Vishal Garg’s Better Home Loses 93% On First Trading Day

Vishal Garg. Wikipedia

August 26, 2023

This week, Better combined with Aurora Acquisition to form Better Home & Finance, a New York based publicly traded company. On its first day of trading, Better’s stock closed at $1.15, a 93% decline from Aurora’s $17.44 closing price the day before.

“With the support of our tremendous team, our innovative technology, and…additional capital…we are well-positioned and eager to forge ahead and continue pushing the boundaries of innovation in homeownership for our customers and shareholders,” Vishal Garg, founder and Chief Executive of Better said in a statement.

Better says its mission is “making homeownership simpler, faster and…more accessible for all Americans.” It offers a digital platform to homebuyers to shop for a mortgage loan and find leads to real estate brokers and lawyers as well as companies selling insurance for home titles, homeowners, automobiles, life and more. The platform also offers tools, calculators, and educational information to assist home buyers with their decisions.

So far Better has funded more than $100 billion in home mortgage loans, serving customers in all 50 U.S. states. Its combination with Aurora gives it access to about $565 m in fresh capital, including $528 million in convertible debt from the SoftBank Group, run by the Japanese billionaire Masayoshi Son, and additional common equity from NaMa Capital.

Better has a market value of $955 million, according to Yahoo Finance. This is down from an expected value of $7.7 billion, when the merger was first announced in 2021.

When asked about the stock price collapse, Kevin Ryan, Better’s Chief Financial Officer, told Yahoo, "I don't think we're going to talk about price or focus on price."

One factor for the drop in Better’s stock price is that demand for home mortgages in the United States has fallen sharply due to rising mortgage rates. This week the interest rate on a 30-year mortgage rose to 7.23%, a 22-year-high – up from a recent cyclical low of 2.8% in 2020.

Then, Better’s merger with Aurora, announced in 2021, was delayed after the U.S. Securities and Exchange Commission (SEC) requested information on Garg's business transactions and allegations made in a lawsuit that he and Better provided misleading statements. This month the SEC concluded its probe, without recommending any enforcement actions, enabling the merger to proceed.

Also, Aurora was a special purpose acquisition company (SPAC) which have been out of favor with investors. SPACs raise funds through a public listing with the goal of merging with a private company and take it public. Typically, investors in SPACs can redeem their shares before the merger without suffering a loss on the amount invested.

In Better's case, 95% of Aurora shareholders redeemed their shares, leaving the SPAC with only $24 million in equity at the end of June, down from about $283 million at the end of 2022, according to Reuters.

“Better.com's disastrous debut on the Nasdaq followed dramatic turns at the digital mortgage company since December 2021 when CEO Vishal Garg brutally laid off 900 employees on a Zoom call,” according to BusinessInsider.

The video, which was broadcast by BBC and which has attracted millions of viewers on YouTube, shows Garg telling employees of his company in the U.S. and India, that they were “part of the unlucky group that is being laid off. Your employment here is terminated effective immediately.” By April 2022, Better laid off nearly half of its 10,000 employees, according to an estimate by TechCrunch.

In an anonymous post on the social media forum Blind, Garg alleged that “at least 250 of the people terminated were working an average of 2 hours a day while clocking in 8 hours+ a day in the payroll system,” essentially “stealing” from customers and the company, according to Fortune.

"You are a bunch of DUMB DOLPHINS (who)…get caught in nets and eaten by Sharks,” Garg stated in an email sent to staff in 2020, Forbes reported.

In 2019, according to the The Daily Beast, Garg told a former business partner—the best man at his wedding—that he was “going to staple him against a f… wall and burn him alive.” Garg later apologized.

Former business partners have alleged in litigation, filed against Garg, that “their money and technology may have been used to launch” Better,  according to The Daily Beast.

Due to the lawsuits, Morgan Stanley reportedly decided to stop working on Better’s initial public offering. And Goldman Sachs sold much of its stake in Better, declining to comment on why, The Beast reported.

In April 2021, in a letter to some investors in Better, Garg disagreed with three major investors over the path to its listing as a public company. According to Vice, in an email, he called Howard Newman, of Pine Book Partners, "sewage" and an "ingrate and a thug and a miserable miser."

 In December 2021, following Garg’s firing of employees via a Zoom call, Better’s board of directors reportedly asked him to go on leave as CEO. Less than two months later, Garg returned as Better’s CEO. “We are confident in Vishal and in the changes he is committed to making to provide the type of leadership, focus and vision that Better needs at this pivotal time,” the company’s board stated in a memo to employees, according to CNBC.

Better is pursuing a massive market given that home ownership is a major pillar of the U.S. economy. In 2020, at the previous peak of the cyclical housing market, roughly 6.5 million homes were sold. Mortgage loans, borrowed by homeowners to fund the homes, are valued at around $20 trillion – U.S. Gross Domestic Product is about $27 trillion.

The market for mortgages and title and home insurance though is dominated by long-established banks, home insurance providers and other major competitors.

The idea for Better mortgage began in 2012 “when my wife and I applied for our first mortgage and got to experience firsthand the inefficient processes, outdated technology, and general frustration that have characterized this industry for decades,” Garg writes in a blog on the company’s site.

Garg is the founding partner of One Zero Capital, an investment company focused on consumer finance, technology, and digital marketing businesses. At age 21, he started MyRichUncle, a private lender of student loans in the U.S. In 2005, it went public, was later acquired by Merrill Lynch and eventually shut down. Earlier, he was an analyst in the Mergers & Acquisition department at Morgan Stanley.

Garg was raised in Queens, New York City, by immigrant parents from India. He is a graduate of Stuyvesant High School, a free city-run school. He earned a B.S. in finance from New York University. Garg, his wife and their 3 children live in New York City.

In 2020, Garg received $300,000 in salary and a cash bonus of $25 million. He then owned 22% of Better. .  

On his personal website Garg says about Better: “We’re just getting started. We won’t rest until you can get a mortgage in one day at no cost.”

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