As fundraising environment freezes, power buyer UpEquity cuts staff

Company is now projecting to originate $500 million worth of loans this year

Austin-based mortgage tech platform UpEquity laid off around 10% of its workforce last week, proof that the rising interest rate landscape hurts real estate technology companies, too. 

Co-founded in 2019 by Tim Herman and Louis Wilson, the lender and “power buyer” allows homebuyers to make all-cash offers to compete with institutional investors. The company then receives monthly payments with interest from the homebuyers, who can avoid going through a bank to get a mortgage.

UpEquity earns a commission from brokering or selling the mortgage buyers take out to buy their homes. In states where purchase contracts can’t be assigned, UpEquity buys the home upfront and writes the mortgage after closing the deal.

Over the last two years –when mortgage rates were minuscule and refi opportunities were abundant – UpEquity was able to raise over $70 million from investors. The company had forecast $1 billion in originations for 2022. 

The sharp spike in mortgage rates – up about 3 points since January – changed those projections.

“Our purchase volume is strong, but our refinance volume has evaporated. We’re not growing at the pace with which we hired for or projected,” Herman said.

The company is now projecting to originate $500 million worth of loans this year, all purchases.  

UpEquity is also affected by the uncertainty of the fundraising environment for the next 18-24 months, according to the executive. “The fundraising environment has frozen,” he said. “It’s really important to us that our fate isn’t in the hands of the fundraising market.” 

In October, ​​the company raised $50 million in a Series B funding round led by the venture capital firm S3 Ventures. Other investors included Next Coast Ventures, BP Capital Management, Alumni Ventures, Gaingels, Launchpad Capital, and Early Light Ventures.

“The way that we think about it is that we have more than two years of runway remaining, given our current burn rate and the cash on the balance sheet,” Herman told HousingWire.

To manage its cash position, the company laid off nine employees last week, from a total of 93, in its operations department, including processing, closing and training. 

The company paid one month of severance and 1.5 months of health benefits, a former employee who requested anonymity told HousingWire.

Herman said the cash UpEquity raised in the Series B round has been invested in the company’s technology. UpEquity claims it takes 17 days, on average, to close a deal, while the average in the industry is closer to 50 days. 

Also, the company says it helps homebuyers make an all-cash offer that’s four times more likely to be accepted than traditional mortgages.

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