How dig­i­tal bro­ker Sin­deo came back from the brink of bank­ruptcy

National Mortgage News - - Contents - By brad finkel­stein

af­ter a cor­po­rate near-death ex­pe­ri­ence, it would be quite log­i­cal to think pur­chase-ori­ented dig­i­tal mort­gage bro­ker Sin­deo would change its busi­ness model. Or that the com­pany might re­trench on its am­bi­tions to op­er­ate in all 50 states.

The San Fran­cisco-based fin­tech is in­stead chang­ing its tech­nol­ogy ap­proach by re­ly­ing on its new own­ers for de­vel­op­ment and en­gi­neer­ing sup­port — key as­sets that Sin­deo uses to dif­fer­en­ti­ate it­self.

Sin­deo’s busi­ness plan for 2017 in­cluded ge­o­graphic ex­pan­sion and do­ing more con­sumer-di­rect busi­ness, but it was pred­i­cated on an ex­pected cap­i­tal raise. So when a $40 mil­lion round of ven­ture fund­ing fell through at the last minute, Sin­deo all but shut down last sum­mer.

“We thought we were clos­ing a big round of fi­nanc­ing and we were all en­gines ahead in the first quar­ter,” founder and CEO Nick Sta­mos said dur­ing an ex­clu­sive in­ter­view with NMN. “We be­lieve in the busi­ness model and the vi­sion and value propo­si­tion. What hap­pened was that our fund­ing went away at the last minute.”

Sin­deo does busi­ness dif­fer­ently than most other mort­gage bro­kers, of­fer­ing more than 1,000 prod­ucts from 45 mort­gage lenders. When the bro­ker/whole­sale chan­nel was at its peak in 2006, the av­er­age mort­gage bro­ker sold 80% of its pro- duc­tion to only three of its 13 lender part­ners, ac­cord­ing to a study from the re­search firm Whole­sale Ac­cess.

By work­ing with so many part­ners, Sin­deo’s ad­min­is­tra­tive costs are higher than most mort­gage bro­kers. So while that could be an area to trim costs, the con­cept of a “trans­par­ent one-stop mar­ket­place,” that of­fers con­sumers a wide range of loan choices is cen­tral to Sin­deo’s model, said Sta­mos.

“Our plan was al­ways bring­ing in more cap­i­tal be­cause we’re still in a growth and in­vest­ment phase,” he said.

Sin­deo started the year with be­tween $5 mil­lion and $6 mil­lion in the bank.

It ex­pected to raise $30 mil­lion to $40 mil­lion through a Se­ries C round of fund­ing in the sec­ond quar­ter. “We were very much in an in­vest­ment mode and in a growth mode on all lev­els.”

The in­vestor — who Sta­mos said he could not name — backed out on June 16. Sin­deo had about $1 mil­lion in the bank at that time.

“In hind­sight, had we known the fi­nanc­ing was at risk, we would have been a lit­tle bit more cau­tious and pru­dent” with its spend­ing, he said.

With the worst-case sce­nario of be­ing un­able to find a re­place­ment in­vestor, Sta­mos made the de­ci­sion on June 20 to cut staff and stop tak­ing new loan ap­pli­ca­tions, “based on the re­spon­si­bil­i­ties that I have as a CEO to make sure we are in the po­si­tion to pay our em­ploy­ees, as well close on our pipe­line.” Sin­deo never fully shut down, he added.

That same day, Sta­mos told Sin­deo’s board if a new in­vestor didn’t come in or an ex­ist­ing one step up by June 30, the com­pany would have to file for bank­ruptcy.

“I thought that was prob­a­bly a 50% shot that was go­ing to hap­pen. We had about 10 days to fig­ure out fi­nanc­ing for the busi­ness. Hope­fully some­one would step in and es­sen­tially that is what hap­pened,” he said.

Sin­deo re­ceived of­fer sheets from sev­eral dif­fer­ent com­pa­nies, ac­cord­ing to Sta­mos. On July 3, Ren­ren, an ex­ist­ing Sin­deo in­vestor, and a board mem­ber, ac­quired 100% of the com­pany.

Ren­ren is pub­licly traded on the New York Stock Ex­change and runs a so­cial me­dia net­work in China.

It also makes in­vest­ments in other com­pa­nies and was no stranger to the U. S. hous­ing mar­ket, with eq­uity stakes in SoFi and Lend­ingHome.

Ren­ren also owns Chime, a U.S.based com­pany that pro­vides real es­tate agents with lead gen­er­a­tion, in­ter­net data ex­change web­sites (which are used to dis­play mul­ti­ple list­ing ser­vices in­for­ma­tion) and cus­tomer re­la­tion­ship man­age­ment ser­vices.

“We felt a lot of syn­er­gies be­tween the busi­ness mod­els. Chime is sell­ing to real es­tate agents, help­ing them run their busi­ness,” said Matthew Mur­phy, Ren­ren’s vice pres­i­dent of global mar­ket­ing.

As a mort­gage bro­ker, un­like SoFi and Lend­ing

Home, Sin­deo “re­ally aligned well with the tar­get au­di­ence that we were go­ing af­ter with Chime, agents that need a lender part­ner that has a di­verse set of prod­ucts to work with to help with their con­sumers,” Mur­phy said.

Un­der Ren­ren’s own­er­ship, Sin­deo needs “sig­nif­i­cantly less [cap­i­tal] be­cause we’re a much smaller or­ga­ni­za­tion and we’re build­ing again. So we’re def­i­nitely not go­ing to be burn­ing at the lev­els we were,” said Sta­mos. Be­fore June 20, Sin­deo was a 70-per­son or­ga­ni­za­tion with 20 peo­ple work­ing on tech­nol­ogy. Now, it lev­er­ages Ren­ren’s in­fra­struc­ture and re­sources on the tech­nol­ogy and en­gi­neer­ing side.

Sin­deo has mort­gage bro­ker and/or mort­gage banker li­censes in 12 states: Ari­zona, Cal­i­for­nia, Colorado, Florida, Illi­nois, Michi­gan, New Jersey, Ore­gon, Ten­nessee, Texas and Wash­ing­ton, as well as the Dis­trict of Columbia.

With Ren­ren’s sup­port, Sin­deo sub­mit­ted li­cens­ing ap­pli­ca­tions in the re­main­ing states.

Af­ter June 20, it was down to seven peo­ple (with just one loan of­fi­cer) on staff; now Sin­deo is back above 20 (with seven orig­i­na­tors), Sta­mos said. A year from now it wants to have more than 100 em­ploy­ees.

Sta­mos spent much of July ex­plain­ing to Sin­deo’s whole­salers what had tran­spired and get­ting them fa­mil­iar with Ren­ren. Most of those lenders are still part of Sin­deo’s net­work and he ex­pects to have more lenders on board next year.

And as Sin­deo adds more peo­ple and gets ap­proved in ad­di­tional states, it will start grow­ing its di­rect-to-con­sumer busi­ness again, he said.


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