As it prepares to go public next week, Better—the embattled mortgage company backed by SoftBank—is in dire need of cash.
It’s why the company, which has been plagued by scandal, turnover, and hundreds of millions in losses, is moving forward with a SPAC merger during the worst IPO market in three decades, one of the very few companies to try and do so.
As part of the deal that was initially signed before the mortgage markets soured and the company started laying off wide swaths of employees at the end of 2021, SoftBank agreed to infuse $550 million of capital in the form of convertible notes upon the close of the blank check merger. The arrangement is laced with extraordinary personal risk for Better CEO Vishal Garg, as Fortune has previously reported. That’s because Garg made a highly unusual concession: to personally compensate the Japanese investment firm for potential losses depending on how the shares ultimately perform over the next five years. In the worst case, he could theoretically have to chalk up the entire $550 million sum himself.
Better—once a prized unicorn valued at $7.7 billion just two years ago—has been struggling to regain its footing ever since Garg infamously laid off 9% of the company’s staff on Zoom, then accused those employees of “stealing” from the company on the professional site Blind. Around the time Garg returned from a temporary leave of absence at the beginning of last year, stories about old, damning lawsuits resurfaced. Three of Better’s board members have resigned since 2021, and three of Better’s executives were fired or left the company. Better’s former head of sales is in the middle of suing the company for allegedly misleading investors (Better declined to comment on the lawsuit). In the meantime, a pilot program with a potential commercial partner was canceled, and Barclays wound down the $500 million warehouse line it had provided to Better, according to filings.
Amid the layoffs and voluntary turnover, Better is a much smaller operation than it was just two years ago—91% smaller in terms of headcount, with 950 employees as of June, compared to the more than 10,400 it employed at its peak at the end of 2021, according to filings. Approximately 420 of Better’s current employees are based in India.
Company financial documents show Better’s funded loan volume has sunk enormously: In the first three months of the year, volume was $800 million, compared to $7 billion in 2022. To be sure, overall market demand for refinancing has dropped significantly, too. Fannie Mae’s Refinance Application-Level Index is down nearly 90% from three years ago. However, competitor Rocket Mortgage, which has also been laying off staff, comparatively cut its headcount by approximately 29% in 2022, according to Housingwire.
Amid the company’s massive drop in size, regulatory filings indicate that Better has lost important talent it may need to run a public company. For one, Better says in filings it will need to fill the position of director of internal audit “in order to effectively function as a public company.” (Better declined to comment)
In general, the attrition among Better’s senior management team and the rest of its workforce has led to a “reduction of institutional knowledge” and capabilities in “certain key functions,” such as legal and compliance or finance and accounting, according to SEC filings. Better has disclosed that a “limited number of accounting personnel” at the company led to a “material weakness in internal control” in Better’s financial reporting. And “insufficient experience and capacity” led to a separate material weakness, according to filings.
Given all the turmoil at Better in the last two years, it’s unclear how the markets will react to Better’s public listing next week (Better is expected to list under the ticker BETR sometime next week, according to filings). Not to mention—the company is posting enormous losses, which are especially unfavorable to investors in today’s economic environment. Better reported nearly $889 million in net losses in 2022, more than double its losses in 2021, which were $301 million. Net losses are improving, with Better reporting approximately $90 million in net losses during the first three months of 2023.
Correction, Aug. 18, 2023: An earlier version of this story accidentally contained embargoed information. This information has been removed.