Blend's CFO explains how the buzzy mortgage startup overshot its own expectations with a $130 million Series E - and the 'sticky' numbers that won key investors

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• Fintech startup Blend recently closed a $130 million funding round with two lead investors, trouncing CFO Marc Greenberg's expectations for one lead and a haul of $75 million to $100 million.
• Big banks have been turning to fintech startups like Blend that promise to help make cumbersome processes like mortgage lending easier.
• To win investors over in its latest round, Blend couldn't just pitch a broad vision - it had to produce hard metrics to prove customers would pick and stick with its products.
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Fintech executives tend to be an optimistic bunch, pitching companies' power to disrupt markets that have remained immune to change for decades.

However, even Marc Greenberg, chief financial officer at startup Blend, said the firm's $130 million Series E round that closed in June far exceeded expectations.

The buzzy San Francisco-based startup aimed at simplifying the mortgage process for traditional lenders raised $55 million more than the low end of its estimate, Greenberg told Business Insider, and unexpectedly attracted two high-profile lead investors: General Atlantic and Temasek.

Interest in the space has risen as banks turn to startups to help them build out digital lending. Greenberg said Blend's goal was initially to raise somewhere between $75 million and $100 million in the latest round, with one lead investor.

But unlike in previous funding rounds, the startup's executives had to do more than just tell a good story: They had prove that banks would pick Blend and stick with it. Blend still has a lot of spending on technology to do, and also hopes to build products aimed at consumer lending beyond mortgages.

"We wanted to invest in the relationship with our customers. We wanted to invest in the underlying technology. We know we have to invest in that ahead of revenue in a lot of cases. If we're really going to power home lending and we're really going to deliver speed and efficiency then there's a big investment and a big cost to us up front," Greenberg said. "We felt like these were the right partners at the right time, and grabbing a co-lead made a lot of sense."

Read more: America's biggest banks are offloading parts of their home-loan businesses to machine-powered startups, as they try and fend off sagging profits

Blend was founded in 2012 with the goal of providing banks, credit unions, and other lenders a "one-tap" mortgage experience for their customers, but Greenberg said a turning point was Rocket Mortgage's 2016 Super Bowl ad. The commercial put lenders on notice that customers would soon expect an Amazon-like experience when it came to home loans.

Blend

Marc Greenberg

Combined with economic pressures, regulatory headaches, and rising business costs, lenders have been forced to take a hard look at their digital mortgage capabilities.

Some banks determined the necessary overhaul would be difficult and costly and have outsourced their efforts to Blend and its competitors, who have also nabbed eye-popping funding rounds.

Wells Fargo and US Bank have turned to Blend, while JPMorgan Chase and TD Bank last year enlisted Roostify. Ally Bank recently inked a deal with Better.com.

Getting 'sticky'

Understanding that the mortgage business needs to transform is one thing. Having the ability to do it is something entirely different.

And while Blend already raised $160 million prior to its Series E, Greenberg said there was a greater expectation in the most recent round to prove out Blend's solution. That meant showing investors nitty-gritty metrics.

"In raising from Greylock, you're more raising on vision," Greenberg said of the investor that led the Series D round. "When you raise from partners like GA and Temasek there's an aspect of vision - vision gets you in the door - but what they're really after is starting to see some execution, traction, and stickiness."

Greenberg admits he might have even been slightly naive about how easy it would be to raise the round. While there was significant interest from investors - they met with dozens of firms over the course of the funding process, he said - the firm still needed to prove out its concept.

For GA and Temasek, the investors were interested in how "sticky" the product was inside banks. Once Blend was deployed at a bank or credit union, how were lenders and customers choosing to use it? What type of additional business was it driving for the lender? Were they able to keep churn low?

Another metric the investors zeroed in on was the lag time between marketing spend and sales results.

"I think there is a much higher bar in a round that involves folks of that ilk, of that quality, of that depth, of that diligence, fortitude," Greenberg said. "That's a different level of engagement and a different level of proving you can do it. Which is why I think we needed to have traction in mortgage in order to do this, but it was also the decision beyond mortgage that was able to turn this into a bigger round."

See more: Blend, a startup that's building a 'one tap' mortgage-application tool, is now jumping into the auto-loan market

Mortgages are the company's calling card - Blend says its client roster includes more than 170 lenders - but it's also spending money on developing other consumer-credit products.

That includes a homeowner-insurance offering and home-equity loans, as well as deposit-account technology that works with its home-lending products.

Blend had some tough decisions of its own. As private money continues to pour into fintech, startups need to be cognizant of what all that outside money might mean for how the company is run.

Greenberg said there were conversations with the board about those issues and how to avoid them.

"We had deep thoughts about how much to raise, what that meant in terms of dilution and what it would mean to our flexibility and our ability to weather a downturn, invest in customers, expand our product line, or do some additional hiring," Greenberg said. "I think boards and founders struggle with this question. They contemplate the question of dilution versus flexibility and fund and how much now versus later."