NCI: Founder Mode & The Mortgage Market

NCI_Founder Mode & The Mortgage Market

Speaker1: [00:00:00] All right, and we're live. I am thrilled to be joined by a long time friend, Vishal Garg, founder and CEO of Better. Now, Vishal, I've known, I think, for over 15 years. I've known him I think definitely longer than I've known my wife. 

Speaker2: Oh, totally. I remember when you were still single and ready to mingle.

Speaker1: This is a long time ago. Yeah. Vishal's got some dirt on me, it sounds like here. That's a good way to start the podcast here. Vishal and I did investments together. He's invested in my prior company as well. Vishal took his first company public when he was 26. And what we want to talk about today is founder mode, the future of the mortgage market, how AI is going to transform that.

Negotiating with SoftBank, Masayoshi san Vishal has got an incredible set of experience that I think we can all, we all can learn from so thank you, Vishal, for joining us. 

Speaker2: Of course, Ram, I'm so delighted to speak with you and and everyone listening. 

Speaker1: Let's dig in, let's start [00:01:00] off with the Zoom viral moment, and I'm sure folks remember this.

There was a, in 2021, everyone was laying off, which was the right thing to do back then. You had ZERP interest rates, people got bloated, it's time to cut costs. And, there's a viral moment where you're on Zoom and you terminated 900 people. By the way, I listened to that video in preparation for this.

And in my view, word for word, nothing was really out of place. It did lend itself to a viral moment, though, of course, it's on Zoom. Back then, 2021, Zoom stock price, all time high, it was the age of digital management and remote and COVID. You've had some time to reflect on all that, open in a question, what was your experience around that?

And obviously you've come a long way since then. Go 

Speaker2: ahead. Yeah, no, it's a fair question. Look honestly, that was not my finest moment. Transcribed There's a lot of ways that we could have handled it [00:02:00] better. We really tried to figure out what were the alternatives. It seemed much worse to actually ask everyone to come back into the office and then tell them that, we weren't going to be able to they weren't going to be able to be part of the better journey going forward.

That seemed actually cruel. So we decided to do it over Zoom. And I think the fundamental thing that I got wrong was I could have hid behind an HR person. I could have hid behind, the folks who ran operations or sales. But I wanted everyone to know, look, ultimately I take accountability for this moment where our company isn't doing as well as it has been.

And, I was of course able to take credit for when it was doing well, so shouldn't I take accountability for it when it's not doing well and then, lead from the front and make the hard decisions and tell people that it was my decision to make that decision. I think ultimately a lot of that felt still not the best way to do it to the folks who were affected.

I think I should have leaned in [00:03:00] and been more empathetic. And I think I've learned from that experience just that I have to be extraordinarily empathetic, not just to our customers, in terms of designing the best product and providing the cheapest rates and being able to, save them money and time and, headaches in their home ownership journey.

But also to our teammates, because in order for our teammates to treat our customers we have to treat them well. And I think it was just an unfortunate time. I think the virality of the moment was, I think we were the first to do it. Here, everybody was still thinking, things are booming, 2021, things are booming, things are great.

And we as a mortgage company could see that rates were going up and the percentage of people that wanted to get a mortgage refinance, which is the thing that we excelled at, like in 2021, we did 58 billion of mortgages. That's more than Bank of America did in 2021. And this was a company that was at that time, five years old.

And but we could see that the customers were not going to get the same benefit from refinancing that they were going to, and we just didn't need the kind of [00:04:00] growth in the number of people that we'd had. And so we needed to right size and look I dealt with it head on. I learned from it and then over the past couple of years, I've spent a lot of time working to become a more empathetic people centric leader.

Two questions 

Speaker1: there. First off, why not have the managers deliver the communication via Zoom themselves? You said you wanted to lead from the front. Was there a thought process around that or did someone on your team say, Hey, Vishal, you got to own this and just, you deliver the message to everyone.

Like why did the manager deliver that? 

Speaker2: To be honest we had a lot of folks who were relatively young managers and relatively inexperienced managers. They had gotten battlefield promotions. To give you some context, Better went from doing four and a half billion of loans, In 2019 to doing 25 billion of loans in 2020, and then 58 billion in 2021.

And this is during [00:05:00] COVID. And so we had people that were, loan officers who became senior loan officers who became senior managers of loan officers who became vice presidents of sales. And got promoted so rapidly through this that they had never had the experience of being able to work through these issues.

And the idea, from a message getting garbled, if you then distribute that message out. Amongst, 400 or 500 people to do all at once. The other thing that you have to remember is that we are in a business where there's a ton of customer data that customers entrust us with. We know almost everything about their financial profile, their property profile, their families, and as part of the mortgage process.

So when we had to let people go from the business, we had to terminate their access to the systems. What, because we didn't want any customer data getting affected. And again, we are a customer first company. We did what we did because we were focused on being a customer first company and making sure that there was never any problem with a customer experience [00:06:00] or customer data.

There were no hiccups in that process when we did it. 

Speaker1: Yeah, and I think legal and compliance is another consideration here. The first time I had to let someone go was in the 2008 crisis. And, it came from the CFO of. Maryland's like, Rami, you've got to let someone on your team go, doesn't matter who, and I wasn't communicating that way, just came here's the headcount number, your target is to get to this number, we don't care how you do that, it's like decentralized leadership, and I had a first rate, world class team, and my HR sat me down, I was 27 at the time, And they said, you cannot say, I'm sorry that we have to do this.

I regret having to do this. You cannot give any indication that exposes the company to any liability. So even though your heart is in pain, you really can't say, You really can't say much at all. And when I did it, the person on their side started crying in front of me. And, this is my [00:07:00] first time, again, I have terminary they went through a lot worse than I did.

But still, so I get, I think people don't necessarily appreciate there are compliance and legal considerations around this. And you have a fiduciary obligation to uphold that. To protect the employees, the customers and the shareholders. So let's move forward. So you negotiated a deal with SoftBank, Masayoshi san, what was that like?

How did you negotiate that? What advice did he give you? We'll unpack that one by one. 

Speaker2: So working with our partners at SoftBank has been an amazing experience. When I first met Masa back in January of 2021, the company was absolutely on fire. We had grown. 850 percent in 2020, we had done about 25 billion of loans, we generated over 880 million of revenue and 250 million in adjusted income, right?

And or [00:08:00] EBITDA, so we were on fire. And in Jan, Feb and March of 2021, we generated an additional over a hundred million dollars of EBITDA. So we were just accelerating. And fundamentally, what I shared with Masa was the vision for better, which was that fundamentally, there are 8 billion people on this planet.

Only 7 billion or so even own a home. And so fundamentally, and the biggest challenge to owning a home is being able to afford it. For It's the object of desire of every man, woman, child in this country and everywhere in the world. And so if we could create a mechanism for providing financing to consumers for their biggest life purchase and their biggest category of consumer spend, And we could match that to investors like we have done, in the U.

S. and then eventually do that globally, right? In a capital light model [00:09:00] with good unit economics, we could make 1 percent a year over time on that asset. And so we created a way for us to, and what we had done in the U. S. We were on our way to doing over 100 billion dollars in mortgages entirely digitally, the first of any company to actually do that and do that volume, and to do so while giving the consumer a lower rate and giving the investor a better loan, right?

One that defaulted less, one that had less origination defects. And so the matching engine between land, labor, and capital probably is something that would work, be very valuable. And I don't know how much that's worth, but it's something that in the largest single asset class in the world, 140 trillion, 39 trillion in the U.

S. alone, in the mortgage market, which in the U. S. alone is 15 trillion, right? If you could create a matching engine that does that, then you would create a very valuable [00:10:00] company. I think that's the vision that I laid out for him, and 15 minutes into the conversation, and we shared how we were doing it, and 15 minutes into the conversation, I think he was not more, more than enamored, he was sold, and the rest is just sort of history, and since that day, they have stood by us, they have backed us, They, Masa did an earnings presentation back in 2021, where he talked about the future of AI mortgage, and he, talked about better.

And I think that future is still going to come. I think that future is still very bright. We've just had the worst possible macroeconomic environment for mortgages in 50 to 100 years. And we have lived through that with the support of our partners at SoftBank, and we're really excited for what comes next.

Speaker1: How did you get the access to Masiyoshi? So it's an intro from an existing VC or? 

Speaker2: We had actually spoken to SoftBank multiple times before and pitched their team. I [00:11:00] think they reached out to us through one of our existing investors and board members who was, who's been an amazing partner, Steve Saracino of Activin Capital.

And and then, we got started in speaking to them. 

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