Digging into digital mortgage lender Better.com’s huge SPAC

Better.com, a venture-backed digital mortgage lender, announced this morning that it will combine with a SPAC, taking itself public in the second half of 2021. The unicorn’s news comes as the American IPO market is showing signs of fresh life after a modest April.

The Better.com deal comes just over a month after it sold $500 million of its existing shares to SoftBank at a valuation of $6 billion. At the time, TechCrunch described the deal as “further proof” that unsexy industries were able to secure attractive valuations despite their relative lack of pizzazz.

The SoftBank secondary round was hardly Better’s only recent mega-deal; the company raised a $200 million round at a $4 billion valuation in November 2020.

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But the company’s SPAC combination will affix an even higher price than its April round managed, providing the Kleiner-Perkins-backed Better with what it describes as a “post-money equity value of approximately $7.7 billion.”

SoftBank is doubling down on Better, putting together a $1.5 billion private investment in the deal’s public equity, or PIPE, in effect repricing its own preceding investment. For the Japanese telecom and investing powerhouse, making successive bets in companies at ever-higher prices is essentially gospel. So, don’t read too much into the commitment.

As with all SPAC combinations, we have a pile of new data from the company that is going public as part of the transaction. So, this morning, we’re getting our hands dirty.

Our goals are simple: We want to understand whether Better is a weak business, an acceptably strong business or a great business. To get there, we’ll have to start by digging into how the company functions. From there, we’ll discuss its valuation stacked against its trailing metrics. We’ll also take a look at its growth expectations and bring in the recent Compass IPO, a company that focuses on a different part of the mortgage market, to see if we can get a better handle on Better’s new valuation.

Ready? The deck is here. Let’s have some fun.

What’s Better.com?

If you have heard of Better but really had no idea what it does before this morning, welcome to the club. Mortgage tech is like pre-kindergarten applications — it applies to a very specific set of folks at a very particular moment. And they care a lot about it. But the rest of us aren’t really aware of its existence.

For the rest of us: Better is an online mortgage lender that aims to offer lower-than-standard fees to consumers looking for credit to help them buy a house. As the company explains on its website, it generates income by selling loans that it helps generate. Per its investor deck, Better also derives top line from selling insurance products.