Canada has a new player in the digital mortgage market. Toronto-based Pine is looking to disrupt the space not only as a broker – like many startups in the mortgage industry – but also as a lender.
Led by CEO Justin Herlick, who spent time working at Silicon Valley FinTech startup Blend, Pine has raised $27 million CAD since it was founded in mid-2021.
In that time, Herlick and his co-founder and CTO, Jonathan Shih, have been building the Pine team and its fully digital mortgage experience. After a soft launch at the beginning of this year, Pine officially launched in Ontario today, with plans to expand to the rest of the country within the year.
In Canada, conventional or A-Lenders (banks) currently account for 73.25 percent of the market.
Pine has sparked the interest of a group of notable investors from Canada and Silicon Valley, including backers of Blend, which started off in online mortgages and has since expanded to broader loans and payments. Pine’s $27 million in funding consists of two separate all-equity rounds: a $6 million seed round raised in 2021 and a $21 million Series A round that closed in March of this year.
Both rounds were led by Greylock, a long-time investor in Blend, which went public with a roughly $4 billion valuation (the company has since been hit by the overall tech stock dropoff, sitting at a $780 million market cap after recent layoffs).
Inovia Capital also took part in both rounds. Speaking with BetaKit, Inovia Partner Karamdeep Nijjar said it was Herlick’s experience at Blend, in part, that drew him to Pine in the first place.
Inovia has already invested in at least two FinTech startups either eying or in the mortgage space: Wealthsimple and Neo Financial, the latter of which recently entered into mortgage brokerage and the former having teased a potential entrance in the past.
The rest of Pine’s seed round investors included a grouping of American venture firms: Original Capital, BoxGroup, Ludlow Ventures, and Thomvest, which, like Greylock, also invested in Blend.
Global Founders Capital and Intact Ventures joined the cap table in Pine’s Series A round. Global’s investments include Slack, Facebook, LinkedIn, Trivago, Revolut, and Brex, while Intact Ventures’ portfolio includes real estate tech company Properly (which is also apparently exploring the mortgage space).
Pine has created a digital mortgage experience that spans the entire mortgage process from application to loan. Its goal is to eliminate what it calls unnecessary costs and lengthy processes related to in-person mortgage applications.
In Canada, conventional or A-Lenders (banks) currently account for 73.25 percent of the market. Alternative lenders, which include credit unions, private lenders, and insurance companies, take up the rest of the market. However, many of these institutions lack a digital consumer experience. When it comes to the Big Six banks, Scotiabank is the only one with a fully digital experience, while the others will provide some online pre-approvals or applications only.
This has left the market open for the likes of Nesto, Homewise, Perch, Lendesk, Fraction Technologies, Questrade, Neo Financial, and others to bring the mortgage experience to the 21st century. However, these startups are not lenders themselves, but brokerages that partner with lenders, like banks and private lending institutions such as First National. The startups provide the digital experience that is meant to make accessing a mortgage easier. The lending partnerships are not dissimilar to those that FinTech startups need to pen with financial institutions in order to provide credit cards and accounts.
Pine is looking to differentiate itself from its competitors by becoming its own lender.
Similar to why few Canadian FinTech startups consider becoming licensed banks, becoming a licensed mortgage lender takes significant work and access to a substantial pool of capital. There are only a couple of online-focused mortgage companies that have taken the leap, such as True North, which was founded in 1999 and is a Canada Mortgage and Housing Corporation (CMHC) approved lender.
Adrian Schulz, a mortgage broker for Centum Financial Services with expertise in real estate tech, likened getting CMHC-approved lender status to becoming a licensed bank. It allows institutions to lend, underwrite and/or administer CMHC-insured housing loans. A CMHC mortgage allows consumers to buy a home with just a five percent down payment.
Herlick told BetaKit that Pine is working to become a CMHC-approved lender, with hopes to get approved in the next 12 to 18 months. Nesto, which has been around since 2018, is the only Canadian startup in the crop of recent mortgage companies that has approvals from the CMHC. The startup received its license as an approved lender in August 2021, according to its CEO and co-founder, Malik Yacoubi.
For now, Pine is reliant on financial institutions in order to administer mortgages. While he did not disclose Pine’s partner, Herlick noted that the startup operates as a broker with one lending partner that provides the loans.
While it awaits CMHC approval, Pine is working to find ways to become more independent. Herlick told BetaKit that Pine has recently considered a $100 million warehouse financing agreement, but recently opted for a different approach. A system where, Herlick said, partner banks extend third parties like Pine money for mortgages the day before consumers need the capital. Herlick argued this would essentially make Pine a lender, however, Schulz likened such a model to white label consumer lending, which is when a mortgage provider or administrator allows third-parties to apply their own branding to the mortgages.
Becoming a lender is about building a brand, and Pine wants to become a household name for mortgages. Nijjar said brand recognition is key to Pine’s success, arguing that few consumers know their lender’s name. He likened Pine to a Rocket Mortgage for Canada.
The idea for Pine blossomed after Canadian-born Herlick was working at Blend and pitched the idea of taking its mortgage product to Canada. Blend differs from Pine in that it works with financial institutions to create a digital application experience for the banks. After some attempts to work with Canadian banks, Herlick said Blend ultimately decided it wasn’t a worthwhile investment. But that experience led Herlick to notice that the Canadian mortgage market was “really, really behind” the United States.
After a stint at Instabase, where Herlick met his co-founder Shih, the duo decided to launch Pine. Herlick moved back to Canada, and Shih decided to relocate as well. Shih brings to the table experience as an engineer at iRobot, Oracle, and Facebook.
While Pine is focused on being a disruptor and leader in mortgage loans, it has ambition beyond that. Amanda Billark, head of design at Pine told BetaKit that Pine wants to be the “Wealthsimple for home buying,” and the startup hopes to expand its product line in the future.
For now, Pine is focused on building out its technology and expanding across Canada, with British Columbia as its next target market.
CORRECTION: This article previously incorrectly stated that, if approved by the CMHC, Pine would be the first Canadian startup to get a CMHC license approval. That was incorrect as Nesto already has a license, and the story has been updated to reflect that.
Image courtesy of Pine.