With $3B IPO, title insurance startup Doma targets new business lines

CEO says machine-learning firm will go after appraisals, warranties and more

Doma CEO Max Simkoff (Doma, iStock)
Doma CEO Max Simkoff (Doma, iStock/Illustration by Alexis Manrodt for The Real Deal)

By going public in a $3 billion SPAC deal, title insurance startup Doma plans to pursue home appraisals, warranties and other adjacent business lines, the company said Wednesday.

Like title and escrow, those services are a “manual, high-friction part of closing a mortgage,” CEO Max Simkoff said during an investor presentation to discuss the planned merger of Doma — formerly called States Title — with a blank-check firm backed by Mark Ein’s Capitol Investment Corp.

The IPO will generate $645 million, including $300 million from PIPE (private investment in public equity) investors. Committed investors include BlackRock, Fidelity, the Gores Group, Hedosophia, SoftBank, Wells Capital and Zillow co-founder Spencer Rascoff. Homebuilder Lennar, already a big investor in Doma, is participating in the PIPE.

Doma will retain $510 million in cash from the deal.

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Founded in 2016, the San Francisco-based company uses machine learning to remove 70 percent of the manual labor associated with the archaic title insurance process, which is dominated by four major players and has not changed in decades.

The startup’s digital process makes the process of obtaining title quicker, faster and better, the company says. To date, Doma has invested more than $65 million in R&D and holds three patents, with five more pending.

The company was previously valued at $623 million, after closing a Series C last year, meaning its valuation has more than quadrupled since.

“The business has massively accelerated over the last 12 months,” Simkoff told The Real Deal in an interview Tuesday.

After the initial uncertainty created by the pandemic, the housing market came roaring back and low interest rates created a “perfect storm,” he said. Demand for Doma’s digital and title services exploded.

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“I would say the theme for us and our customers and associates has been, everything sped up 10 years into the future, overnight,” he added.

According to Simkoff, merging with a SPAC was a quick and efficient way to raise capital from the public market. But the company was growing before the deal was struck.

In 2020, Doma said, it booked about 92,400 orders and it projected a 53 percent compound annual growth rate, or more than 330,000 booked orders in 2023.

Last year, the company generated an estimated $190 million in “retained fees and premiums,” a metric to reflect earnings. (Revenue reflects 100 percent of the insurance premiums, the company said.)

It projected retained fees would hit $464 million in 2023. By comparison, GAAP revenue was an estimated $409.8 million in 2020 and was projected to hit $665.3 million in 2023.

Like other fast-growing startups, Doma is losing money — an estimated $35.1 million last year. It projected profitability in 2023, with $45.5 million in net income.

The $3 billion deal values Doma at 15.7 times its retained fees in 2020. During Wednesday’s investor call, Ein said Capitol underwrote the deal based on Doma’s current business.

When the deal is complete, Capitol will hold an 11.7 percent stake and the PIPE investors will have 8.5 percent. Doma’s existing shareholders will retain a 79.9 percent stake, according to the company’s financials.

Doma operates in 40 regional markets and has an application pending with New York’s Department of Financial Services, a regulator that has taken a dim view of the title insurance industry’s old guard.

“New York is the biggest one on our roadmap,” Simkoff told TRD. “We’ve made our case for why the state of New York needs a much better competitive market.”