Hometap, a startup that offers people a way to borrow against their home equity without taking out loans, has raised $60 million in new funding.
American Family Ventures led the investment, bringing Hometap’s total operating capital raised since its inception in 2017 to $95 million. New and existing backers including Bain Capital, Iconiq Capital, LLC, G20 Ventures, Pillar and General Catalyst also invested in the latest round.
As indicated by his name, Home offers homeowners a way to “dip” into their home equity by engaging an investor in their property. This investor is essentially providing cash in exchange for a share of the future value of their home. When the home is sold or the owner “settles” the investment, Boston-based Hometap receives an agreed percentage of the sale price or current appraised value.
“We started this company not just because we thought it was a good business, but because we wanted to be part of something with a social mission,” CEO Jeffrey Glass said. “There are so many people who are housing rich and cash poor – and who might have a capital need, like renovating a house or paying for college where historically their only alternative is to borrow more or sell their house.”
Although he declined to reveal details of his earnings, Glass says that in the first 10 months of this year, Hometap has made four times more home equity investments than during the same period in 2020. He said the company had “more than tripled” its revenue growth this calendar year and more than doubled its workforce to 140 in the same period.
“We expect to more than double or even triple again next year as well,” he told TechCrunch. “We’ve had 14 consecutive quarter-over-quarter growth, even throughout the pandemic.”
Hometap says its model differs from others that charge people a share of appreciation. Such a model is more stressful for owners, according to Glass, because they don’t know how much they owe until they’ve sold or paid. Plus, the biggest difference between a Hometap investment and a traditional loan is that getting started requires no monthly payments or interest. In fact, some people take money from Hometap to pay off other debts and improve their FICO scores.
The company offers a 10-year term, which means owners will have to settle the investment within 10 years, and they can do so at any time during that 10-year period. Homeowners can settle their investment by buying out Hometap, selling their home, or refinancing their first mortgage.
The startup says its software uses automated technology to make the process as easy as possible for an owner. It also uses proprietary financial models and forecasting tools as part of its investment process. Glass points out that the company is an investor, not a lender – and that offers a “smart lending alternative”.
Hometap currently invests in 15 states (including Massachusetts, New York, California, Virginia, Florida and North Carolina). The company plans to use its new capital to hire, expand its distribution/partnership program, expand operations nationwide, and introduce other alternative financing products and services.
Regarding its revenue model, Hometap charges owners a one-time fee that is deducted from their revenue, but most of its revenue comes from investors who put their capital into investing in properties.
“We receive a fee on the capital we invest in these homes, including a fee to acquire a new investment, and then we receive a management fee to manage that investment on an ongoing basis,” Glass told TechCrunch.
It reminds me a bit of Pipe, a buzzing fintech that connects investors to startups with predictable revenue streams to offer them cash up front. She doesn’t see herself as a lender either.
Alan Valkin, chief executive of General Catalyst, notes that his company has invested in Hometap “from the beginning.”
“We saw that Jeff and his team identified a simple, owner-centric way for people to leverage the equity they’ve built up in their home and achieve their financial goals without the added stress of debt…[in a way] this sets it apart from traditional finance providers and other fintech companies in this space,” he wrote via email.
Dan Reed, chief executive of American Family Ventures, in a written statement, said that since his company made its first investment in Hometap in 2018, it has “believed strongly in its mission to give homeowners a more accessible way to create liquidity and financial flexibility”. what is often their greatest asset.