On Nov. 30, a single day before the digital mortgage company would lay off 900 staffers, Kevin Ryan, Better’s CFO, had blasted a cheerful note to employees with “some really exciting news:” Better had secured $1.5 billion in debt and convertible notes from two of its investors ahead of its SPAC merger. Before the end of the week, there would be $1 billion in cash on the company’s balance sheet.
That fat sum was nothing to sneeze at. But neither were the terms SoftBank had set for CEO Vishal Garg as part of the financing infusion.
In a side letter with SoftBank, Better CEO Vishal Garg agreed to take on a surprising level of liability, according to terms made public in SEC filings that haven’t been reported. Garg agreed in late November that he—not the company—would personally compensate SoftBank for losses, should there be a discrepancy in value of the Better notes SoftBank held once they convert into equity post-SPAC merger. How much risk are we talking about here? Apparently the sky is the limit.
“The amount of losses covered by the [side letter] is uncapped,” a risk disclosure in the latest S-4 filing reads. “The Better Founder and CEO remains responsible for all such losses, which could require him to, among other things, sell a significant portion of his holdings.”
This isn’t normal. Executives, Elon Musk aside, rarely agree to take on personal liability in a deal like this—not to mention uncapped liability, where there is no ceiling to the potential losses.
“It is without doubt very rare,” says one knowledgable observer. “It’s rare at all in terms of the guarantee, but particularly unusual at the lack of a cap.”
A Better spokesperson didn’t respond to a request for comment on the side letter, and a SoftBank spokesperson didn’t respond to a request for comment.
For Garg, there’s a lot riding on how Better shares trade once the company goes public. Here’s the problem: Better is in a very different position than it was on Nov. 30, which is the date that Garg and SoftBank agreed to these terms, per SEC filings. At the end of November, despite alleged bullying from a top executive and damning allegations made against Garg in several lawsuits, Better had, nevertheless, become a hyper-growth $7.7 billion-valuation Silicon Valley success story. That was then.
I've been reporting on this for months. You can look at the layoffs via Zoom that went viral, or the subsequent town hall employees say made them feel threatened, or Garg taking to an anonymous professional site Blind to accuse ex-staffers of stealing from the company. Widespread media attention led to Garg briefly taking a step back from the company, although he would return at the end of January.
But the chaos didn’t subside. Three of Better’s board members (most recently, in April, Gabrielle Toledano, former Chief People Officer at Tesla) have stepped down. Two of its top executives have left their positions with the company. Slews of staff members have left Better, whether it be due to the layoffs, the voluntary separation program, or sheer protest. As of the end of March, Better had 5,800 people on staff—down from its nearly 10,000 peak levels.
Let’s keep going: Plans for a pilot program with a commercial partner—similar to the co-branded mortgage model it has with Ally Bank—have fallen apart. Negative media coverage has threatened the talent pipeline. A review from a third-party law firm after the mass layoffs revealed that, not only were there a number of cultural issues, but the firm had spotted a “material weakness” in its controls over its financial reporting that, should it not be figured out, could threaten the accuracy of its financial statements and, once the company goes public, lead to litigation or investigations from the Nasdaq or the SEC and other regulators.
All of this is written in plain sight in the S-4, which has now grown to more than 420 pages in size—not counting a slew of attached documents. (A Better spokesperson declined to comment on the departures and didn’t respond to a request for comment about the law firm’s discovery of the “material weakness.”)
So here’s a question: How will the public rate Better stock when its shares hit the public markets, if they do? And just how much could Garg really lose if shares tumble?
Better appears extremely committed to bringing this deal to the finish line. Recently it hired Harit Talwar, the former chairman and head of Marcus by Goldman Sachs, as non-executive chairman, according to a note Garg sent to staffers that was shared with Fortune. It hired an investor from Activant Capital, one of its VC backers, to head up its people and culture. And it says it is hiring a president.
Garg is far from the only person with money on the line here. Current and former Better employees, who have been waiting patiently for a payout, would need coordination from Better’s human resources team and its transfer agent to be able to cash out. We can look at Buzzfeed—where severe logistical issues and lack of communication seem to have blocked employees from trading shares while stock prices tumbled for more than a week—to see how things can quickly go south.
“I'm personally very worried that not just employees, but large amounts of shareholders aren’t going to have the ability to trade day one,” says a former employee, who asked not to be identified. “Better is not showing any competence in the mechanics and logistics of comp and HR, and this is an offshoot of that…. I think the odds are quite low of being able to trade in the public market—maybe for weeks.”
Better is aiming to make its public debut by the end of this quarter. Will it become yet another SPAC gone wrong?
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
Submit a deal for the Term Sheet newsletter here.
Jackson Fordyce curated the deals section of today’s newsletter.
