Doma CEO Max Simkoff on speeding up the timeline to go public
July 27, 2021 5:00 AM
Doma is on the verge of becoming a publicly-held title insurance underwriter, with shareholders of its proposed special purpose acquisition company partner , Capitol Investment Corp. V, set to vote on the deal Tuesday morning.
If the deal is completed, Doma will join thebig four underwriters : Fidelity, First American, Old Republic and Stewart, as public companies, along with Investors Title; a sixth underwriter, the former Entitle Direct, is a unit of mortgage insurer Radian Group.
Although Doma’s underwriting business, North American Title, has been growing, it still only hadone-quarter of the open orders that No. 4 Stewart produced in the first quarter.
Even after going public, Doma's largest shareholder will remainLennar , the homebuilder that sold North American Title to what at the time was called States Title. That partnership has continued and has been fruitful for Doma, CEO Max Simkoff said.
Simkoff spoke with National Mortgage News about going public and the market landscape for the title business. Questions and answers have been edited for length and clarity.
If the deal is completed, Doma will join the
Although Doma’s underwriting business, North American Title, has been growing, it still only had
Even after going public, Doma's largest shareholder will remain
Simkoff spoke with National Mortgage News about going public and the market landscape for the title business. Questions and answers have been edited for length and clarity.
Why did you choose a SPAC instead of an initial public offering?
We broke this decision down into a couple different kinds of sequential chunks. The first was, when is the right time for our company to be a public company? And if you'd asked me that question at the beginning of 2020, I think I would have said probably within a few years. We had just closed the new round of financing , we were focused on investing those proceeds and building out more of our products. With everything that happened with COVID last year, it basically accelerated everything for both the industry and the company, by probably a couple years overnight.
So then we asked, what is the right way to go to public? We evaluated a SPAC, a traditional IPO and a direct listing. Ultimately we chose the SPAC for a few key reasons. One is, we had more control over the investor selection process. The PIPE allowed us to find a group of investors that we felt were super long-term oriented and helped us make up the investor book the way that we would like. The second reason is that in the SPAC process, you can share financial projections, which is not something that you can typically do in a traditional IPO.
One thing I'll note that we did uniquely is the projections we shared in our pro forma did not reflect the benefit of proceeds from this deal. We took the perspective that what seemed to be most helpful to investors would be sharing the self-funded growth projections in the business as we see them from the amount of cash we already had on our balance sheet from the drivers of our business.
So then we asked, what is the right way to go to public? We evaluated a SPAC, a traditional IPO and a direct listing. Ultimately we chose the SPAC for a few key reasons. One is, we had more control over the investor selection process. The PIPE allowed us to find a group of investors that we felt were super long-term oriented and helped us make up the investor book the way that we would like. The second reason is that in the SPAC process, you can share financial projections, which is not something that you can typically do in a traditional IPO.
One thing I'll note that we did uniquely is the projections we shared in our pro forma did not reflect the benefit of proceeds from this deal. We took the perspective that what seemed to be most helpful to investors would be sharing the self-funded growth projections in the business as we see them from the amount of cash we already had on our balance sheet from the drivers of our business.
North American Title is one of the smaller underwriters. Is there an opportunity to pick up some market share by going public?
Our main focus is on our direct business, which covers two primary customer segments. There's Doma Enterprise: those are large, centralized mortgage originators, the Chases and PennyMacs and Wells Fargos of the world. And then there's Doma Local, and that's where we generate both purchase business title and escrow orders, as well as from smaller refi originators like local banks and credit unions. The primary goal is really to drive significant growth in our direct agency business.
And you're also looking to get into other related services as well?
Appraisal and home warranty, which sit on either side of us in the transaction. Appraisal is very interesting for us because our focus is on being a full stack insuretech platform where we can not only use machine learning to estimate outcomes instantly, but where we can use our insurance capabilities to help eliminate contingent risks in the transaction. Appraisal is oftentimes the longest task , it can take upwards of a week or two to get a licensed appraiser out to the house. We see a world in the not-so-distant future where with existing technology, you should be able to estimate not only the value of a property but identify the quality of the collateral.
And home warranty, there's so much opportunity there. I can speak from the experience of being a consumer having used several of the existing home warranty providers. And then, quite frankly, being highly dissatisfied with the customer experience. It's still a very kind of manual and disjointed process and we see the ability to offer that as yet another instant digital homeownership experience as you're closing your mortgage.
And home warranty, there's so much opportunity there. I can speak from the experience of being a consumer having used several of the existing home warranty providers. And then, quite frankly, being highly dissatisfied with the customer experience. It's still a very kind of manual and disjointed process and we see the ability to offer that as yet another instant digital homeownership experience as you're closing your mortgage.
Are you looking to build these services from scratch or through potential acquisitions?
We've learned from our own success that it helps to not limit yourself to one or the other when you're deciding to launch a new solution. We want to launch solutions for both of these areas in a way that will deliver the greatest value for the end customer at the greatest scale. We're pretty open minded as to how we can create those solutions, either organically or inorganically.
Any other related fields to the real estate transaction or those are the only three you're planning to concentrate on?
Those are the ones that we have our immediate sights set on just because they all affect the experience of closing. They alleviate significant pain points and are all located right next to each other in the transaction.
How has the pandemic changed things at Doma? What sort of realizations have you come to in terms of what the process can be?
Basically the entire country now either has a state law, or emergency legislation passed during COVID, to allow remote online notarization. There's more widespread acceptance of not having to close your mortgage in person. Just the necessity of having to be able to close transactions faster worked in our favor. In many cases, especially with large mortgage originators, we had heard several years ago, 'Look what you guys do seems really great, but title and escrow is not exactly the longest pole in the tent for us.' At that point in time, it was always appraisal that they were talking about. Now, for the first time, they've been saying the exact opposite. We've had originators coming to us saying, 'We've got our online application dialed and we've got instant loan underwriting dialed. We've got income and asset verification dialed and we think we've got our arms largely around appraisal,' particularly given that there were a lot of appraisal waivers. They are very often saying title and escrow and closing experience now is the biggest pain point and it's creating massive amounts of friction time delays. And we're a company that's built technology first. The industry is now more rapidly adopting a technology first approach so I think that gives us a real competitive advantage.
