Doma Goes Public: Proptech Startup to List via $3B SPAC Deal

Doma to Become Publicly Traded via SPAC Merger

Doma, a real estate technology company previously operating as States Title, revealed on Tuesday its plans to enter the public market through a merger agreement with Capitol Investment Corp. V, a special purpose acquisition company (SPAC). The total valuation of this transaction, inclusive of outstanding debt, is estimated at $3 billion.

Understanding SPACs

SPACs, frequently referred to as blank-check companies, are gaining prominence as a route to public listing. These entities are already publicly traded but exist specifically to acquire a private company, effectively bringing the private company public without undergoing the traditional Initial Public Offering (IPO) process.

Upon completion of the merger, anticipated later this year, Doma’s shares will be listed on the New York Stock Exchange under the stock ticker symbol DOMA.

Financial Implications of the Deal

The transaction is projected to generate up to $645 million in cash for Doma. This figure encompasses a $300 million Private Investment in Public Equity (PIPE) offering, alongside up to $345 million currently held within Capitol Investment Corp. V’s trust account.

Doma’s Core Mission and Technology

Founded in September 2016 by CEO Max Simkoff, the San Francisco-based company initially set out to revolutionize title insurance through instant underwriting.

However, Doma has since broadened its scope to encompass all facets of the mortgage closing and escrow processes.

Doma has pioneered patented machine learning technology designed to significantly reduce title processing times. The company claims to shorten this process from a standard five days to as little as one minute.

Furthermore, the entire mortgage closing timeline is purportedly reduced from over 50 days to under a week.

Operational Scale and Client Base

To date, the startup has successfully facilitated over 800,000 real estate closings. Its clientele includes major lenders such as Chase, Homepoint, Sierra Pacific Mortgage, and others.

Strategic Rebranding and Future Growth

The recent name change from States Title is intended to better reflect Doma’s ambitions to expand its services beyond title insurance. The company aims to integrate areas like appraisals and home warranties into its offerings.

Going public will enable Doma to “continue to invest in growth, market expansion and new products.”

PIPE Investors

Key investors participating in the PIPE include funds managed by BlackRock, Fidelity Management & Research Company LLC, SB Management (a SoftBank Group subsidiary), Gores, Hedosophia, and Wells Capital.

Lennar, an existing Doma shareholder, has also committed to the PIPE, as has Spencer Rascoff, the co-founder and former CEO of Zillow Group, through a personal investment.

Equity Distribution and Cash Retention

Doma anticipates retaining approximately $510 million in cash proceeds from the transaction. Existing shareholders of Doma are expected to maintain ownership of at least 80% of the equity in the newly combined company, subject to potential redemptions by Capitol’s public stockholders and the payment of transaction-related expenses.

Recent Funding Rounds

In February of this year, Doma secured $150 million in debt financing from HSCM Bermuda, which had previously invested in the company.

Prior to that, in May of last year, Doma completed a $123 million Series C funding round, achieving a valuation of $623 million.

Financial Performance Overview

From 2019 to 2020, the company experienced a period of moderate expansion, with its Generally Accepted Accounting Principles (GAAP) revenues increasing from $358.1 million to $409.8 million. However, when agent premiums were excluded, the company’s revenues – specifically, “retained premiums and fees” – saw a decrease, moving from $179.8 million in 2019 to $189.7 million in 2020.

The figures referenced for this analysis primarily utilize the reported 2020 data, which includes an “estimated” designation. Given the current timeframe of March, it is anticipated that the finalized 2020 results will closely align with the previously reported estimates, justifying their use for citation.

Revenue Projections

For 2021, the company forecasts continued, albeit modest, revenue growth. GAAP revenues are projected to reach $416.4 million, while the retained revenue figure is expected to be $226.4 million. More substantial growth is projected for the years 2022 and 2023, but these forecasts are considered less reliable due to the distance in time.

Profitability Concerns

The company anticipates a decline in its economic performance in 2021. Specifically, adjusted gross profit, expressed as a percentage of retained premiums and fees, is expected to decrease from 48.3% in the previous year to 39.5% this year. While this metric deviates from standard GAAP reporting, it reflects the company’s communicated expectations regarding its financial performance.

Further negative trends are indicated by projections for adjusted EBITDA, which is expected to fall from -$19.0 million to -$66.6 million in 2021. A more optimistic adjusted EBITDA forecast is presented for 2023, though its reliability is subject to considerable uncertainty.

Net Loss Expansion

Considering all costs, Doma’s net loss for 2020 amounted to $35.1 million. This loss is projected to increase significantly to $103.1 million in 2021. Like many companies entering the public market through a Special Purpose Acquisition Company (SPAC), Doma is still refining its business operations amidst the evolving landscape following the COVID-19 pandemic and the increasing availability of vaccines.

Despite these challenges, the company maintains a positive outlook for its long-term prospects and future success.

Initial Public Offerings in the Proptech Sector

Doma is the latest in a series of property technology firms opting to become publicly traded. Compass, a real estate brokerage startup that has secured approximately $1.6 billion in venture capital, submitted its S-1 filing on Monday.

The trend of going public via Special Purpose Acquisition Companies (SPACs) is gaining momentum within the proptech industry.

In 2020, Opendoor, a private real estate company, announced its intention to become a publicly listed entity through a merger with Social Capital Hedosophia II, a blank-check company linked to investor Chamath Palihapitiya.

Porch.com successfully completed a SPAC deal to go public in December of the previous year.

Furthermore, View, a smart window company headquartered in Silicon Valley and backed by SoftBank, is poised to begin trading on the Nasdaq following a recently finalized SPAC merger on March 9th.

The anticipated market capitalization for View upon its public debut is estimated at $1.6 billion.

Recent Proptech IPOs

• Doma: Joining the ranks of publicly traded proptech companies.
• Compass: Filed its S-1 form, indicating plans for an IPO.
• Opendoor: Became public through a merger with Social Capital Hedosophia II.
• Porch.com: Successfully completed a SPAC transaction.
• View: Set to trade on Nasdaq following a recent SPAC merger.

These developments highlight the increasing investor interest in the rapidly evolving proptech landscape.