Deidre Woollard: Now in the second half hour, we are going to interview Max Simkoff who is the CEO of Doma. Hi Max.
Max Simkoff: Hi Deidre, how are you?
Deidre Woollard: Good. I just want to read a little intro here about you so that the fools are going to understand what we're talking about here. We spent the last half hour going into a little bit of a primer about Title. You started States Title in 2016 after you bought a house and noticed there's something about this system that doesn't quite work. Tell me a little bit about that journey and what really led you to want to fix Title?
Max Simkoff: Yeah, it seemed like there were a lot of things that didn't work starting with the fact that I was sitting in the office of the Title company having to sign hundreds of pages of documents that I didn't really understand and then being told for what seemed like the very first time that I was also going to have to pay thousands of dollars for an insurance product that I also didn't understand and didn't really understand the value of which was title insurance. It was just a layperson's curiosity that got me to look at the market and then realized over time that it was just right for someone to come in and use technology to help people close mortgages much faster, more efficiently, and ultimately, more affordably. One of the first things that I learned through that experience from the outside looking in was just that the Title company is responsible for so much more than just this product called title insurance, which as I mentioned, I had a hard time understanding. They're responsible for everything, for setting up the escrow, making sure the earnest money gets funded, paying off all of the outstanding mortgages, paying that realtors commission, the closing fees, recording the mortgage, collecting all the signatures. It's basically a giant clearinghouse for closing the most important financial transaction in your life and all of it was being done through old-school manual work on technology that was built in the 1990s. It baffled me that it hadn't been brought into the modern age. It was that personal experience. I didn't have any real estate experience. I didn't have any insurance experience. You could put those on the list of reasons that investors at the time would've said that I was nuts to be starting a title insurance company, but it worked out.
Deidre Woollard: Well, that's fantastic because we were talking about in the last half-hour that there's only a few companies that really do title and so think about that idea of disruption. It's really sort of an industry where there hasn't been a lot of that. It seems like Doma is resonating with people because you guys make things faster and title is traditionally not fast. [LAUGHTER]
Max Simkoff: Yeah. Look, part of why it's not been traditionally fast as exactly as you said, they've only been, you could argue that it's some number less than 10 or you could argue that it's as few as four companies that effectively have owned the entire network and infrastructure of title and closing for the last 150 years. The reason that it's been so consolidated is it's a highly regulated space. It is an insurance product so you need capital on your balance sheet to even play at a national scale and do anything as it relates to the underwriting of the insurance product and you also need licensure and distribution. It's like a lot of other parts of the real estate landscape that are these entrenched, regulated industries with large incumbents who've had a scale advantage for a long period of time. Because they have that advantage, quite frankly, there wasn't a lot of reason for people in those industries to need to innovate. They commanded dominant market share. They enjoyed all the benefits of economies of scale in a regulated industry that were built over more than a 100 years. For a long time, they were used to telling the consumer, if you want to close your mortgage, you'll be at our office at this time. You'll take that time off of work. You'll sit there for an hour and a half and sign a bunch of documents you don't understand like I did and you will pay us for the privilege and thankfully, as you know, it has just gotten so much easier to use technology to start new businesses especially in PropTech. We're one of the probably best examples of that.
Deidre Woollard: I like this because you came from a predictive analytics background and so you sort of had this idea that you could use machine learning to change Title. How exactly does that work?
Max Simkoff: Yeah, so in our case, the way it works is you can think about our business as really two primary service offerings. There's a title insurance piece which is underwriting insurance policy and then there is what's called escrow and settlement that's closing the mortgage. Both of those processes traditionally, again, have been very manual labor focused. Title insurance historically has effectively revolved around the process of looking backwards through time and historically record a property documents and manually examining each and every one of them to find and fix issues that could stand in the way of the new ownership in the property. Just like I described, it's a research-based process. It's called insurance, but it's not even really like insurance traditionally in that you're doing this research-based process to eliminate all of the known risks that you can find. We looked at that and we said, well, in a world of real insurance, you should be able to actually predict the risk that you'd be looking for instead of finding at all and then if you could accurately predict it, you could segment the low-risk stuff from the higher-risk stuff. The high-risk stuff you can do manually through the old school process and the lower-risk stuff, you can just take on your balance sheet and insure it without doing the backwards-looking research. So that's what we did is we trained machine learning model overtime on how to recognize the, call it the predictors of title defect risk.
In so doing, when we instantly underwrite title insurance, which we now do for refinance transactions, we are able to underwrite a title insurance policy inside of a minute, where traditionally it's taken these companies upwards of 3-5 days to do that work. A lot of people in our market for the last few years have said, "Well, you guys you've got a couple of days off of the title insurance underwriting process. But is that really that big of a deal? We've got loan underwriting, we've got appraisal, we've got some of these other things and closing the mortgage." What happened last year partially due to COVID and partially just because people got to a breaking point where they just didn't want to do this stuff over a long period of time, is that consumer expectations have now demanded that the mortgage process from start to finish needs to go much faster and our ability to shave a couple of days off through just the underwriting piece is a pretty dramatic difference. The way that we use machine learning on the escrow and closing piece, in some ways it's even more fascinating than what we do for underwriting because that's where we've trained algorithms to actually identify structured and unstructured information that comes through primarily in documents.
A lot of these documents we get are PDF's whether they are structured data that can be pulled out of the PDF directly or it's a flat image file where we have trained optical character recognition from the image, convert it into text, and then natural language processing to convert the text into syntax and then understand what to do with any action on the file: balance the fees, figure out when and where it needs to be closed. These are all the things, again, that historically title companies have done manually in the escrow process. But our machine learning is able to do it instantly and actually even more accurately than the way that people have traditionally done it. Because the one thing that I've learned in building.
Now this is my second business based on predictive analytics, machine learning, and scale, is that when people are doing that work, they get fatigued. Traditionally, if they're looking at closing documents a 100 times a day and every one of those closing packages is 200 pages, by the end of the day, you're probably going to make more mistakes than at the beginning of day because your brain is tired, you're getting fatigued. The beautiful thing about machine learning is the more it looks at documents, the better it gets. It's almost like the opposite of fatigue. Your limitations are effectively computing power and the IP that you can build with your data science team and so the more documents our machine learning processes on the escrow and closing side, the better it gets at being accurate in enabling much faster mortgage closings.
Deidre Woollard: Well, I think that's an interesting point too is one of the things that people don't necessarily understand about machine learning is it's not just the machine learning, but it's also human-assisted machine learning is that you're gradually teaching the machine to get better and better by having humans who have the experience of going through all of these things, teaching the machine itself, and then it can make some of those decisions going forward.
Max Simkoff: That's right. Again, in the case of instant underwriting, as I mentioned, today about 80 percent of our refile orders that go through instant underwriting have an instant underwrite clear-to-close decision. The other 20 percent, where the algorithm effectively says, hey, something seems off here, it gets sent to a manual underwriting process. We have people who are effectively acting as check-and-balance on the machine learning algorithm. This is commonly referred to as human in the loop. They are doing the work to confirm whether or not the machine guessed accurately. Sometimes the machine did. The person who's doing that work says, "Here's a significant title defect that we would not have wanted to instantly underwrite." Sometimes the machine guesses wrong. Then it's up to our team of people across both data science and operations to help hone in the algorithm to get better over time and that process will never go away. We're always going to need people to help build better algorithms and we're always going to need people to do the remainder of whatever work the machine can't do as we scale our operations team.
Deidre Woollard: Well, you mentioned the pandemic. Certainly this real estate market has been crazy which I'm sure has had an impact on Doma. Right now, homes are selling probably faster than I've ever seen. Is that part of what you're seeing too? Is that having a huge impact on your business?
Max Simkoff: Absolutely. I think we saw a perfect storm over the last 12-18 months. It started pre-COVID even, you saw interest rates dropping pretty significantly pre-COVID in a way that surprised a lot of people, surprised a lot of lenders. They realized they needed to get a more efficient platform in place to enable them to close loans on the refi side. I think the other part of this perfect storm was as we came out of the first wave of COVID last summer and into the fall, new home purchase activity started to pick up. You had a lot of people moving out of cities, you had homebuilders starting to reaccelerate the pace of new home starts, and then you had continued low interest rates. Then the really beautiful thing is you had a bunch of companies like us, they were all focused on doing the same kind of thing for different parts of the mortgage process. Whether it was opening the mortgage application or doing the loan underwriter in our case, closing the mortgage, but even stuff like homeowners insurance. Every one of these markets was characterized by a lot of the same things that I mentioned about the title industry. You had these really forward-thinking companies that were helping enable this truly integrated end-to-end digital home buying experience.
It was all happening because we live in a world where people expect their food to be delivered inside of 20 minutes. They want to be able to track where their order is, they want to be able to consume any piece of entertainment on-demand, they want to be able to have any retail item delivered same-day. You put all that together, there was no going back. What happened, again largely on the back of COVID is it's more like we saw five or 10 years of progress that we were going to have any way accelerate to a point where it happened inside of 12 months. We're seeing the exact same things that you mentioned. The housing market, it obviously has dynamics that people have never seen before. Record low inventory, record, year-over-year price increases to medium, home sales like record low interest rates, record-high refinancing activity. It's a bit mind-boggling how much activity there is here, and so it is necessary that companies like ours are facilitating in an instant and digital way.
Deidre Woollard: You started the business in 2016, why is it important for you to go public now, and why is going public via SPAC right for Doma?
Max Simkoff: Our trajectory has been quite rapid. We started in 2016, we didn't even go-to-market with our first product until midway through 2018. We went from first go-to-market year where I think we had revenue in 100s of thousands of dollars for the entire year, till last year, 2020, we did just under $410 million of GAAP revenue and just under $200 million of what we call retained premiums and fees, which is effectively our net take on the GAAP revenue that we do.
The answer to why go public is wrapped up in that explanation. It's that the business grew so quickly, both organically and inorganically, we acquired a large title insurance carrier and affiliated brick-and-mortar title agency from Lennar and made them a large investor of ours. But the business grew so rapidly, and then last year, quite frankly, because we were able to invest through the cycle in our differentiated technology, our ability to close mortgages better, faster and increasingly more affordably, we were just confident that we had become the category leader in instant digital mortgage closing at a time when everybody needed it. We looked at going public toward the end of last year and we tried to think about that in a more first principles approach. We said first, is this company even ready to be public? Do we have the infrastructure? Do we have the controls, the compliance, the management team that can execute our plan as a publicly traded company?
In many cases the answer is yes, but there were also some areas that we needed to invest in further and build out. Once we'd done that, we said, is the timing right for us to go public, in terms of the growth trajectory of the business? That gets to the last part of your question, which is why SPAC? When we answered the timing question, we said yeah, the timing does seem right for us to become a public company. The way in which we became public, and we looked at all three of SPAC, we considered a direct listing, should we do a traditional S-1 IPO? What a SPAC provided was the ability to control the process a bit. We got to be more selective in building our investor book.
When we closed our pipe, we announced the likes of Fidelity and Wells Capital, Hedosophia, SoftBank, really a fantastic list of long term fundamental institutional investors. That was a big benefit. Then the other big benefit is because the company hadn't been around for very long, but it had grown so dramatically, again both through organic and inorganic growth, it was a benefit to us for the SPAC process to be able to share projections, forward-looking projections. Which as you know, you can do in a SPAC because it's considered a merger, and it's traditionally been more challenging to do that in an S-1 IPO. I think what is unique about the way that we navigated that part of the SPAC process from other SPACs is we chose to share projections for the business that we're self-funded. Unlike a lot of other SPACs, we weren't saying, hey, we're going to raise all this money, and then once we flow that money through our P and L, look at how great the growth of our business could be. We basically just said here's the growth projection for the business. No proceeds taken into consideration. Based on the existing cash on the balance sheet, the confidence we have in our plan, our understanding of our go-to-market motion, how our customer acquisition dynamics work, here's what we know that we can do this year, and here's where we think we can do next year and the year after, and by the way, we can raise back proceeds to accelerate that plan further. All those things put together made a SPAC the right way for us to enter the public markets.
Deidre Woollard: Excellent. We've got a question from the audience, and this is something I've actually wondered too. About collaborations and partnerships, you have some existing relationships, can you tell us about some of those and some others that you are looking to explore.
Max Simkoff: Sure. I think there's a spectrum of what I call homebuying experiences, and I think that spectrum starts from the minute somebody decides that they want to start looking for a home and they're on any of the search portals, and it ends with when you decide you want to sell your home. It's on over $300 billion existing market opportunity. We're not talking about markets that they're going to get invented, it's just like this is what gets spent on everything from Realtor commission fees, title and closing, appraisal, home warranty, mortgage servicing, everything across the spectrum. If you look at where we sit in that spectrum, the further out that we get from our core business, the more we would look to form strategic partnerships with others in the ecosystem. I think we have our sights set on the home appraisal and home warranty markets as immediate adjacencies. Those are ones that we've communicated through our investor materials that we are intent to have our own offering for, so that we can have a truly integrated closing experience. We're moving as many of those contingencies that currently frustrate people while they're trying to close a mortgage. When you get into things like homeowners insurance for example, or even further upstream in the home search journey, that's probably where we'll be looking over time, to partner with some of the other innovative companies that are building out their own offerings in this space. Again, I'm just so excited by the time that we're in because so many of these new companies have built their technology in such an open architecture that the ways that you can formulate partnerships with some of those companies and even pilot commercial partnerships, you can do them so much more rapidly than you could historically with traditional brick-and-mortar company in those spaces because they are built technology first, and they're built with the hooks into their platforms that can enable a lot of these best-in-class companies to integrate tightly together. The further on that spectrum you get, the more we'd be looking to evaluate strategic partnerships, and there's certainly no shortage of interesting companies to do that with.
Deidre Woollard: Absolutely. Are you working with residential and commercial title, or just residential?
Max Simkoff: Our primary focus today is on residential. We do some commercial title through our underwriting division, but the focus of our Doma Intelligence Platform is primarily on residential transactions because there's a large number of them and your typical risk on any one transaction is comparatively low compared to, on a commercial transaction if you make an underwriting mistake on a $700 million refinance of the skyscraper for example, it can be extremely expensive. It doesn't tend to lend itself to the algorithmic approach. Our $23 billion total available market that we referenced in all of our investor materials excludes the commercial title and escrow opportunities, it's just residential.
Deidre Woollard: We've got a question. They want to know what the SPAC is, the ticker that'll bring Doma public and your target date.
Max Simkoff: Capital Acquisition V. The ticker is, C as in cat, A as in apple, P as in Paul. We have at this point communicated via our publicly available investor materials and our proxy that's been mailed out. I think we have a vote date that's scheduled on the 27th of July, I believe. But whatever is publicly disclosed in the materials is the right date.
Deidre Woollard: Fantastic. Thank you. I know part of the business, of course, involves working with real estate agents. We're talking about a lot of disruption on that end too. Curious what you think about the role of the agent and the future. We've got Redfin and discount brokerages. What are you thinking and what are you looking toward in the future?
Max Simkoff: We think the future is very bright for residential real estate agents. We see ourselves as being in the business of helping them focus more time on acquiring new customers and managing the parts of the relationship that they enjoy, and spending less time having to coordinate the transaction. It's fascinating. In the residential real estate agent world, there is a role of an individual called the transaction coordinator. Sometimes when you're really high producing real estate agent, even your transaction coordinator will have their own assistant, and there's a huge amount of activity that goes into making sure that the transaction is on track to close, and a huge amount of that activity happens with us. We see it as our mission through our machine intelligence platform to remove as much of that coordination work as possible so that the real estate agent can close transactions with higher certainty on a faster timeline and ultimately, their customers are happier. I can say this from experience because I've now closed several residential real estate transactions on the customer side. You remember the closing. You remember how smooth it is. You remember how easy it was, and what you're associating it with. In a home purchases, you don't typically remember the title company. You associate things with your agent. How well did they manage the process? How well did they manage your expectations? We think that in the future, residential real estate agents are going to be much more efficient, they're going to have much more technology right at their fingertips, and that technology should just work the way they want it to. It shouldn't have to log into some new app or portal to get status on something. They should be able to just effectively snap their fingers and have things done. We're excited to play our part in helping them do that with residential transaction closings.
Deidre Woollard: I would definitely say at a brokerage, the transaction coordinator is a very valuable person. You mentioned appraisal earlier. That is a business, I think, that also really is disjointed. It's unclear. It's another one of those things that needs a little bit of fixing. What are you thinking about what we saw during the pandemic with virtual appraisals and things like that? Does that have potential? Where do you see Doma fitting in there?
Max Simkoff: Yeah. It more than has potential. I think the future of what I'll call collateral valuation is instant and digital. Look, in the appraisal market, it's even more straightforward. We have a population of licensed appraisers who are aging out. They're retiring and they're not being replaced. It's become difficult to attract people who will apprentice and get licensed as an appraiser, and so whether we like it or not, we have to find a solution to that challenge. The other thing is, especially in the current real estate markets where your appraisal timeline and the outcome of that process can mean the difference between you getting the home or not. We look at that and we say, there's so much information now about the quality of the collateral itself, the property. We live in a world again where nearly everyone walks around with a supercomputer in their pocket. The new iPhone has the same interior mapping capabilities as some of the technology that companies like Matterport use. You can map the interior of a home from satellite imagery. We can understand the quality of construction materials when your roof was replaced. We can do all these things using machine learning to estimate value extremely accurately. The only missing piece there is, is someone willing to guarantee that collateral? Is someone willing to stand behind the risk in a way that other companies across the spectrum of what I call home ownership experiences do for things like title insurance, homeowners insurance? We see a future where getting an appraisal is instant and digital, and guaranteed. It gives the home buyer and home seller or somebody doing refinance, instant peace of mind, and they can move on to the other challenging aspects of figuring out like when they're going to move in or how they're going to get their cable activated. They shouldn't have to worry about whether it's going to take two weeks to get their property valued.
Deidre Woollard: You mentioned refinancing. What are you thinking about interest rates? We've seen they've remained so low for so long. I think anybody who is of a certain age can't believe it since they've been 8 percent, 10 percent higher than that in the past. What do you think is going to happen in the future?
Max Simkoff: Honestly, this is one where I'd have to say it's anybody's guess. I think look, interest rates are inevitably going to increase at some point. I don't believe that they can stay at the current level for years. If you believe the Mortgage Bankers Association, for example, they would expect that increase to start happening, I think later this year or early next. I think what's important is that, even when they start increasing, there's still likely to stay as you mentioned, so much lower than what people are traditionally used to, as recent as just a decade or two ago. I think a lot of that is reflective of the efficiency of Capital Markets for facilitating home transactions. The importance of the home as being, for many people, the largest financial decision and investment that they'll ever make. Whether they go up by some or some more significant amount or whether that happens next year in two years, I think the current numbers show that demand for housing is incredibly strong. It's likely to stay that way for a long time. That's why the focus needs to be on enabling a much more efficient instant and digital experience for pretty much any aspect of buying or refinancing a home.
Deidre Woollard: What about how this plays with investors and single-family rentals? We've seen these large companies, both public and private, they're amassing over 20,000 individual single-family rentals. Is Doma involved in working with any of those companies?
Max Simkoff: On to my knowledge, we don't have any significant strategic partnerships with any of the individual SFR companies, but they buy and refinance homes. They just do it at much larger scale. That could be a very attractive future segment for us. For right now, we have our hands more than full with conventional buyers. Also, we work with iBuyers quite a bit. Then across iBuyers, conventional buyers and refinancings, we're very excited about what the future holds. But SFR, I think could be a very interesting developing categories of customer for us at the right time.
Deidre Woollard: You mentioned iBuyers, one of my favorite topics. Let's talk about that a little bit. How is Doma working with iBuyers and what are you seeing in terms of the growth of the iBuyer market in general?
Max Simkoff: I'm bullish on iBuyers long-term. I think they're spending lots of R&D right now that I believe will pay itself forward several years from now to enabling their core ibuying platform to be profitable. I think there's a lot of people who have said, well, iBuyers really are just a platform to get into adjacent services and I don't think that that's long-term future. The way that we work with them is, iBuyers as category are growing extremely quickly. We have a platform that can much more efficiently and much more instantly, and digitally enable mortgage closings. A lot of these folks, it would be hard for them to scale their own business if they didn't have a strategic partner like us, and so we enable growth for them using our solution. I'm pretty bullish on the category in general long-term. I'd also point out that even the most bullish of analysts, I think, are predicting that ibuying will make up no more than 5 percent of residential real estate volume and that's like five years from now. I'm bullish on the category and I also think it's going to be a segment. It's not going to make up the majority of the market.
Deidre Woollard: Yeah, totally agree with that. Last question for you. Doma, in five years, where do you think you'll be and where do you hope you'll be?
Max Simkoff: In five years, I believe Doma will be facilitating a suite of integrated instant digital home buying experiences and that in five years, you will be able to decide on a Friday evening to put an offer in on a house and you will be able to move in on a Monday, and that we will be facilitating most of the most challenging work that needs to happen over the weekend, instantly, digitally, all in the background, such that it's an effortless and enjoyable experience.
Deidre Woollard: I love that. That's the perfect place to end things. Thank you so much for your time.
Max Simkoff: Awesome. Thanks, Deidre. Great talking with you.