By Joe Lonsdale
To celebrate its successful 2015, ~$40 million in new fundraising in the latest round, and the team’s momentum going into next year, I’m excited to share some of my thoughts on Blend.
AMAZING PEOPLE AND SMART ENTERPRISE
Some of the most talented people I used to work with at Palantir founded Blend, and it exemplifies much of what we have written about at Formation 8 and now 8VC (www.8vc.com). Blend aligns with our views about how to create a top technology culture and focus on an uncrowded, yet critical, vertical. It also exemplifies the ‘Smart Enterprise‘ theme, as it replaces legacy infrastructure with deep Silicon Valley technology to help an underserved industry and create tremendous value for American lenders and borrowers alike.
Mortgage loans account for tens of trillions of dollars in our economy; they comprise one of the largest areas of finance globally. As you’d expect with something so big, there are a lot of parts to the mortgage industry, and a lot of people make their living from it. Unsurprisingly, a lot of it runs on outdated systems that are decades old, and this negatively impacts consumers, businesses, and the economy as a whole.
FIXING CONSUMER PAIN
Consumers generally feel a lot of pain around origination—that is, when they are looking for a mortgage or refinancing. They usually have to pull together all sorts of paper documents, fax in information, and fill out endless forms only to learn that they need to provide more seemingly random information. They often wait several days for responses, which then come in formats that are hard to compare and understand.
This consumer experience is so painful because so much of the space is manually run on the enterprise side, with huge teams of humans acting as sort of a subpar “Mechanical Turk” middleware. This leads to sub-optimal results for the businesses beyond just consumer experience, ranging from efficiency (loans cost $7,000+ to originate today vs. $3,000 just 10 years ago) to risk (verifying consumer data at the source).
PREVENTING FINANCIAL MELTDOWNS
In addition to solving pain on the consumer side, Blend has the opportunity to empower the industry through increased transparency. Many of us believe that the lack of coherent data formats and information processes in this industry obscured risks and prevented sober analysis, and thus was a significant contributor to the 2008 recession. This recession was highlighted in the recent blockbuster “The Big Short”.
Had a platform like Blend existed at the time, it would have been much easier for the various actors to hold each other accountable and to see every detail of what they actually owned starting with the originators and the precise loans and how they were made. Everybody would have had a far better idea of the true value of all the underlying assets and of the actual risks they were taking from precise data, versus unreliable models and guesswork. Needless to say, this would have greatly dampened the risks taken during the fervor of 2005-2008.
There are hundreds of relevant mortgage originators, but the top forty or so represent over two-thirds of the origination volume. Blend is now working with a significant number of these businesses, with several more to follow in 2016. Billions of dollars worth of mortgage loans are already flowing through the Blend platform. In short, Blend is in what we in startup land call its “hypergrowth phase,” and it looks likely to continue to grow at a rate of hundreds of percent per year. Although it is currently focused on the full origination workflow, there are many other processes (such as servicing and underwriting loans) that it could expand to down the road.
A NETWORK EFFECT
There’s an extra point that I feel compelled to make here about Blend’s strategy for some of my savvier friends—the GSEs receive reports from all of the the originators, and right now they spend billions of dollars a year sorting and normalizing files and running analyses on them. Blend hopes to enable new open formats, and possibly even to use cloud-based permissioning, to save a huge amount of time and money for the space and make it a lot more coherent and less manual. This is likely to create a bit of a network effect as more companies are influenced by the new rules and formats to come onto their modern platform.
THE SILICON VALLEY – EAST COAST ARBITRAGE
Very few of my Silicon Valley friends have thought about these esoteric mortgage problems. Perhaps because it’s such an important area of finance, a lot of the private equity investors, billionaires, and Limited Partners we know on the East Coast have exposure to the space and are really excited about Blend. Few of them know how to create the elite technology culture needed that solve these kinds of problems though, so there’s an arbitrage available here that Blend is exploiting by taking a top Silicon Valley tech approach and iterating with largely East Coast-based businesses.
LENDING IS EVOLVING
The world of lending is evolving quickly, with companies like SoFi, LendingClub, Affirm, and others creating new and vastly improved consumer experiences. Blend is going after the biggest area of lending and making sure that the 99% of consumers that aren’t using these other lending platforms get just as compelling an experience.
INCIDENTALLY, THIS IS A REALLY AWESOME COMPANY TO JOIN
Blend’s mission fits into the core theme of how value is being created in Silicon Valley today through Smart Enterprise while positively impacting consumers. The best investors I know fought fiercely over Blend’s latest round. And the Blend team includes some of the most talented people I’ve worked with, along with great leaders and mentors. Needless to say, it’s an ideal place for a talented engineer, designer, or product manager to start or become 10x better at what they do.
Blend is fixing the back-end of one of the most important areas of our economy, which will help make finance work better and could prevent another recession. All in all, Blend is an important and exciting company, and I’m glad to be involved.
Read more about Blend in this recent article on Fortune: http://fortune.com/tag/blend/