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Inside SoftBank’s side letter with Better CEO Vishal Garg

May 12, 2022, 12:11 PM UTC

On Nov. 30, a single day before the digital mortgage company would lay off 900 staffers, Kevin Ryan, Better’s CFO, had blasted a cheerful note to employees with “some really exciting news:” Better had secured $1.5 billion in debt and convertible notes from two of its investors ahead of its SPAC merger. Before the end of the week, there would be $1 billion in cash on the company’s balance sheet.

That fat sum was nothing to sneeze at. But neither were the terms SoftBank had set for CEO Vishal Garg as part of the financing infusion. 

In a side letter with SoftBank, Better CEO Vishal Garg agreed to take on a surprising level of liability, according to terms made public in SEC filings that haven’t been reported. Garg agreed in late November that he—not the company—would personally compensate SoftBank for losses, should there be a discrepancy in value of the Better notes SoftBank held once they convert into equity post-SPAC merger. How much risk are we talking about here? Apparently the sky is the limit.

“The amount of losses covered by the [side letter] is uncapped,” a risk disclosure in the latest S-4 filing reads. “The Better Founder and CEO remains responsible for all such losses, which could require him to, among other things, sell a significant portion of his holdings.”

This isn’t normal. Executives, Elon Musk aside, rarely agree to take on personal liability in a deal like this—not to mention uncapped liability, where there is no ceiling to the potential losses.

“It is without doubt very rare,” says one knowledgable observer. “It’s rare at all in terms of the guarantee, but particularly unusual at the lack of a cap.”

A Better spokesperson didn’t respond to a request for comment on the side letter, and a SoftBank spokesperson didn’t respond to a request for comment.

For Garg, there’s a lot riding on how Better shares trade once the company goes public. Here’s the problem: Better is in a very different position than it was on Nov. 30, which is the date that Garg and SoftBank agreed to these terms, per SEC filings. At the end of November, despite alleged bullying from a top executive and damning allegations made against Garg in several lawsuits, Better had, nevertheless, become a hyper-growth $7.7 billion-valuation Silicon Valley success story. That was then.

I’ve been reporting on this for months. You can look at the layoffs via Zoom that went viral, or the subsequent town hall employees say made them feel threatened, or Garg taking to an anonymous professional site Blind to accuse ex-staffers of stealing from the company. Widespread media attention led to Garg briefly taking a step back from the company, although he would return at the end of January.

But the chaos didn’t subside. Three of Better’s board members (most recently, in April, Gabrielle Toledano, former Chief People Officer at Tesla) have stepped down. Two of its top executives have left their positions with the company. Slews of staff members have left Better, whether it be due to the layoffs, the voluntary separation program, or sheer protest. As of the end of March, Better had 5,800 people on staff—down from its nearly 10,000 peak levels. 

Let’s keep going: Plans for a pilot program with a commercial partner—similar to the co-branded mortgage model it has with Ally Bank—have fallen apart. Negative media coverage has threatened the talent pipeline. A review from a third-party law firm after the mass layoffs revealed that, not only were there a number of cultural issues, but the firm had spotted a “material weakness” in its controls over its financial reporting that, should it not be figured out, could threaten the accuracy of its financial statements and, once the company goes public, lead to litigation or investigations from the Nasdaq or the SEC and other regulators.

All of this is written in plain sight in the S-4, which has now grown to more than 420 pages in size—not counting a slew of attached documents. (A Better spokesperson declined to comment on the departures and didn’t respond to a request for comment about the law firm’s discovery of the “material weakness.”)

So here’s a question: How will the public rate Better stock when its shares hit the public markets, if they do? And just how much could Garg really lose if shares tumble?

Better appears extremely committed to bringing this deal to the finish line. Recently it hired Harit Talwar, the former chairman and head of Marcus by Goldman Sachs, as non-executive chairman, according to a note Garg sent to staffers that was shared with Fortune. It hired an investor from Activant Capital, one of its VC backers, to head up its people and culture. And it says it is hiring a president. 

Garg is far from the only person with money on the line here. Current and former Better employees, who have been waiting patiently for a payout, would need coordination from Better’s human resources team and its transfer agent to be able to cash out. We can look at Buzzfeed—where severe logistical issues and lack of communication seem to have blocked employees from trading shares while stock prices tumbled for more than a week—to see how things can quickly go south.

“I’m personally very worried that not just employees, but large amounts of shareholders aren’t going to have the ability to trade day one,” says a former employee, who asked not to be identified. “Better is not showing any competence in the mechanics and logistics of comp and HR, and this is an offshoot of that…. I think the odds are quite low of being able to trade in the public market—maybe for weeks.”

Better is aiming to make its public debut by the end of this quarter. Will it become yet another SPAC gone wrong?

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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VENTURE DEALS

- Aiven, a Helsinki-based cloud database software startup, raised $210 million in funding led by Eurazeo SE and was joined by funds and accounts managed by BlackRock.

- Carbon Clean, a London-based carbon capture and storage company, raised $150 million in funding led by Chevron and was joined by investors including CEMEX Ventures, Marubeni Corporation, WAVE Equity Partners, AXA IM Alts, Samsung Ventures, Saudi Aramco Energy Ventures, and TC Energy

- MOMA Therapeutics, a Brighton, Mass.-based biopharmaceutical company developing medicines by targeting molecular machines, raised $150 million in Series B funding led by Goldman Sachs Asset Management and was joined by investors including Section 32, Pavilion Capital, Invus, LifeSci Venture Partners, Third Rock Ventures, Nextech Invest, Cormorant Asset Management, Casdin Capital, Rock Springs Capital, Creacion Ventures, Alexandria Venture Investments, and others. 

- Material Security, a Redwood City, Calif.-based email security software company, raised $100 million in Series C funding led by Founders Fund and was joined by investors including Andreesen Horowitz, investor Elad Gil, and other angels.

- Mothership, an Austin-based short-haul freight technology company, raised $76 million in funding from investors including Benchmark, WestCap, Bow Capital, former Con-way Freight CEO Douglas Stotlar, and others.

- Moralis, a Stockholm-based Web3 development platform, raised $40 million in Series A funding from investors including EQT Ventures, Fabric Ventures, Coinbase Ventures, and Dispersion Capital, and other angels.

- AcuityMD, a remote-based medtech software and data platform, raised $31 million in Series A funding led by Redpoint Venture Partners and was joined by investors including Benchmark, Ajax Health, and Artisanal Ventures.

- Jambo, a Kinshasa, Congo-based Web3 financing and education app, raised $30 million in Series A funding led by Paradigm and was joined by investors including ParaFi Capital, Pantera Capital, Delphi Ventures, Kingsway Capital, Gemini Frontier Fund, BH Digital, Graticule Asset Management Asia, Shima Capital, and Morningstar Ventures, and others. 

- CIQ, a Reno, Nev.-based software infrastructure company, raised $26 million in Series A funding led by Two Bear Capital.

- Co:Create, a remote-based NFT minting company, raised $25 million in seed funding led by a16z and was joined by investors including VaynerFund, Packy McCormick’s Not Boring Capital, Amy Wu, and others. 

- ​​Infinicept, a Denver-based embedded payments provider, raised $23 million in funding led by SVB Financial Group and Piper Sandler Merchant Banking and was joined by MissionOG

- Turquoise Health, a San Diego-based health care pricing platform, raised $20M million in Series A funding led by Andreessen Horowitz and was joined by investors including Bessemer, Box Group, and Tiger Global

- Ness, a New York-based rewards-based financial wellness company, raised $15.5 million in funding led by Will Ventures and was joined by investors including Core Innovation Capital, Accomplice, Digitalis, GFC, Portage, Refactor Capital, Atypical, and RiverPark Ventures.

- Tenyx, a Palo Alto-based A.I. technology company, raised $15 million in seed funding from investors including AME Cloud Ventures, Cota Capital, Morado Ventures, Pathbreaker Ventures, Point72 Ventures, and StageOne Ventures, and other angels.

- Genascence Corporation, a Palo Alto-based clinical-stage musculoskeletal diseases-focused biotech company, raised $10.5 million in Series A funding led by Pacira BioSciences and was joined by investors including Polymerase Capital, DeepWork Capital, and University of Florida Research Foundation.  

- Bubbles, a San Francisco-based video collaboration tool, raised $8.5 million in seed funding from investors including Khosla Ventures, Craft Ventures, Streamlined Ventures, 468 Ventures, and Bain Capital.

- Novu, a Tel Aviv-based notification infrastructure platform developer, raised $6.6 million in seed funding led by Crane Venture Partners and was joined by investors including Eniac, MXV Capital, Entrée Capital, Ariel Maislos, and other angels.

- Computecoin, a Web3 and metaverse infrastructure application, raised $6.2 million in funding led by Aves Lair

- Seadronix, a Ulsan, South Korea-based autonomous marine navigation control system developer, raised $5.8 million in funding led by SoftBank Ventures Asia. 

- Full Harvest, a San Francisco-based online marketplace connecting farmers with commercial produce buyers, raised $5 million in funding from investors including Rabobank’s Food & Agri Innovation Fund and JAL Innovation Fund.

- Ours, a Houston-based premarital counseling startup, raised $4.5 million in seed funding Led by TMV and was joined by investors including Serena Ventures, Lakehouse Ventures, Collaborative Fund, GreyMatter, Bonobos founding CEO Andy Dunn, and other angels.

- Sunday Security, a Tel Aviv-based cybersecurity startup, raised $4 million in seed funding led by MoreVC and was joined by angels including former CEO at AT&T and chairman of the President’s National Security Telecommunications Advisory Committee John Donovan, Palo Alto Networks CBO Amit Singh, president, Global Go-To-Market at PANW Shailesh Rao, founder and former CEO at Centrify Tom Kemp, and others.  

- Manara, a remote-based recruitment platform connecting computer science students in the Middle East and North Africa to tech companies, raised $3 million in pre-seed funding led by Stripe and was joined by investors including LinkedIn founder Reid Hoffman, Y Combinator founder Paul Graham, Lean Startup founder Eric Ries, and Careem founder and CEO Mudassir Sheikha

- Boomerang, a Miami-based lost and found technology platform, raised $2.8 million in seed funding from investors including GGV Capital, Relay Ventures, Animal Capital, Unanimous Capital, MVC, BevPac, 305 Ventures, Kalyon Ventures, Gaingels, Flamingo Capital, Clmbr founder Avrum Elmakis, Equinox founder Lavinia Errico, Abe Burns, Nick Montana, and LoanSnap CEO Karl Jacob.

PRIVATE EQUITY

- Blackstone acquired a majority stake in Geosyntec Consultants, an engineering and consulting firm for waterways, coastlines, dams and power grids. A deal values the company at more than $750 million, according to Bloomberg. 

- IFM Investors acquired a majority stake in Render Networks, a Highlands Ranch, Colo.-based geospatial construction platform developer, for AUD $40 million ($28 million).

- adm Group, backed by Equistone, acquired Lapine, a Stamford, Conn.-based consumer engagement agency, and Effectus, a Miami-based business process and strategy consulting company. Financial terms were not disclosed.

- All State Ag Partners, backed by Kinderhook Industries, acquired Dominion Equipment, a Richmond, Va.-based rubber tracks, dumping equipment, and other parts for heavy construction distributors. Financial terms were not disclosed. 

- Civica Group, backed by Partners Group, acquired Momentum Healthware, a Winnipeg-based healthcare technology provider. Financial terms were not disclosed. 

- Cencosud, with Apollo Global Management, agreed to acquire 67% of The Fresh Market Holdings, a Greensboro, N.C.-based food industry retailer. Financial terms were not disclosed.  

EXITS

- A consortium formed by F2i and DWS agreed to acquire Althea Group, a Milan-based technology management service provider to the European healthcare industry, from Permira. Financial terms were not disclosed. 

OTHER

- Philip Morris agreed to acquire Swedish Match, a Stockholm-based tobacco and nicotine products maker, for $16 billion.

- DigitalBridge is taking Switch, a Las Vegas-based data center operator, private for $8.38 billion.

IPOS

- Instacart, a San Francisco-based grocery delivery service, confidentially filed for an IPO. Andreessen Horowitz, Sequoia Capital, and D1 Capital Partners back the company.

SPAC

- Getaround, a San Francisco-based digital carsharing marketplace, agreed to go public via a merger with InterPrivate II Acquisition Corp., a SPAC. A deal would be valued at $1.2 billion. 

FUNDS + FUNDS OF FUNDS

- BlackRock, a New York-based investment management firm, raised more than $800 million for a fund focused on businesses and projects owned, led by, or serving Black, Latinx, and Native American communities in the United States.

- Flow, a Vancouver-based Web3 platform for games, apps and digital assets, raised $725 million for an ecosystem fund from investors including a16z, Coatue, Greenfield One, Liberty City Ventures, Union Square Ventures, and more. 

- Capital Dynamics, a Zug, Switzerland-based asset management firm, raised $578 million for a fund focused on middle market companies.

- Monroe Capital, a Chicago-based asset management firm, raised approximately $500 million for a fund focused on private credit transactions across multiple industries.

- Endeit Capital, an Amsterdam-based growth capital firm, raised €303 million ($318.78 million) for a fund focused on European internet companies.

- Chingona Ventures, a Chicago-based venture capital firm, raised $52 million for a second fund focused on the fintech, future of learning, and health and wellness sectors. 

PEOPLE

- B Capital, a Los Angeles-based investment firm, hired Hadi Tabbaa as partner and global head of investor relations. Formerly, he was with Coatue Management

- Ethos Capital, a Boston-based private equity investment firm, hired Stephen Gold as an executive partner. Formerly, he was with Honeywell.

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