From proxy fight to AI platform: Vishal Garg’s plan for Better

HousingWire

Better founder Vishal Garg joins Diego Sanchez for a candid conversation about the proxy fight, the move away from ad-driven direct-to-consumer lending, and his plan to power origination for the rest of the industry rather than compete with it. Garg is blunt about his own mistake: not pushing the AI hard enough while younger competitors moved faster. They also get into distributed retail and wholesale, recent cost cuts, and what the path to profitability looks like from here.  Related to the episode:  Diego Sanchez' LinkedIn https://www.linkedin.com/in/diegoesanchez/  Vishal Garg's LinkedIn https://www.linkedin.com/in/vishalgargbetter/  Better https://better.com/  The Power House podcast brings the biggest names in housing to answer hard-hitting questions about industry trends, operational and growth strategy, and leadership. Join HousingWire’s Zeb Lowe every Thursday morning for candid conversations with industry leaders to learn how they’re differentiating themselves from the competition. Hosted and produced by the HousingWire Content Studio.

Transcript

00:00Welcome back to Powerhouse. This week, I'm handing the mic to Diego Sanchez,

00:05president of Housing Wire, who sits down with Vishal Garg, founder of Better.

00:10Vishal just went through a very public fight with the board at Better, and now he's back in the

00:16chair. Vishal's story is a story about the weight of leadership and the cost of vision. This calls

00:23for a very specific kind of interviewer. So I put Diego in the chair. He's set on the other side

00:29of board tables and taken those calls. And that changes the questions that he knows how to ask.

00:35Two people who swim in the same waters is the conversation you want.

00:40Today, you'll hear Vishal's take on why, and more importantly, how he believes he came out on top.

00:46He also shares with Diego what he thinks he got wrong about moving too slowly on AI,

00:51and how Better went from a billion and a half in revenue down to 75 million in backup.

01:07Hey, everybody. I'm Diego Sanchez, president of Housing Wire, and I'm thrilled to be joined today

01:14by Vishal Garg, the founder of Better. And Vishal, welcome to the show.

01:21Thanks so much, Diego. Super pumped to be here.

01:24So you've been a little bit busy this summer.

01:27Oh, my God. You can't imagine.

01:30It's been a little bit of a crazy time for you and for Better. I don't want to spend too

01:36much time

01:37on the past, but why do you think you won the proxy fight that happened this summer?

01:43Well, I think it's amazing, right? I mean, the odds of a founder CEO coming back and removing the

01:53entire board, that happens 1.7% of the time successfully in the history of proxy fights.

01:59So I didn't know that going in, apparently, but like 60 to 1 odds against. And then we did it

02:04in the

02:05fastest time ever. We did it within two months. And traditionally, processes like this usually take

02:12a year or two years longer. And I think the reason is that, one, the cause was just. We are

02:21building

02:22something that makes the American dream of home ownership cheaper, faster, and easier. And I think

02:28people wanted that energy to be able to break through that task. I think the criticisms about

02:34the business, I think we did a good job in addressing them, which is that, look, yes, we have raised

02:39more

02:39money to fix the mortgage industry and the mortgage industry process than anyone else. I think we've

02:45probably raised over almost $2 billion to do that. And we've also lost more money than anyone else. But

02:51in the context of what it takes to build a great company, you know, Uber lost $35 billion before it

02:59upended the transportation business. That's $100 billion business, right? Airbnb, you know,

03:05second homes, like lost about $5 billion. Many of the other biggest companies on the internet,

03:10they've lost like tons of billions of dollars before they broke even. And so we're very early

03:15in our journey towards disrupting what is a $4.5 trillion industry. And I think people understand

03:22that we're not even seeking to disrupt the industry anymore. We're seeking to empower the entire industry

03:28and uplift the entire industry by taking Tin Man and making it available to anyone and everyone in the

03:33industry to power their business. And I think that that and the transformation that has taken place

03:39from better as a D to C lender, which, you know, peaked at $1.5 billion of revenue and then

03:44went down

03:44to as little as $75 million of revenue in 2023, and now is up to $220 plus revenue run rate

03:52because of Tin Man AI, because 60% of the business is now Tin Man AI. I think that that

03:58spoke volumes to

03:59shareholders and they voted us back in. I want to circle back on Tin Man AI in a couple minutes.

04:08Want to go into some detail there for sure. For you personally, what did you learn from this

04:16experience over the summer? And how are you going to use those learnings to improve the business at

04:23better? Oh, I mean, I learned so much. Like, first of all, I think having some time away really gives

04:29you perspective to zoom out and say, hey, this is like what I did right. This is what I did

04:34wrong.

04:35You know, I've got to sort of write the things that I did right over the last two and a

04:38half years

04:38and the things I did wrong. And so I'll start with the things I did wrong. The biggest thing I

04:42did wrong was

04:43not push the AI hard enough, you know, really just still kind of kept trying to convince people

04:52that this path was the best path, trying to convince people that the agent needed to be perfect,

04:59right, did not need to be perfect. All of those things, big mistake. While I was doing that,

05:05there are other people out there and doing, you know, 23 year olds disrupting entire industries

05:09with a completely brand new perspective and just like letting the agents run. And so while we have

05:16this massive competitive moat of licenses and all over a hundred billion dollars of transactions on our

05:21platform that serve as learning data, the ability to rep and warrant and all these sorts of things that,

05:26you know, your traditional 23 year old coming out of Silicon Valley with a mortgage startup doesn't have

05:31the ability to do. We would very clearly lose that edge over time if we just didn't run fast enough.

05:39I think that was the number one. Number two was, wow, I mean, I had spent 10 years building better

05:45and the entire ecosystem around FinTech, all my friends, everyone, you know, they all reached out,

05:51they were supportive and they were like, look, you know, you've built something amazing.

05:57And it helped me understand that despite all the challenges I've had it better,

06:00what we've built is something special and something that is worth coming back to.

06:05And then the third is just the support of all the shareholders and the employees that were here

06:10at better, you know, that despite like, you know, in any company, there's going to be a percentage

06:17of employees that have a problem with management and they speak out very loudly. Those are the people

06:23whose reviews you see on Glassdoor. Right. But then the people that are the silent majority, the ones that

06:30don't speak out, the ones that are actually happy and proud to be at better. Well, you know how they

06:35let me know that they were happy and proud to be better. They voted their shares for me.

06:40I think the you know, and and so, yes, there were a number of big institutional shareholders

06:44that all said, you know, Vishal should be back. But actually, what put us over the edge

06:49was the 15 percent of shareholders that came from small retail, ex-employees, current employees.

06:55So many ex-employees voted for us, you know, and we knew everyone because they came to betrvote.com,

07:01registered their shares, got the green cards and then voted. So it was like a very personal effort.

07:06And I got to talk to so many of them, many of them doing amazingly well now. People have gone

07:10on to

07:11run really big startups here in New York. And so it was it was just a very proud moment for

07:16me to

07:16reconnect with everyone. That's great. And now that you're back in charge,

07:21what do you think is worth keeping and growing at better? You mentioned Tin Man AI. And I actually

07:28think that's the first time I've heard it. Tin Man and AI together. I've heard Tin Man, I've heard

07:33AI from better, but I haven't heard Tin Man AI. What do you think is worth keeping and growing and

07:37better? Maybe starting with Tin Man. What is worth keeping with Tin Man is the ability to

07:43manufacture mortgages far cheaper, far faster, far easier than anywhere else because we've codified

07:49the rules over from 2016 to basically 2022 to originate and decision these mortgages perfectly,

07:56right? With a six basis point defect rate, critical defect rate, lowest in the industry. So the machine

08:01knows how to do that. Putting the LLMs on top makes it go turbo fast, right? And removes the traditional

08:07friction that takes place from all the human touch points in the industry that the industry has

08:11traditionally had. So the process is broken. And the AI agent is able to do the bulk of the tasks

08:18that are possible. What is the second part of it is we now do not care about the customer

08:25interaction surface. Tin Man AI can talk to via MCP, to your Muse or Instinct agent, or can talk via

08:35API

08:36to our partners at Credit Karma or Coinbase or the mortgage brokers that are sophisticated and savvy

08:42that have API connections that want us to API into them. It can talk to the retail lenders,

08:48both on their phones, in the branches, doing pre-approvals at the open house, you know,

08:54we owe that app where like they're not able, they can't get that service anywhere like to get

08:58somebody approved instantly while they're in the house.

09:02And at the worst case, and in the most physical sense, someone can walk into a branch,

09:06talk to a loan officer, and they can get a decision instantly in a way that they wouldn't

09:12have been able to do. And even on a house call, be able to do that. So think about like

09:17the full range

09:17of consumer interaction surfaces from house call, like loan concierge to Muse agent, all of that is

09:25possible. So we, and I think the industry is so interesting because it's segregated based on

09:31customer interaction surface, right? So you have wholesale, you have retail, you have DTC.

09:37And so you're classifying an industry based on the customer interaction surface, right? And that

09:44doesn't, that's like an anachronistic. And so we are, we believe we are surface interaction,

09:51surface agnostic. And we want to meet the consumer 100% of consumers, wherever they are,

09:57rather than be limited to what we were from 2016 to 2023, which was DTC.

10:03So we're going to unpack that in a moment because you're talking about different distribution channels,

10:09and we should talk about each one. But are you thinking, I mean, you said earlier,

10:16you want Tin Man to power, you know, all the origination that's happening in the US

10:23eventually. Does that mean that Tin Man becomes a SaaS platform and you're competing against tech

10:29vendors? What does that mean to you when you say you want Tin Man to power more of the origination

10:34that's happening in the US? I think tech vendors are our partners.

10:39I think tech vendors are our partners because so much technology has been spent

10:45by mortgage companies. Like if you talk to, if I talk to some of my friends who run some of

10:49the

10:49largest retail lenders in the country, right, some of whom have done partnerships with me,

10:53some of the other folks, they're like, the cost to make a mortgage has gone from 8,000 alone

10:58in 2014 to 12,000 alone. And that was with all the tech. So like I spend money on tech,

11:08I spend $1,500, $2,000, $5,000 per loan on tech, and it just makes my cost to produce

11:13higher.

11:14And I think because we have been unwilling to address the third rail, which is the technology

11:19innovations mostly accrue to effectively increasing labor productivity.

11:30And in doing so, like make the job easier for people, but we're not actually removing the stops

11:38and the gaps, and that we're only doing this from nine to five, and the customers only and while the

11:43customer is doing this from 9pm to 11pm, once they put their kids to bed, right? Those are things that

11:48have not changed. And so I think the reality is we are not competing against any of the tech vendors.

11:54We actually can be partners to all the tech vendors to integrate with us, because our agents are doing

12:02the job that the humans in the mortgage industry don't do, or don't do well enough.

12:08Well, let's dive in a little bit there and think about how that works with the existing

12:15industry, you know, distribution channels in mortgage, you have distributed retail,

12:23you know, where better is powering neo home loans.

12:28Do you see that as a model for more relationships with with IMBs that are out there?

12:35Or how do you see better?

12:37Oh, I mean, yeah, 100%. I mean, like, the neo guys, they're awesome, right? Like,

12:41their business is way better now on Tin Man, right? Because, like, they've got folks in a retail

12:46branch, they used to be like, oh, man, we've got these processors, and we've got to pay them over

12:50time to come in on Saturdays and Sundays, or, you know, to take care of this customer,

12:54or I have to do it as the loan officer, I've got to get out of my family dinner at

12:578pm to go and,

12:58you know, do this. Betsy does it for them now, right? They're so much more productive. They're

13:03twice as productive as before they came on Tin Man. They were doing two something,

13:092.5 loans a month. Now they're doing like five loans a month, right? Their commissions have gone

13:13up, actually. Like, perversely, their commissions have gone up because the salesperson becomes even

13:17more powerful, more valuable to the consumer, right? They have pricing power in a way that they

13:22didn't before because some guy wasn't available to do something or that thing or that thing.

13:26The underwriters cannot reject a loan without Betsy reviewing it and finding a solution across

13:34all 65 investors, everything out there, right? So, like, literally, now you don't have a loan that

13:40falls through the cracks to a competitor because that competitor's underwriter knew something that

13:45your underwriter didn't know. The loan's closing. The docs are getting out there. You know,

13:50you can attach a HELOC to it. You can do all of these things that any other retail mortgage originator

13:54in the country can't. Now, as we see the market on retail change and as we see the NEO guys

14:04get

14:04market share in each of their local markets, you know, we're running the Uber play there,

14:08right? We're in like 40 markets, land, expand. Like, we've got to take a NEO mortgage retail lending

14:14guy who's third place in his market in Salt Lake City and get him to first place and then to

14:20increase

14:20his market share. And I think the key there is as we do that in every market NEO is in,

14:25A, we get more people to jump to the NEO bandwagon. B, we get other competitors to jump onto the

14:30bandwagon, right? Like, take their, this same thing happened with Uber, right? Like, you know,

14:34the local guys with the taxi fleets and the leasing companies and all that, they're like, you know,

14:38screw this. I don't want to go like running ads on local television on Channel 7 at, you know,

14:50we think that that's what happens. I think the Uberization of retail is what happens.

14:54Yeah. One more, one more follow-up on that. I mean, do you do that growth

14:58within the NEO home loans brand or are there potentially other distributed retail brands

15:04that are powered by better? There are many, there are many. I think we do it with anybody

15:11who wants to do it. Yeah. All right. So you mentioned mortgage brokers and I've seen you post several

15:18times about, uh, about the mortgage, uh, broker channel, um, uh, on LinkedIn, you know, very positive

15:26posts, you know, um, very, very interesting channel for, for better to be more involved with. Are you

15:33becoming a wholesale lender? We are a wholesale lender. You are a wholesale lender. Yeah. We have

15:3840 mortgage brokers on our platform. Is that, uh, primarily focused on home equity or are you also?

15:44Yeah. It's on home equity right now. Okay. And, um, are, are you thinking about

15:49being a wholesale lender beyond home equity or do you want to keep the focus on home equity for now?

15:54I think the focus is home equity for now. We're going to land and expand.

15:58I don't see why the mortgage broker doesn't become the home advisor or the loan advisor.

16:04And if they do become the home advisor or the loan advisor, then why aren't they also able to get

16:10a license and sell homeowners insurance and keep in touch with the consumer every year? And then,

16:14well, better also, you know, big, where did that billion and a half dollars that we burnt went go?

16:19It burnt. It went to, we have a title insurance company. We have a life insurance company. We have

16:24an auto insurance company. We have a homeowner's insurance company, all in one stack and better

16:28cover, right? We have all the licenses. We have all the packages. We have all that sort of stuff,

16:32right? We haven't done it. We haven't like, because every time we did it with the humans

16:37on our side, like the unit economics didn't work. But now we've got retail guys who've got

16:44the customer relationship. We've got mortgage brokers who've got the customer relationship.

16:47We can turn them into that family's financial advisor, insurance advisor, all that sort of stuff.

16:54So I don't see us, you know, stopping. I think it's so powerful

17:02to tip the platform in the hands of people

17:08that know what they're doing.

17:11Absolutely. All right. I'm going to ask the flip side of an earlier question.

17:14I asked you earlier, what do you want to keep growing at better? The flip side of that is,

17:24what do you want the company to focus less on? Well, we've already cut DTC marketing.

17:32So when I was running the proxy fight, I did not have the shareholder list. So I didn't know

17:36any of the shareholders, the retail guys. I knew some of the institutional guys, but I didn't know

17:39any of the retail guys. And so I literally was a one man marketing team. So I was doing PR.

17:46I was making like, I hired like an influencer to like make the videos for me. But then the SEC

17:53was

17:53like, well, you have to put the influencer on your like proxy documents and this and that. The

17:57influencers like worried about the like company suing them. So I was like, screw this. So I went

18:01on Hey Jen and I started making AI avatars of myself and my videos. And I started running them.

18:07And I started running them on Instagram and on, you know, TikTok. And I started finding shareholders

18:12to come to betrvote.com. And I literally, can you imagine how hard it is to get a mortgage?

18:18But like, can you imagine how hard it is to literally tell someone who has never voted once

18:22in their entire life, their shares to open up an envelope and take out the green card,

18:28make sure it's not the white card, take out the green card, fill in the boxes, put it back in

18:33the

18:33mail and go to UPS and mail it out. That is freaking hard. And I got tens of thousands of

18:39people to do that,

18:40right? All by myself in my little, like, you know, cubby on the 84th, 85th floor here. And

18:48I'm like, wait, I mean, what are we doing here? Like buying clicks on Google here, right? What am I

18:56burning two and a half million a month for buying clicks on Google, right? Like, so yeah, like we're

19:02not going to do any of that stuff, right? We're just going to go and empower everyone who's already

19:05doing that stuff. And then like, you know, 10X, 100X their, their, their footprint.

19:10It's, it's, it's a sharp strategy strategy. So what I'm hearing is you're long on 10 man,

19:1610 man AI, you're long on distributed retail, you know, powering distributed retail brands,

19:24and you're long on wholesale. And you're, you're shorting the DTC.

19:30I'm shorting ad driven DTC ad driven DTC. I mean, honestly, if I was this company in Detroit

19:37that just went and has 20,000 people and just spent billions of billions of dollars owning MSRs,

19:43which are consumer friction, meaning I am long consumer friction. When I have 20 billion of MSRs

19:49levered up two X, two and a half X on my equity, right? I am long consumer friction in the

19:55age of

19:55muse and instinct and dots. Like that is a bad place to be. So I am short ad driven DTC

20:03brand

20:04driven DTC because it will die a fast and rapid death in the age of the AI agents. You cannot

20:12charge

20:13people 50 basis points on a mortgage and hope to make up for it because you can bid more than

20:19everyone else on Google. So, um, that's going to help you reduce costs for sure. Um, uh, there are

20:27other ways to reduce costs and I have seen, um, more posts on LinkedIn from people that have been let

20:34go, uh, by better, uh, over the past couple of weeks. Can you comment on the layoffs that have been

20:40happening? Oh, we are very thankful to many of our teammates that have helped us build this company.

20:47Um, and we, you know, we appreciate all of their efforts, uh, but, but, but we've, we've,

20:54we've got a cost structure that's unsustainable. So, uh, we've got to get costs down by 60 million.

21:00We're at 24. Right. And, um, that's what we said to the street. Our path to break even is very

21:06important because for us to be the platform for the industry, for us to be the AWS for the industry,

21:12right. For us to then have mech Turks for the industry, for us to have all of that in one

21:18package for the industry, the industry has to know that better will always be there.

21:21And the only way the industry knows that the better will always be there is if better makes

21:25money every month, the industry needs better. Every one of my mortgage brokers, every one of my

21:29retail lenders, every one of my FinTech partners needs better to make money because they're trusting

21:35better to do the other half of the transaction for them. So when you came back, um, you came back

21:44as the founder and, uh, I think you made a commitment to, to hire a CEO. Um, what kind of

21:53executive are you looking to hire for that CEO slot? I think they have to be AI pilled.

22:03I think they have to be, I think they have to understand credit risk. They have to have an

22:08understanding that this is an industry that blows itself up every 10, 20 years.

22:12Right. Um, goes on a credit orgy, you know, standards loosen people who shouldn't get loans,

22:19get them. And then, you know, bad shit happens and it repeats itself. Um, we're due for that.

22:25It hasn't happened in a while. Right. Um, but you know, I lived through the global financial crisis

22:30and I lived through like pouring through, I think over 2 trillion of bad RMBS,

22:37bad mortgages made all over the world. I was in Ireland. I was a consultant to the

22:41ministry of finance there on helping a country that, you know, had taken its savers and lent it

22:46out to speculators. Like it just all the stuff that people were engaged in. And I think, you know,

22:52it really sharpens your mind on that. So I think credit risk is really important. AI, credit risk,

22:57and, um, the ability to build a large, uh, B2B outcome as a service platform where you're delivering

23:06an outcome, not a software and outcome. And I think those three things are integral. Um,

23:12and then good people skills, because quite frankly, that's where I'm, you know, that's where I struggle.

23:16Yeah. I love, I love that. Uh, that, that last, that last part of your response, um, you know,

23:22like knowing where, uh, you've got short company shortcomings and complimenting it with a, with a

23:27new leader in the business makes, makes a ton of sense to me. All right. So, uh, as, as we

23:32wind down

23:33this conversation, if we talk again in a year, uh, we'll better finally be a profitable business.

23:39Uh, definitively, unless, unless we choose to invest in growth, unless we do choose to do

23:44acquisitions. So I think, you know, I can't say gap profitable, but I can tell you the core parts

23:49of the business will be contribution margin profitable. And then we'll see what happens

23:53from there. And, um, you, you've committed to profitability in the past and, and come up short.

24:00Why do you think this time around is different? Because in the past, and you know, when you look at

24:06our,

24:06our better two year growth plan and all the stuff I put out on the proxy in the past,

24:11we were keeping expenses the same and using AI to help power growth. So we grew,

24:17you know, originations from 660 million a quarter in Q1 of 24 to 1.6 billion a quarter in Q2

24:2526.

24:26And during that entire time, the operating costs were like 70 million, 65 million. And so we powered

24:31the growth. Now operating costs are going from the, you know, that number down by 25

24:36million. So we're going from the 65 million cost structure to like in the forties. And

24:42we're focused on like still growing. And so we're, we're, we have decided that our share price

24:49is supremely undervalued that, you know, the private markets are, have companies that are

24:56trading at 10 times, 20 times, 30 times, 50 times revenue in mortgage fintech. And they don't have any

25:01of the stuff that we do, the fully integrated stack, the AI, everything. And yet we trade at

25:06one and a half times revenue. So the best way to remove that discount and create value for shareholders

25:10is to get to profitability through cost cutting that helps us weather any market environment.

25:16And then from there we can focus on profits through growth.

25:19So you're focused on the P and the L.

25:22Yes.

25:22Yeah. Vishal Garg, thank you so much for joining me today and for your candor and walking us through

25:31your strategy for, for future growth and cost reductions at better.

25:36Thank you so much, Diego. Always a pleasure. Cheers.

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