Better.com Layoffs a Digitally Oriented Mortgage Lender, Laid offs Thousands of Employees

Better, a digitally-focused mortgage lender that offers title and homeowners insurance, has announced the layoff of hundreds of employees in the US. CEO Vishal Garg took responsibility for the layoffs during a livestreamed town hall on Wednesday that was broadcast online.

Garg acknowledged he let down his company's largest backer, Japanese investment giant SoftBank, by failing to meet financial obligations. As the company prepared to go public through a special purpose acquisition company, Garg admitted it lost $100 million and "pissed away another $200 million".

Better CEO Vishal Garg blames himself for the layoffs

At seven years old, Garg's family relocated from India to Queens, New York where he co-founded online student loan provider MyRichUncle with Raza Khan in 2000. Their business quickly grew to handle more than $300 million in loans before the financial crisis forced them into bankruptcy in 2007.

TechCrunch and other outlets reported the company has recently laid off a large portion of their staff, according to reports. Employees received 60 to 80 days' severance pay and three months of COBRA coverage; some learned they would no longer receive checks when informed via personal calls from members of the leadership team.

On Wednesday evening, Garg held a livestreamed town hall to address remaining employees and explain major layoffs that had left 3,000 out of his company's 8,000-person team. He took responsibility for the company's failure to go public and said he had let down key backers.

Current employees and an ex-aide reported to Fortune that Garg had become increasingly belligerent on Better's internal Slack messaging system and during company meetings, demanding all manner of details from staff members. He demanded office managers stock their fridges with bottles of Gerolsteiner, the German sparkling wine he loved, and asked why biscotti were served with water from Fiji or Perrier instead of water from Fiji or Perrier.

As a result, many of those fired took to social media to vent their angst with Garg. Some even posted on Blind, an anonymous professional network popular among tech industry professionals.

Former employees and ex-staff have accused Garg of making false statements about the company's financial health to investors and the board. For instance, former COO Jennifer Pierce claims she was fired for raising red flags about the company's situation, such as that it was operating with a net loss. According to Pierce, attorney Paula Tuffin instructed her not to "contradict" Garg before locking out all her email and accounts.

Other employees reported Garg threatening them during a Zoom call and accusing them of stealing from the company. He referred to them as "part of the unfortunate group that is being laid off" according to employee posts on Blind. Furthermore, Garg accused them of working two hours per day but clocking in for eight on their payroll system.

The company’s financial woes

Better, which operates a lending and servicer platform for mortgages and real estate deals, has numerous financial issues. These include an excessive debt load, lack of investment in its refinancing business, and incapacity to fund loans when rates increase. Furthermore, Better's customer loyalty is crumbling as more borrowers switch to other lenders.

As the company grapples with these challenges, it recently experienced some setbacks. At a March meeting, Garg acknowledged mishandling a round of layoffs which caused many employees to miss out on severance payments. Some workers learned they were being let go from their paychecks showing severance payments; others discovered the news through leaks found in emails or Slack messages sent by senior leadership.

TechCrunch reports that some employees who were informed of layoffs through leaked emails have since been fired. Furthermore, the company is facing a lawsuit from former employee Joanna Pierce who alleges misled investors when it attempted to go public via Special Purpose Acquisition Company or SPAC.

Meanwhile, the company's finances have continued to worsen. Indeed, conditions are now so dire that hundreds more employees could be laid off from its workforce.

John, who worked in sales at Better, reports to TechCrunch that he and his colleagues began noticing a decrease in sales volume as they were being asked repeatedly to call potential mortgage applicants who hadn't committed. Furthermore, they observed discrepancies with how the company managed its loan documents and HR records.

He believes the company's decision to focus more on refinancing was a mistake and could only have worsened their financial position over time.

Garg remains committed to Better and believes it will rebound. He plans on keeping some members of its leadership team, including himself and co-founder Adam Slayton (CFO), while working to improve financial controls and hiring strategy.

The company’s failure to go public

Mortgage startup Better's inability to go public has caused grave concern among its employees. As a result, more than one-third of their staff have been let go as business prospects remain dim.

In 2016, during a pandemic-fueled real estate boom, demand for Better's mortgage products spiked as homebuyers sought loans that met their needs and budgets. Some of the world's largest financial institutions and investors supported Better, including SoftBank, Citigroup, Ally, Goldman Sachs, Kleiner Perkins, and Novator Capital.

Better rapidly expanded its workforce during that period to meet the surge in demand, which continued as interest rates fell. Unfortunately, as the mortgage market has softened, homebuyers are less likely to be looking for a new loan.

Last week, Better CEO Vishal Garg unexpectedly announced layoffs. After all, he had just recently secured $750 million in funding as part of an amended financing deal just days prior.

Money raised from this deal is expected to help the company move closer towards its ambition of going public through a Special Purpose Acquisition Company, or SPAC. Although originally scheduled to close in the fourth quarter of this year, its completion has been postponed multiple times.

TechCrunch reported that Better's SPAC partners, Aurora Acquisition Corp. and venture capitalist SoftBank, agreed to amend their original financing deal so they can provide up to $750 million in committed funding immediately instead of waiting until after the merger closes. This money will serve as a bridge until Better's SPAC deal is finalized, TechCrunch reported.

Bloomberg reports that it appears unlikely the SPAC deal will be completed on time. Although both Better and Aurora remain committed to their plan, they have now extended the deadline for completion until March 8, 2023. This development could prove devastating for Better and Aurora alike, potentially necessitating them to dissolve quickly.

Meanwhile, current employees have begun to worry that further job cuts are in store due to concerns over Better's SPAC deal and possible delays.

The company’s plans

Better is laying off around 4% of its employees - or roughly 3,000 positions - as part of an effort to cut costs amid a challenging macroeconomic climate. The layoffs come as mortgage interest rates have gone up and home prices keep declining, leading many real estate tech firms to shutter or reduce their workforces.

Vishal Garg sent an email to workers earlier this week lamenting the disruption caused by a global economic downturn, citing increased mortgage interest rates, lack of supply in the housing market and an overall slowdown as causes for layoffs. He also took responsibility for his company's financial troubles by saying he "spent away" $200 million last year by spending money on new hires when he should have cut expenses instead.

Other tech companies have reportedly followed Better's example and cut staff, such as Google and Microsoft (which is taking a $1.2 billion charge due to slower revenue growth). Alphabet, which owns Google, reportedly cut 240 employees from its Verily health sciences division in January according to CNBC; Microsoft plans on cutting 10% of its workforce until March 31.

Additionally, Ericsson plans to shed 8% of its workforce (approximately 1,400 jobs) as it refocuses on core technology business units in 2023, according to Bloomberg sources. These cost-cutting measures are part of an effort that is expected to save the Sweden-based firm $880 million by 2023, sources revealed.

The cuts will impact the company's core operations, primarily software and engineering teams that run services like advertising, data analytics and cloud computing. These units generate significant revenue for the Swedish tech giant but may see softer demand from customers due to the global recession.

Better's layoffs are a devastating blow, but it isn't the first time a tech company has gone under in recent years. Many startups, including online ordering platform ChowNow and Chinese video platform Bilibili, have closed their doors over these past two years.