lender of its rivals.
Funded by more than $45 million from investor like Pine Brook, Goldman Sachs and Kleiner Perkins, the lender is on a mission to put an end to the inefficiencies of the mortgage ecosystem by bringing transparency to a traditionally opaque and confusing process. In its first year, the lender quickly attracted attention and made an impressive ‘grand-opening’ with over $525 million in loans – the largest amount by a Fintech company in its first-year post launch.
To kick off, the company made a humble acquisition for an established Silicon Valley-based mortgage lender who had originated over $4 billion in mortgage, just to quickly penetrate the crowded mortgage market and re-engineer the home finance process from the ground up. As of now, the company is already active in 12 states today and rapidly expanding to all 50 states.
Memo of a Serial Entrepreneur on Bringing up a Legacy
Brought his first startup public at 26 years old, The Better’s founder is well-known for his serial entrepreneur character who is eager to disrupt large financial industries and able get many gigantic financial institutions behind him. So, let’s start with the root of this company’s story – its founder.
Vishal Garg was from a middle-class family in a small village, India. He grew up in Queens after the family migrated to the US when he was seven. Garg graduated from New York University and join Morgan Stanley – a merger and acquisition firm – where he’s got to see how business worked from the inside. Also, where he had made that fateful decision to own something of his own, it was after the entrepreneur join on a pitch of a 25-year-old CEO’s internet company.
At 21, he decided to quit the job and contact some of his old mentors, from whom he was able to raise a little bit of money for One Zero Capital – a small hedge fund that would invest in technology companies in India. Later, use that profit with a college friend to leverage his next startups – MyRichUncle, a well-known loan product marketed to students. Which startup ended up hiring 300 people with a $450 million market cap and became the second largest private student lender that time. However, with the 2008 recession it was shut down because the fall of its parent Merrill Lynch.
After which event, he found his second brainchild – a real industry disruptor, the Better Mortgage.
The Better Mortgage’s Hindsight – How Was It All Started?
It was when Garg’s wife pregnant with their second child and they decided to be homeowners. In which experience he described as ‘the most painful process,’ when they are trying to get a mortgage and it cost them about their house. Not to mention how time-consuming it was, from the beginning to end, the whole ordeal was eight weeks of waiting and filling form around just to get a preapproval – something that without it you cannot make an offer if you saw a place you like to own.
Unfortunately, even with the very qualified background of the two, Garg still lost his place for another buyer who was able to move faster with an all-cash offer. Filled of frustration, he realized that the entire mortgage industry was outdated and inefficient. It missed someone with access to capital like him, imagine how hard it might be for others. The system was obviously broken, and under his eyes it was ripe for disruption.
Look for a techy partner, who happened to be a matching engine at Spotify, together they found the Better.
What Is the Secrete Sauce of Better – Why the New Player Is More Favorable Than All?
First off, let’s get to know its business model, what is Better serving and how does it make money?
No doubt, this is an appealing concept. Take on the side of borrowers, the company compresses the troublesome mortgage process and offer “pre-approval on your mobile phone in about 3 minutes,” without taking any fees and making it cheaper than many competitors. Once issued, it would sell the mortgages to banks like Well Fargo and other investors. By selling these loans, it pulls out the revenue stream of up to $10,000 per mortgage.
More on this “3 minutes” feature, why Better is actually “better” than other digital mortgage businesses? How did it different itself from the industry?
Digitization means to most people is putting an online form engine on top of a broken process. So, at Better the difference is that it not only created the online form, which Garg sure anyone can do on Squarespace or Google Forms like most mortgage companies do. But beyond that the company actually automated the process which allow them to reach 80% of the traditional processing underwriting functions. In brief, the company was innovative to has its own matching engine between a consumer – their attributes, the property, and investors. After that, the company match the consumers attributes and the properties attributes with the investor criteria and deliver an instant decision across the entire range of products, and by doing that, it is able to give consumers the best price that they qualify for within “3 minutes.” Generally, it is the first full stack mortgage lender the first loan origination platform in the industry, brand new model. What Garg and his team just built is a process where they are able to capture all this data and actually empower it to make better result for multi-side of the industry. “At the front-end we’re basically Charles Schwab e-trade for mortgage and at the back end, we’re basically NASDAQ for mortgage.” Garg explained with CBinsights.
Vishal Garg: What to Reserve Knowing This Breakdown Might Swallowed Everything You Had?
Jaw-dropping with the serial startups, Garg and his instinctive nature of an entrepreneur is a worth-spreading story – from big wins to dark days, what had he learn to walk out with only bigger plans always? And until today, how falls had changed his way of managing?
Shared on an interview with CBinsights, Garg recalls on all the good and bad fortune he had going through three economic crises in his entire career up to date: the Asian crisis in 1997 as a trader at a hedge fund, the 9/11 dotcom explosion as an entrepreneur and the 2009 credit crisis as the founder of a publicly traded online student loan company. With all the wise earned surviving the subsequence event, he took on the new vision. To Garg, while the future is uncertain, it’s key that you focus what is in front of you today and the needs of your customers as well as employees. When this is all over, it’s going to be a brand-new world in which you can not only survive but thrive.
Especially as leaders, you have to lead from the front and communicate often with deep empathy. Let your team knows that even though it is scary out there, you all will get through it together.
More from the story, what did Garg had learnt from the last experience with his previous startup that could apply into Better and where other entrepreneur could make use of as well?
“Never get high on your own supply” Garg declared. Back in the day, when MyRichUncle was winning with delinquency rates were 50% better than Sally Mae’s and a lot of his competitors went out of business in 2007, while he was continuing to win. Until one day, the company’s financing partners Merrill and Lehman did not make it and the company went down along. So, this time he thinks of creating a marketplace.
It’s not enough to have two warehouse lines, five warehouse lines, five partners. He thinks of actually coming out and finding capital, the company need to create a full, whole loan marketplace, where he under no arms of financing partners but rather is the trading-gate where all partners could come over and lend a hand. It was the grief from MyRichUncle prompted him to do that.
Garg also shares, with Better this time, he went into COVID with over $250 million of liquidity and that just allowed him to be bold when others were fearful.
Besides, the founder also stresses on how important ‘delivering value’ is in business. From MyRichUncle to Better, if you are delivering true value to consumer, it might take them a while, but they will come. And when they come, they will be in droves that you will not be able to hold them back. So, no matter what anyone says, first thing first: deliver value to the consumer. Do not ask from them anything before giving out – that the principle. The market won’t spare your life if you are not delivering value.
Workplace Culture and the Definition of an Effective Chairman
Recently on Forbes, the Better company got featured for driving $600 million into $4 billion valuation, said it is a harsh environment where Garg once wrote in a Slack channel to employees “If you are not interested in working hard, you need to find another place to show up every day!”. But is that really the case? Let’s heard Garg on how he keeps the spirit up for the team as well as himself, especially in this time of remote working.
What essential in communication at Better are honesty, frequency, and transparency in a straightforward manner that all over 2,300 employee shareholders would understand, according to Garg. Particularly, when you are in the middle of a crisis the likes of which none of us have ever seen, and you need to be vigilant about its impact on employees. Work-from-home has blurred the 9-to-5, and it can be easy to get trapped in fear and anxiety while working in isolation, which is why promoting self-care is crucial. At Better, Garg is offering free virtual therapy through Bravely for all employees, as well as encouraging them to take vacation days, even if they are at home. Garg has his team set up a work-from-home Slack channel where people can share tips, information, advice, and inspiration to help adjust to this new way of working. Besides, he also sent out care packages and distributed stipends for office furniture and meals to all employees. For himself, Garg keep his morale up by knowing that he is helping every customer save $3,900 with their refinancing – think about the impact you make on someone’s life and use that as motivation in challenging moments.
We also heard how loan officer got no commission at Better, what is Garg intention and vision on this?
Turns out, to Garg commission-based selling is one of the fundamental issues in the mortgage industry that he is solving. You should let your employees know it is achieving the company’s mission that matters and it serves better than any commission could – let’s move forward as group, not individual. So, loan officers are not incentivized or pressured to sell these mortgages or advocate for a larger loan amount or a riskier product just to benefit their own pockets. Their mission is to help customers throughout the mortgage process while simultaneously de-risking one of the largest financial decisions they will make in their lifetime. That is how it work, and how it should be for all companies!
In term of a chairman, Garg claims, there are some roles that make up one. He describes executives as mentors, coach, and communicator of bad things to the internal team. Also, the go-between, between the investors and other constituents and the management team. To be an effective chairman, he thinks the core goal is to showcase perspectives that they may not be considering, bring in viewpoints that are blind spots of other teams. Let A knows B’s effort, creation, hardship and vice versa. That is the point of an executive!
Interesting story. As Garg has been through many ups and downs of as an intern and entrepreneur, he once asked by Alejandro Cremades podcast, if he had the opportunity to sit down with his younger self – the intern at Morgan Stanley and going to build his first business, what would be that one piece of business advice that you would give to yourself and why? Garg said it must be ‘never quit.’ All businesses, all journeys will take longer than you expect. People will give up on you, investors will give up on you, your friends will give up on you. But if the consumer keeps clicking, then you should not quit because consumer will not give up on you, and if you be patient and not giving up on them, you will win, eventually.
Of course, there will be dark days, and whenever you are down. Go look over the customer feedback, at the people that work there and interact with the customer. Get involved with “What happened today?” and it is always energizing.
The Bottom Lines
Better Mortgage is riding the tsunami right now in terms of growth. And all of this happened because of its founder’s patience and determination in his solution. Failed with his first brainchild, Garg continues to apply the same tactic with a more advance approach, and it works. Survived and thrived through three different economic collapses in many different roles of the ladder, Garg and his story are not something you would run into daily.