An IPO for mortgage giant Quicken Loans could make or break fintech valuations. 5 VC investors lay out the stakes — and which startups may get the biggest boost.

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  • Quicken Loans has confidentially filed paperwork for an IPO, according to media reports. While the valuation isn’t yet set, it could be in the tens of billions of dollars. 
  • VC investors are keeping a close eye on Quicken, saying it offers an important gauge for how investors are thinking about the intersection of tech and old-school financial services. 
  • Still, Quicken Loans’ scale and long corporate history may make it a difficult comp to apply widely to fintech valuations. 
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Media reports that Quicken Loans is laying the groundwork for an IPO have caught fintech investors’ eyes, as a public-markets debut could provide VCs a benchmark for a firm that leverages tech to streamline traditional lending. 

On Thursday, CNBC reported that Quicken Loans, the largest residential mortgage provider in the US by volume thanks in part to its fully-digital Rocket Mortgage, has filed IPO paperwork with the SEC and could reveal S-1 documents publicly as soon as next month.

Quicken’s targeted valuation is likely in the tens of billions of dollars, according to CNBC, making it one of the biggest IPOs of 2020. Public markets have started thawing in recent weeks with a rush of listings and filings, including an S-1 from SoftBank-backed insurtech Lemonade, which Business Insider reported had postponed plans for an IPO last year.

But a Quicken Loans IPO would be more than just a sign of the public markets coming back to life. Some fintech investors are eagerly watching to see what type of price tag public investors put on the company — and whether the valuation hems closer to “fin” or “tech.” 

Read more: Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here’s what prompted the sudden shift

Frank Rotman, a founding partner of QED Investors, said that while no single IPO should be seen as a bellwether of the general fintech ecosystem, seeing whether investors peg their valuations to current financial results or the potential market share Quicken Loans could gain in the future will be worth watching. 

“If they’re valued on the ‘here and now’ results then it’s a sign that public markets investors are willing to pay for a durable business model with solid earnings,” Rotman told Business Insider via email.

“If they’re valued based on their growth potential and out-years’ earnings, then investors are willing to pay for the option value of an originations machine and management team that has a lot of room to run in a gigantic market.”

The two approaches highlight the difference between evaluating a traditional financial company versus a technology one. Fintechs, which market their ability to leverage cutting-edge tech but also typically operate in some ways like a traditional financial company, fall somewhere in the middle, making them difficult to value. 

Jennifer Lee, a principal at Edison Partners, cited small-business lending company OnDeck as an example of a fintech that has tumbled in public-markets trading after initially being valued at a tech multiple. The company raised $200 million through its IPO in 2014 and had shares jump 38% in the first day of trading to reach a valuation of around $1.8 billion. 

However, OnDeck’s stock hasn’t reclaimed those highs. As of the end of trading on Monday, its market cap was at roughly $64.3 million.

To be sure, Lee isn’t comparing Quicken Loan’s business to OnDeck. But a dramatic rethink of multiples could set a precedent for other similar offerings in the space. 

“Once people realize, ‘Oh no, we should actually be assigning a different multiple, not a tech multiple.’ Then it really throws, more or less, the IPO pipeline for companies in a similar lending-focused industries,” she added. “That’s why everybody’s talking about how it’s going to get valued.”

Read more: Banks are rushing to keep up with a surge in mortgage demand, and JPMorgan was so swamped with people looking to refinance that it pulled back on marketing

Some say Quicken isn’t a perfect fintech comp for everyone

To be sure, some investors see Quicken Loans as more of a unique situation as opposed to a broadly defining moment for fintechs.

Lenders in general have seen a surge in demand for new mortgages and refis thanks to ultra-low interest rates. And as Business Insider has reported,”fintech” itself is an expansive term that some argue has become overly simplistic — and even outdated. 

Charles Birnbaum, a partner at Bessemer Venture Partners, told Business Insider that Quicken’s massive scale and long corporate history — originally named Rock Financial, the firm was founded in 1985 — make a difficult comp for other fintechs. 

And QED’s Rotman said that it would be tough to draw too many conclusions from the IPO, regardless of how it prices. 

Still, Birnbaum pointed to startups such as Blend Labs, Roostify, HouseCanary, States Title, and Spruce (which BVP is an investor in) that helped traditional players digitize traditionally cumbersome processes like mortgage applications and other loan originations, as firms that could be beneficiaries of a strong valuation in an IPO. 

“The software ecosystem that is allowing the rest of the industry, away from Quicken, to deliver a faster, more seamless and digital mortgage experience will continue to benefit most within the fintech space,” Birnbaum told Business Insider via email. “These companies will continue to benefit from these trends as incumbents play catch-up.”

See more: America’s biggest banks are offloading parts of their home-loan businesses to machine-powered startups, as they try and fend off sagging profits

Some see Quicken as ‘category defining’ 

Others, however, see a Quicken Loans IPO as potential validation for a much wider array of startups.  

Ryan Falvey, managing partner at Financial Venture Studio, described it as a “category-defining IPO” and compared it to Salesforce going public in 2004, which eventually kicked off further adoption and growth of the now-ubiquitous software-as-a-service model. 

“They were one of the first companies where they sell software on the internet, you pay subscription fee and you have this power that you didn’t have before. That company obviously grew to be quite significant, and they were kind of riding a wave there of SaaS and how that’s kind of taken over most tech categories,” Falvey told Business Insider.

“I could see this being something similar.”

Startups in the mortgage-tech space will be the most obvious beneficiaries of a Quicken Loans IPO, as they would get a high-profile public comp. However, even consumer finance more broadly stands to be helped by the potential IPO, Falvey said. 

Quicken Loans is a representation of the power of developing a consumer brand even if the product itself is considered relatively boring, he added.

The knock-on effect, Falvey said, is that direct-to-consumer fintechs, which some have critiqued due to their high valuations despite not reaching profitability, might gain more appeal. 

“I think it mitigates a little bit of the criticism of these companies, ‘There’s nothing here. It’s just a design innovation. How much bigger can it get? Can it keep the growth up?” Falvey said.

“You look at this company. You look at some of the public comps out there. We’re not just trying to get companies public. These are companies that are trying to become really big companies and are going to public markets to unlock the next stage of their growth.”

Others simply welcome the prospects of a big IPO if only because it shows that the market is starting to return to normal after months of disruption due to the pandemic. 

“I think it shows that the IPO window is open, when we thought it might have been closing due to COVID concerns,” Peter Johnson, principal at Jump Capital, told Business Insider via email. “If the markets continue to show strength, I anticipate there could be a significant number of IPO filings in the second half of the year, and M&A coming back to the furious pace we were starting to see pre-COVID.”

Read more: 

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  • Machine-learning powered mortgage startup Blend overshot its expectations with a $130 million fundraise. Their CFO explains how they pulled it off.
  • Ally’s head of strategy told us how one of the first digital banks picks fintechs to partner with, invest in, and buy

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