Do you want more funding?
Vishal Garg is the co-founder and CEO of Better.com which is a direct lender that provides a fast, transparent digital mortgage experience backed by superior customer support. The company has raised so far $160 million from investors such as American Express Ventures, Citigroup, Ally Financial, Goldman Sachs, and Kleiner Perkins. Previously Vishal cofounded MyRichUncle (went public in 2006), Future Finance (raised $450 million), and Climb Credit (raised $100 million).
In this episode you will learn:
- How to deal with the dark moments as an entrepreneur
- Finding an opportunity when others see problems
- Ways to raise capital from top investors
- How to recruit the best employees
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About Vishal Garg:
In addition to leading Better.com, Vishal also serves as the Founding Partner of 1/0 Capital, a credit and financial technology incubator.
Mr. Garg also previously founded Future Finance, which today is Europe’s largest private student finance company.
Prior to Future Finance, Mr. Garg created an asset management business leveraging social data to better value and predict outcomes as well as engineer workouts for distressed consumers in consumer, student loan and mortgage ABS.
Utilizing this strategy, Mr. Garg acquired control of over $6.5 Bln of distressed credit assets in the period between 2009 and 2012 and helped hundreds of thousands of students and homeowners access better credit outcomes than those with traditional servicers. From 2000 to 2009, Mr. Garg was the founder, President and CFO of MyRichUncle (2005 NASDAQ IPO), which pioneered data-driven online student lending.
Connect with Vishal Garg:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. Today we have on the show a serial entrepreneur that has been around the block a few times. So, without further ado, Vishal Garg, welcome to the show today.
Vishal Garg: Thank you so much for having me.
Alejandro: So, born and raised in India. Then you came to the U.S., but until you were seven, you were in India. How was life from at least whatever you can remember from that time there?
Vishal Garg: In India, my dad worked in a big company. He had a heavy mortgage. My whole family had never been professionals. My dad came from a small village in Rajasthan. So, we were like a middle-class Indian family, which is to say back in the 1970s a middle-class Indian family was not very well off.
Alejandro: Right. So, you came here to the U.S. and was it like a big culture shock for you guys?
Vishal Garg: It was absolutely crazy the ideas that there are buildings with swimming pools on top of them. The idea that you go to these supermarkets; there’s unlimited amounts of food. I think our last famine in India was in the 1970s. I remember the first big image was I turned around at JFK, and in India, the airports look like boxes. It’s like someone just opened a crate, and that’s a box. I saw Eero Saarinen’s TWA Terminal, which is basically an airline terminal shaped like a bird. I was like, “This is such an amazing country that they made an airplane terminal at the airport that looked like a bird.” It was beautiful and magnificent. I was just like, “Wow! This is a very different country.”
Alejandro: Really cool. Then you went to Stevenson High School, which is for the most gifted. So, how did you get into this school?
Vishal Garg: Well, Stevenson’s really interesting because you take a test and there are like 35,000 kids that take a test, and the top 600 scores get in. So, it’s very different from what we hear about college admissions. It’s just like one test, and you take it. Honestly, back then, they just gave it to kids. We didn’t study for it or anything. You just take it. One day you go in and take a test. I grew up in Queens, and this is in David Dinkins, New York. We had metal detectors in our school. There were drug needles everywhere. So, going to local high school was not the thing to do. I’m really happy that I got to go to Stevenson. There, academics were celebrated, and I learned a lot, and I met the most amazing people. The beautiful thing was, most of everyone was good at most things, and they were always really good at one thing and super special at one thing. They had a super special human power. That was amazing because it exposed me to the wonders of humanity that every single person has a special human power, and they just need to be able to find it.
Alejandro: What was your superpower, Vishal?
Vishal Garg: My superpower, I think I was good at math and good at being able to spot an opportunity, or someplace where something didn’t seem right. I had lots of little businesses in high school. We had a business where we would buy stuff on sale at department stores and thrift stores in New York, and sell it on eBay. Or we would buy books and Cliff Notes and sell them to kids on the internet. So, super early stuff that my brother and I worked on back in the middle of the ’90s when the internet was new. I think I learned that hustle aspect of things really at Stevenson.
Alejandro: Why after college? You went to NYU. Why did you decide to join Corporate America rather than do your own thing because it seems like you were already testing with really the entrepreneurial stuff? Why did you decide to join Morgan Stanley instead?
Vishal Garg: I think there were two things. 1) I wanted to see how the system works on the inside. It’s really easy to say things are broken, but having studied, I had a deep interest in economics and developmental economics and studies in history, particularly the history of Colonialism. I didn’t believe the traditional dialog that things are broken because there are people who run big companies don’t know what they’re doing. I was suspicious. I was like, “Do people who run big companies actually know what they’re doing? Is this thing broken on purpose? And if it’s on purpose, what is the way to actually fix it?” Then maybe you’ve got to figure out all the different beneficiaries. You’ve got to figure out which of them is the weakest, and then from there, you figure out whether you can displace one of them or not. I joined Corporate America to learn about how things actually work from the inside. It was an amazing experience.
Alejandro: What did you see that was broken?
Vishal Garg: I started to see that the capital allocation process was broken. That because fundamentally things are hard to analyze and data is altered to different places. There were all sorts of arbitrages that were available, and the people that had technology working for them and had money frequently weren’t willing to do the work to go after them. So, if one could harness that technology and that money and be willing to work harder to go after them, then that could be a good business. The other thing that I saw that was really interesting was that in investment banking, because of the size and the scale of those transactions, they’re able to achieve a depth of analysis and a precision of analysis that’s quite extraordinary. But I wondered why we couldn’t take those same tools, which are really for the most part tools and templates in Excel and use that to make the analysis of people better. I grew up poor, smart, hungry in Queens, and I was like, “Why can’t I use the same tools that people use to analyze big companies to analyze people with potential. I started thinking about that because that seemed to be a much bigger and more interesting problem to solve. Like lowering the cap of capital for a company was kind of cool. Maybe it was a company of doing good things, and that gets a little bit cooler. Maybe it was like a technology company that’s changing the world. That gets even better. But man, what if you could use all those tools to change the allocation of capital for 7 billion people on this planet who don’t really have access to capital today. That was the eye-opening thing for me.
Alejandro: Your first business was One Zero Capital outside of Morgan Stanley and really the entrepreneurial world. What was that transition into One Zero Capital?
Vishal Garg: What happened was, I actually went on a pitch with Mary Meeker. I was the analyst staffed and working in M&A and doing Latin America. I was deeply interested in technology, so I got staffed on all the .com stuff coming out of Latin America at that time. This was 1997, ’98. I got staffed on this deal. I had always thought my whole life like, “I’ve got to wait until I’m 30, 35 to start my company.” Here I was going to pitch this company Star Media, and the CEO was like 25. Mary Meeker and myself, and eight people, obviously I carried the books, printed them out, spent the night putting them together. I’m like, “We’re pitching these people. I’m on the wrong side of the table. Here this guy who’s only four years older than me is out there changing the world and making the internet better for a billion people in Latin America, and here I am making pitch books at night.” So, I quit, and I didn’t have a plan. I’m like, “I’m on the wrong side of history here.” So, I quit. Actually, I quit on my 21st birthday. I asked my parents’ permission to quit. My dad surprisingly said, “Yes.” He’s like, “Well, if you plan to quit, you’re going to quit later, and if you’re going to do something later, you might as well do it now.” So, I quit. I’m like, “Okay. What can I do to be part of the Internet Revolution?” Because I had worked at a couple of other hedge funds in the past, I was like, “Well, I could start a fund that invest in these companies, and I would have a competitive advantage because I was young. How do I turn my competitive disadvantage that I’m young and new to the stuff?” Actually, everyone is new to this stuff in 1997, ’98 to the internet, so it’s not a competitive disadvantage. So, I could come and put that together. I went back to some of my old mentors and was able to raise a little bit of money for a small hedge fund that would invest in technology companies in the emerging markets in India and Latin America. Again, places where people didn’t want to go, but where I thought the impact of the internet could be much higher. Then, I got lucky. I was in the right place at the right time, and things really took off with that fund.
Alejandro: How big is this fund today, Vishal?
Vishal Garg: What happened is I was able to significantly outperform all the indices and basically survive through the Dot-com Bust. Then my biggest investor said to me in the middle of 2000, “What do you have plans to do next? You survived the bust, and you got out. What are you going to invest in next?” I said, “I don’t know. I’m going to figure it out.” Then he sent me a redemption notice and withdrew all of his money.
Alejandro: Oh, man.
Vishal Garg: The only money left was just my incentive fees. The 20% of the share of the profits that I had made. I think he did me the biggest favor because I would have messed it up. I was mad at him, but I would have messed it up. I would have gone and try to reinvest in those companies but without a clear plan. Then I was forced to be like, “Okay. Now I’m just managing my own money. I have much more money than any 22-year-old should have. What do I do with it?” Then I started thinking about it, and this guy made a whole bunch of money on me. “Man, I wish I could have made this much money for myself. Then I started thinking, “Wouldn’t it have been great if instead of selling a piece of my intellectual capital that this person leveraged to make a great return and then to take money out. What if I just sold a piece of myself.” Because that’s what I was doing. So, that was the concept for my next company, MyRichUncle.com, which was back in 2000. I stopped doing the hedge fund stuff to basically create what was then going to be the first direct from person-to-person platform for anyone to invest in anyone’s future income potential and future human capital. So, we created a company called MyRichUncle, which would let anyone invest in someone else based on how much money they were going to make in the future. The first application of that was in the context of students and helping kids pay for college by allowing them to sell a piece of their future income once they graduated to a network of investors. That became my next project.
Alejandro: Got it. How did you capitalize this company because I know that you guys ended up doing an IPO in 2005, which is pretty amazing, but how did you capitalize this business?
Vishal Garg: I put up $30,000, and then my fund invested about a million dollars, and then we hit the road.
Alejandro: Pretty cool.
Vishal Garg: There were some dark years, 2002, 2003. I remember we got a term sheet from an investor to invest 5 million dollars in the company. I remember I was on vacation at the end of the year, but I got an email from Chase saying that the company’s bank account had gone negative. So, I literally had to fly back to New York to deposit $25,000 in the bank account because we would have audited financials that we would need as of December 31st. So, it was pretty dark. But ultimately, we figured out that the model of helping people sell a percentage of their future income to others was not going to be legally viable across all 50 states. We did a lot of research, and we had to figure out a way to pivot to serve our customer base. We decided why don’t we make instead of equity contracts in people based on how much money they’ll make in the future, why don’t we make a smarter student loan basically using someone’s academic performance and their academic data instead of their FICO score to make student loans. So, MyRichUncle became the first online student loan company and became the first student loan company to use academics and future income prospects to help price student loans. That was in 2004, and we launched our student loan platform, MyRichUncle.com, and it caught on.
Alejandro: How old were you, Vishal when you guys took this thing IPO in 2005?
Vishal Garg: I was 26 years old.
Alejandro: Wow. Really, really cool. At the peak of the business, how big was the business?
Vishal Garg: It was 300 people. It was a 450-million-dollar market cap company. Things like today, trade at price to revenue multiples. Back then, they traded at price to earnings. We were starting to make 20 million dollars a year or so, and on our way to making 50 million dollars a year. By 2007, we were the fourth largest student loan company in the United States. By 2008, we actually survived a lot of the initial pieces of credit crisis. We were the second largest private student lender in the United States in operation. Most of the company, over time, got acquired by Merrill Lynch, and they became our banker, our equity owners, up and down the capital structure. Then, unfortunately, even though we survived a lot of the credit crisis after Merrill Lynch got acquired by Bank of America because we were actively competing with the Bank of America Student Loan business and Merrill Lynch was in deep trouble, they took us over and shut us down.
Alejandro: Wow. How were those moments for you? I’m sure they were not very easy.
Vishal Garg: It was dark. We did everything to keep that company alive. But the credit crisis, October, November, December of 2008, AIG went down. Citibank nearly failed. All the biggest banks in the country had bailouts: Goldman Sachs, Morgan Stanley, everyone got bailed out. We were smart enough to succeed but too small to be bailed out. It was sad because we had built something that was helping hundreds of thousands of kids lower the rate on their student loan. I remember using our own equity dollars because we had committed money to kids to get funded, and then Merrill Lynch withdrew the funding. So, literally, we used our own money to help those kids because those kids wanted us and needed us. They were relying on us to fund their tuition. In September and October, we had the tuition paydays. It also taught me to do the right thing. Ultimately, when we are in a business, like consumer credit, we are impacting people’s lives. People will forgive you for losing their money, and investors will forgive you for losing their money, but people will not forgive you for doing the wrong thing. What was remarkable about MyRichUncle was that people remembered and literally two weeks after Merrill Lynch shut us down, they called me back in. They called me and said, “We need some help managing these loans.” I’m sure if we didn’t do the right thing, they wouldn’t have called me. Then UBS called me. Then a whole bunch of other banks started calling me. Honestly, again, it’s just a question of like even when the chips are down, do the right thing, and people will remember. But it was hard. It was really, really hard because you had to make some really strong decisions as to like there’s only like there’s four people who are hungry, and you only have one slice of pizza left, who are you going to feed? Ultimately, we fed our customers. We took care of our customers, and because we took care of our customers ahead of everyone else, and we could hand on hearts say that we did that, all these banks, all these other people, they got dragged down with the crisis, they had negative press and all that. MyRichUncle, nothing.
Alejandro: Then, Vishal, out of every breakdown, there’s a breakthrough. What was that breakthrough moment for you?
Vishal Garg: I think the breakthrough moment came a little bit later when I realized that basically the banking system was fundamentally broken and that the access to credit like in this country and maybe globally. The way it worked in the past was that you had this local bank and the local banker. The local banker knew a lot about the consumer, knew a lot about what they were going to do with the money, and was able to provide a lot of context around what was happening. Banks used to look like temples, and you’d walk in, and you’d walk in to be like basically judged. In exchange, you got judged as to what you wanted to use the money for. Got judged, and then you got money, and then because you had that human touch to it, you would tend to pay it back. There were some problems with that structure: racism, sexism, and a bunch of other things. But those are problems that you could surmount via technology. But what had happened was technology was applied to distribute that product naturally. It was applied to remove all of that context and call-centralize the whole thing, and put it into some rigid rules, and score it, and all that rich context was lost. Then in order to make the employees’ cost lower, they all became commissioned workers. So, their interests didn’t align with the consumers anymore. The banks still kind of want their interest to align with the consumers. They’re actually explicitly aligned with the consumers, but the workers in the banks, their interests aren’t aligned with the consumers because the higher interest rate you give to a consumer, the more commission you get. The bigger loan amount you give to a consumer, the more commission you get. So, I realized the core functioning aspects of banks are really good at taking in deposits. They’re really bad at making loans. It was pervasive, and it was something that was not going to get fixed within the banking system, and the banks should help to do that. Just at that same time, while all of this was going on, I see that the evolution of matching engines and marketplaces taking place where the technology and the cost of the technology has now caught up is now there had now decreased so much that you could actually make a functioning matching engine with all the data and all the context like in instances like OkCupid or Spotify. That same thought process and technology could be applied to matching people and capital to finance the needs of people.
Alejandro: At what point, Vishal, was Future Finance born, your next business, your next rodeo? Before we get there, one lesson learned from this journey. One lesson learned. What was that one lesson learned for you with MyRichUncle?
Vishal Garg: The biggest lesson I learned from MyRichUncle was that if you deliver value to the consumer, it might take them a while, but they will come. Then when they come, they will come in droves that you will not be able to hold them back. So, no matter what anyone says, first principle: deliver value to the consumer. If you are not delivering value to the consumer, you do not deserve to exist.
Alejandro: That’s it. Product/market fit as well. So, Vishal, let’s talk about Future Finance. What was that transition for you from MyRichUncle to Future Finance, and what was the incubation process, and how did this come to fruition?
Vishal Garg: What happened with Future Finance was actually interesting. I was back to running my fund and investing in things. I did that for about three years. Then in 2012, I saw a news article where suddenly the United Kingdom Government as a result of austerity was going to increase tuition on college in the UK from 3,000£ a year to 9,000£ a year. There were protests taking place on the streets of London with students saying, “How am I going to come up with this money?” 3,000£ you can come in and come up with if you’re a working class. You can bartend, you can restaurant wait, you can do a bunch of other things. You can work over the summer, and you can come up with 3,000£. Suddenly 9,000£, which at that time the pound was $2 a pound. That’s 18 grand. 9,000£ suddenly to 12 grand, that’s hard to come up with. I thought like, “There seems to be an opportunity.” So, Future Finance was MyRichUncle Europe. I thought this opportunity existed and that basically, that opportunity existed around Europe where governments were stepping back from financing all of education themselves or making education free. So, I saw market need. I was able to partner up with Blackstone, Goldman Sachs, and a host of UK family offices to raise money, and invest in equity. I assembled a team, and we got started. As a second-time entrepreneur, and someone who had taken a company public before, had been in this vertical, I would say this time it was much more about – people were not thinking about execution risks, they were really worried about market risk. Like is the market there? I said, “Guys if we wait for the market to be there until it shows up like in some McKinsey Consulting Report, it will already have been won by somebody else. We’ve got to go make the market. We know the need is there. There are these kids rioting on the streets because they’re not going to be able to pay tuition next year. That need is there. It’s like on the tele.”
Alejandro: Basically, your role there, Vishal, what you really did there is you saw the problem, you assembled the team, and then you let that one fly.
Vishal Garg: That’s right. I was the founder and the chairman. Honestly, the one thing was I was like after MyRichUncle, after eight years of that, I was like, “I never want to run a startup again.” It’s so hard. It’s so all-consuming. I was like I think I’m not going to be able to do it. Ultimately, honestly, I wasn’t willing to move to the UK. My kids were now in school here, and I just thought it would be disruptive for my family, and I wasn’t going to be the best person at it. So, I let that go. It turned out to be a good choice because it helped me. When I decided that we weren’t going to move to the UK, I started looking for a place to buy here.
Alejandro: Right. Before we move to the next initiative, whatever happened with Future Finance?
Vishal Garg: Future Finance is now the largest student loan company in Europe.
Alejandro: Really cool, and I’ve seen that they’ve raised something like 450 Million. Is that right?
Vishal Garg: Yeah.
Alejandro: Right now, your role there is the founder, or are you still active with the business?
Vishal Garg: I’m an advisor to the business, but I’m not active. They have an amazing team. They’re growing. They’re building a market, but it’s not easy. Honestly, like they’ve raised a ton of money, but it’s not easy making the market. They’re the first company in the space. It’s going to take them some time. I think if I was giving you one piece of advice, anything good takes time. A lot of people get into startups, and they say, “Okay, I’m going to make this company, and I’m going to flip it in four years.” Honestly, most startups to make a company that’s actually good and valuable, it probably takes eight to ten years.
Alejandro: Yeah. It’s persistence, a lot of patience, and consistency. Climb Credit. How did Climb Credit come about?
Vishal Garg: I came back to the U.S., and one of my partners in my fund said, “Look at SoFi. Look at all these other companies doing U.S. student loans. Why don’t we do U.S. student loans as well?” I said, “Honestly, I can’t do U.S. student loans anymore because colleges cost too much.” It’s like $70,000 to go to college. The rate of return on higher education, which used to be 18% is barely 6%. So, why would you lend somebody money at 7% or 8% to invest in an asset that returns 6%? That doesn’t really make sense. So, if the average return is 6%, and the average interest rate is 8%, at least half the people you’re lending money to are making a negative ROI decision. So, I did not like the way that it was attacked. So, my partner said, “No, no, no. I know the founder of General Assembly. He’s amazing. You should see what they’re doing. They’re taking English majors who are drumming in a band in Williamsburg and turning them into web developers or data scientists.” I was like, “That’s pretty cool.” So, I went down to speak to General Assembly down in Union Square. I was like, “Wow. This is grad school. This is the grad school of the future.” I went to visit a few other coding boot camps, and each and every one of these coding boot camps said, “You know what? This is really messed up. We’re really actually helping kids. We’re helping people get retrained after college. For example, they got a Liberal Arts degree, and they can’t be participants in the new economy, but we can take them and in three months make them a really meaningful participant in the new economy.” I was like, “Wow. You’re totally right.” We’re pumping out millions of these kids a year in college with $200,000 of student loan debt, and they still don’t have a skill that an employer needs.” So, I thought there was going to be something big there. Each of these schools could not get money from the government. They were not eligible for the Federal Student Loan Program because they hadn’t been around for three years. The Federal Student Loan Program required you to have three years of data before you can actually get access to federal money. But the world is moving so fast that getting three years of data out of four is like you might change the course. Like the programming language might change. So, it’s like crazy. Like there are these rules written for a world that is static, or it’s really slowly changing, and the world is changing way faster. I was like, “That’s interesting. Maybe there’s a way that we could align all the incentives. What if the school guaranteed some part of the loan? That way, the school had some skin in the game along with the students. There’s not really any product sold in America today that costs $10,000, $20,000, $30,000 to the consumer that doesn’t have a warranty on it other than higher education.
Alejandro: Right.
Vishal Garg: If I buy a $10,000 car, I get a 7-year warranty. I buy a $200,000 college degree, and I get “Good luck,” and I get a piece of paper. So, could the school guarantee it? If that would be cool, then you could create a platform for investors to participate. I thought about this. I came back, and I was like, “You know what? I’m super interested, but I’m not sure I’ll take a bet on it. Worse case, I’ll lose all my money, and a bunch of kids got their careers transformed. Cool.” So, I put up 1 million dollars in an experimental pool to fund kids that were studying at General Assembly. Those kids came out of one class, and they did amazing. We could see the data right after three months. Then I increased the size of the pool to 3 million dollars, and then I started talking to some of my friends, and one of the guys who had worked with us and had invested in Future Finance at Blackstone really liked it. Then we got Blackstone to be an equity partner and provide a lending facility. So, they committed over 100 million dollars. Then from there, we’ve had Goldman Sachs. We’ve had a number of other prominent VCs invest in Climb Credit. Climb Credit is the largest financing company for the new economy training, career re-training in America. They do not code in just boot camps, but nursing schools, teaching schools, a bunch of other things. That company is going gangbusters. I’m the Chairman. I’m not the CEO. I didn’t think I would be the person to push this forward.
Alejandro: Why was that the case, Vishal? Why did you think you were not the right person?
Vishal Garg: Because my prior company had failed in student lending. Ultimately, I didn’t want them burdened by that baggage. So, many people did not care, but some people did, and the average of that is still that some people did. So, if that was going to – look. Startups have a very low probability of success. So, whatever you can do to increase your chance of success or decrease your chance of failure, that can be huge. If startups are already having 90% likelihood of death, why would you choose to make that 91%?
Alejandro: Makes sense.
Vishal Garg: You just suddenly lowered your chances of success by 10%.
Alejandro: How much capital did Climb Credit raise so far?
Vishal Garg: I think Climb Credit has raised over 150 million dollars from Goldman Sachs, from Blackstone, and a bunch of education and social-impact focused venture capital companies.
Alejandro: As chairman, as you are here, Vishal, what makes the role of a chairman. Who do you need to be as a chairman to be effective?
Vishal Garg: I think you need to play the role of mentor, coach, and communicator of bad things to the internal team. Also, the go-between, between the investors and other constituents and the management team. So, I think your core goal is to showcase perspectives that they may not be considering.
Alejandro: Makes sense. So, why don’t we talk here about your next rodeo where you actually take the reins, Better Mortgage. How did the idea of Better Mortgage come together?
Vishal Garg: While all of this is going on in New York, my wife and I had a baby boy, and we were expecting a second. We started looking at schools and where we wanted to live. One day, I came back and my landlord, the super came through, and he said my son had colored the walls, and that was not allowed in our apartment. I had never thought about these things with my bachelor pad. We were still living in it. So, we said, “No, that’s not cool. The new baby’s coming, and we need to be able to do what we want with the nursery, and live in the place that we want.” We were putting down roots, schools, and starting to care about how playgrounds looked and things like that. So, we said we should buy a place. We started looking based on where I was working, where my wife was working, what school district we wanted to be in, and we found a couple of places. I was tasked with taking the first look at it. Being in technology and finance, I was like, “Okay. I’m going try to buy this place myself. I don’t need a realtor.” I reached out to the seller’s listing agent. I reached out once, and they didn’t respond back. Then I reached out the second time, and they didn’t respond back. So, I found out who the owner was, and it was guy that worked at JPMorgan. So, I sent him an email directly. Then he forwarded my email to his broker, and his broker finally showed me the place. We really liked the place. I told the broker, “This is a great place. My wife can come and see it. I have a question for you. Why didn’t you respond to my first two emails?” He was like, “I didn’t know anything about you.” I was like, “Really? That’s crazy. You could have Googled me. Have you heard of Google?” He was surprised by that, but I’ll come back to that a little bit later. My wife came in, and she saw the place. We’re both technical backgrounds. She’s an engineer by training. She said, “This fits all the boxes. Let’s go.” We’re like, “We’d like to make a bid.” The broker’s like, “Okay, great.” We’re going to negotiate. We’ll bid like 5% off the listing price, and we can close and so forth. He said, “Okay. Are you going to finance this?” I said, “Yeah. I’m going to finance this. That’s what everybody does. Right?” I guess that was not the right answer because he asked, “Are you pre-approved?” I said, “What’s that?” It was really interesting for someone who has been in consumer finance and technology for 15 years, I knew almost nothing about how a mortgage process actually works. He was like, “You need a pre-approved letter. We cannot submit your offer without a pre-approval letter if you’re going to finance.” I said, “Okay, fine. I’ll go get you a pre-approval letter.” How hard can that be? I’m sure I can just get that online. That evening, I went online, and I went on LendingTree. I figured I’d get a pre-approval letter in five minutes. It will be like booking an airline ticket, and we’ll be done. So, I submitted my info, and then everyone was like, “We’ll get back to you. Thank you for your submission. We will be back to you. Thank you for your submission. We’ll be back to you.” I went to all these bank websites, and they’re like, “Thank you for your submission. Someone will call you.” I was like, “I don’t want to be called.” Then the next day at work, and I’m in meetings, and people are calling my phone incessantly, and it’s all like crazy phone numbers, and they’re like, “Yeah, sure. We can get you started. My name’s …” There was some guy from First American Funding, another guy from New American Funding, another guy from Flagstar Funding. There were all these people, and I didn’t know who they were. They could be anyone. You’d ask, “What’s the rate?” and nobody would tell me the rate. They’re like, “We need you to submit an application.” I was like, “What’s involved there?” “Your name, address, social…” “I’m not going to give you my social security number. You’re some random guy that called me on the phone. Don’t you have a website I can enter that in?” “No. We can’t do anything for you.” I basically went into shellshock like, “I can’t deal with this.” Then the real estate broker called and emailed us two days later. He’s like, “Where’s your pre-approval letter. I thought you’d be able to get one.” I was like, “I don’t have it. My wife scheduled some time at the bank. She’s actually working.” She said, “My bank said that for all bank employees, we get a discount.” So, we went to the bank branch in her office building. She’s like, “We need an hour and a half.” “My wife and I work four blocks from each other, and we’ve never had lunch together. We’re busy professionals. Here we’re spending an hour and a half in this bank branch.” The guy’s asking me a bunch of stuff, and I’m an entrepreneur, so I can understand that he needs to know my stuff. But he starts asking my wife, “Where do you work?” “Well, we clicked on the email that you sent, so you probably know where she works.” “How much do you make? How long have you been employed here?” I’m like, “This data’s on the ninth floor in HR. Don’t you have a button that just collects this stuff.” I was wondering what was going on. This was ridiculous. He said, “Let me go in the back and check.” I don’t know if you’ve ever bought a car, but the car dealers, they go in the back and I think it’s like pomp and circumstance. It’s like, “I’m going to look at some numbers.” He comes back and says, “Great news. We’ll be back to you in two to three weeks.” I’m annoyed at myself because I told the real estate broker, I would get the pre-approval like that. Now, how do I walk back from there? Then I’m annoyed at the bank… I was like, “Why does it take them three weeks to do this stuff? This is super easy. At MyRichUncle we would have done this in like a minute. You could get the data from the credit bureau, from here, you could get the income verification from here, you could get the bank statements from here. You could get all this stuff. What is going on?” Then I went back to the broker and said, “We have good news. We think we’re going to get approved, but we’re only going to get the pre-approval letter in three weeks.” The broker’s mad. We’re like, “Okay, fine. Keep me updated.” He calls and keeps me updated. Tells me there’s activity on the house. My wife is like, “Should we start looking?” But we already have our hearts set on this place. Every other place doesn’t look as good. I’m calling the Citibank guy all the time to see if it’s in progress. He doesn’t pick up my phone. He doesn’t get back to me. He doesn’t send me an email. When he sends me emails, I have to log into some system to get them because it’s a security thing. I forget the password. It’s all a mess. Finally, in three weeks we get the pre-approval letter, and we send the pre-approval letter and the offer to the realtor, and the realtor says, “This pre-approval is not – there’s no appraisal on it. It has an appraisal contingency. We can’t accept this preapproval.” I was like, “What do you mean?” He was like, “What if it doesn’t appraise? Then what are you going to do?” I was like, “This is crazy.” He was like, “Well, you’d better get an appraiser in here.” Then we call up the bank, and the bank was like, “It’s going to cost. You’re going to have to pay these application fees, and do all this stuff, and it’s going to be $52,000 of all the stuff to close. Once you get the process started, then we can send an appraiser, and the appraiser is going to take up to 30 days.” Pretty crazy!
Alejandro: What happened Vishal. Did you get the apartment or not?
Vishal Garg: No. We lost the apartment. The guy sold the apartment to an all-cash buyer who paid 7% less than I did. At the same time all of this is happening I’m seeing a securitization of mortgages, like the mortgage we were trying to get from this bank come through. Basically, I was like, “Wait. Call my friend at this bank. You guys make 2 to 3 points on these mortgages?” He’s like, “Yeah. Sometimes, more. Sometimes, less.” “You make $20,000 on a mortgage? There are people in Japan that make a car and ship it across the ocean, and they make $20,000. And you make an 800-page document. This is crazy.” I did more research, and I was like, “This is just fundamentally unbearable. How broken is this process?” This is crazy. There are 10 million mortgages made a year.”
Alejandro: This was what gave birth to Better Mortgage where you guys are reinventing the detailed mortgage experience. I know that you guys, Vishal, basically assembled a team of folks around you as the founding team. So, what was the founding team like?
Vishal Garg: I started reading the Fannie Mae manual. I started looking at all these mortgage banks and all this stuff. Now, I was on a tear. If it’s so broken for me, how broken is it for every other person in this country. It was the same thing I had done before when I was thinking how student loans aren’t fair. This is totally unfair. I’m going to fix it. I’m going to make it better. So, what we realized is, ultimately, the bulk of mortgages in this country are decisioned and guaranteed by the government. The government sets forth a set of rules for these mortgages and sets forth a set of pricing for these mortgages, and it’s expressed in Fannie Mae, Freddie Mac, FHA, and so on. Then a bunch of banks do that. What we realized is actually making a mortgage is not a credit problem; it’s a matching problem. You need to take consumer data, and you need to take property data and create a matching system between that data and the rules and the pricing that’s changing every day with the markets. What I went to do is say, “I’m going to assemble a team that has built a large-scale matching engine. I went and talked to two people, and I found my co-founder/partner, Erik Bernhardsson, who had built the matching engine at Spotify. If you think about what Spotify is, like the music you like, the music your friends like, what you like to listen to, and then matching that with what’s available on the catalog. Then, therefore, creating next recommendation and the next recommendation. All that data is tagged, and it’s a beautiful system, and it delivers 80 million people joy every day. So, you wouldn’t think it’s similar, but at a data level, it’s actually very similar. Erik came on the team. I went to my other partner and co-founder, Viral Shah who was trading the first algorithmic interest-rate trading desk on Wall Street at Citibank. He had also had a terrible homeownership experience. He had just bought a place. I stayed in touch with him. He had previously worked for me when he was a sophomore in high school. I told him, “This is what we’re doing,” and he came onboard. Then we assembled a team of just great people with customer acquisition, operations, and technology to make mortgages better. Then as part of making mortgages better, really make homeownership better. The past four years, we first took over. We realized that all of this was super complex, and ultimately in order to do this, to start from scratch is really, really hard. My experience with student loans in MyRichUncle taught me I don’t want to actually relearn everything I don’t know or learn it on the fly. What I want to do it take something almost like a factory that already exists that has all the rules, that has all the compliance infrastructure in place, that has the access to funding, and make it much better. Instead of starting from scratch, like Tesla, with their factory that they bought in Freemont, we took over a small mortgage bank in Mellitus, California. It was like 35 people, but they were making loans, and they were doing it almost entirely by hand. What was great about the fact that they were doing it by hand, they were actually very backwards. But everything was visible, so we knew where the person added value, and where it was just the data that was valuable. We started taking those tasks and putting them online, making them beautiful and easy, and where it was possible to get the data directly, getting that data direct. What we did was we basically started creating utility for the consumer, and getting rid of the places where the consumer is exposed to friction, just add value to a human task. For instance, we give rates in three seconds. Everyone else hides their rates until you talk to them. So, you can go on all our competitors’ websites, and the rates are not there. Except on Better.com you get all the rates for your choices in three seconds. They won’t give you a pre-approval letter unless you go and file an application to do all this stuff. We give you a pre-approval letter in three minutes, so you can spend time shopping for a house rather than shopping for a loan, and you can have confidence in how much you can actually afford. That’s the other thing. The pre-approval letter tells you how much you can afford. Then you can go and actually bid with confidence. If you don’t know how much you can afford, what are you doing bidding on a house? That’s the largest financial transaction you’ll ever make. When you go to buy a TV set, you don’t go pick the TV set and then figure out whether you can afford it or not, you have a budget. When you go buy a car, you have a budget. Most people don’t even know how much house they can actually afford, so we built these tools to help the consumer. Then usually, they’re confronted with a commission loan officer. That commission loan officer, that was the case at the bank where we bought also. There was a commission loan officer. The commission loan officer is getting paid 1.5% of what your mortgage is. If they give you a $300,000 mortgage, they make $4,500. If they give you a $400,000 mortgage, they make $6,000. If you have a person and they’re going to give you a $300,000 mortgage or a $400,000 mortgage, what do you think they’re going to do? They’re going to give you a more expensive mortgage at a higher loan amount. That’s what they’re going to do because they get paid a bigger commission. That doesn’t make sense. That’s just a number in Excel. We should help you get the best mortgage for the best house you can afford doesn’t matter what size the mortgage is; it doesn’t matter what rate it is. We realized there getting rid of all the commission loan officers and creating the first non-commissioned mortgage company in America was something that we could do. You know what used to happen at Sears? You’d go to Sears, and you’d have a Sears shopper department that was a commissioned person. You know what happened to that person, they went away because Amazon can tell you that if you buy some glasses that are like tumblers, that you might want some glasses that are like expresso-colored glasses. People who bought this bought this. We can have a machine do that, and we can take all the savings from there and give it back to the consumer so they could get a better house.
Alejandro: That has been a trend, Vishal, with removing the middle man. So, for this business, how much capital have you guys raised so far?
Vishal Garg: We’ve now raised over 150 million dollars.
Alejandro: I see that you guys have great people like Kleiner, Goldman Sachs, IA Ventures, and even American Express. How big is the company now?
Vishal Garg: American Express, Citibank, Allied Bank, Goldman Sachs, Kleiner Perkins. So, the best of the East Coast and the West Coast.
Alejandro: Cool. There’s nothing like having the best of both coasts. How big is Better today?
Vishal Garg: We now have 600 people. We’re funding 250 million a month of loans. We’re on track to do over 3.5 billion of loans this year, up from 1.3 billion last year, which is up from 450 million the year before. We’ve 10x the company in two years.
Alejandro: I love it. So, now, looking back, was there a tipping point or a point where you were like, “I think we’re into something really big here?”
Vishal Garg: There was a customer who sent me an email. What’s been awesome at Better is doing it the second time, and doing it myself, it’s a lot of work. And I’m older now. I’m like 41. It’s so much work. It’s so different when you’re 27. But what I realized is that I can do it my way this time. I give consumers the ability to email me anytime they want in the process. [email protected]. I answer those emails. A consumer emailed me and said, “Thank you. You have really changed something for me and my family because what you allowed me to do was increase my budget due to the better rate you gave me by $30,000 compared to other companies. This has allowed me to shop for houses in better school zones with shorter commutes to my work.” I had had a tough day, and I was like, “You made my day. This is amazing because I’d been searching for the meaning.” Finance is fine, but what do we allow people to do? We allow people to have a better house in a better school district with a better commute so they can spend more time with their children. They can enjoy their lives, and their lives can be better. That connection of purpose towards a basic human need, a roof over our heads, a home for our souls, a home for our family. That was just amazing, and I realized if we could do that, and we could do that every day, and when we leave the office, we can say, “Today, we made home better for x number of people. Whether it’s 50, 100, 1,000 people, today we made home better for them, and they’re going to remember that for the next 30 years. We can win. We’re going to win, and we’re not going to win like small. We’re not going to win like medium. We might win the whole thing.”
Alejandro: I love it, and there goes the name of the company, Better. So, Vishal, such an incredible journey that you’ve had as an entrepreneur. Been at it several times in different roles, but now, if you had the opportunity to sit down with your younger self, with that Vishal that was about to give the notice at Morgan Stanley and going to build his first business, if you had the chance to really speak to your younger self, what would be that one piece of business advice that you would give to yourself before launching a business and why?
Vishal Garg: I would say, never quit. It’s going to take longer than you expect. People will give up on you. Your investors will give up on you. Your friends will give up on you. But if the consumer keeps clicking, then you should not quit because the consumer will not give up on you. The customer will not give up on you, and if you do not give up on them, you will win.
Alejandro: I love it. So, who is Vishal during one of those moments where you’re thinking about quitting as an option? Who is that Vishal in one of those moments to really bounce back and make it happen?
Vishal Garg: I think whenever I’m really down, when I’m really, really down, I do this: I go look at the customer feedback. I go look at the people that work here and interact with the customers. I’m like, “What happened today?” And it’s always energizing.
Alejandro: That’s amazing.
Vishal Garg: Even some of the bad stuff is always energizing. Then I go home and go to sleep, and try to go to sleep as soon as possible to end the day as quickly as possible. Wake up the next morning and get back at it.
Alejandro: That’s it. I love the energy, Vishal. So, what is the best way for the folks that are listening to reach out and say hi?
Vishal Garg: [email protected] just like every one of my customers.
Alejandro: Amazing. Well, Vishal, it was a pleasure. Thank you so much for being on the DealMakers show today.
Vishal Garg: Thank you so much for having me. It’s been really great talking to you, and best of luck to everyone listening.
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