RealKey - Unlocking the Hockey Stick

Going six years between major funding rounds is the startup equivalent of spending 40 years wandering through the desert. RealKey hasn’t just survived the ordeal, they’re currently thriving in a very difficult market, with their ARR of $4 million running 4.4x ahead of 2021.

How did they do the almost impossible?

A combination of good ol' fashioned grit, an amazing culture, and an executive team of thought leaders with subject matter expertise who knew, after a major process-oriented pivot, they would have product-market fit. Founded by Christopher Hussain, 2-time top mortgage loan originator turned serial entrepreneur, with previous successful exits, RealKey began as a better, more collaborative way to take a mortgage loan application.

That’s the basis on which several members of Pasadena Angels invested in the Seed round back in 2017. Seeking to build the best possible product, Christopher recruited Intuit Principal Design Strategist Alan Tifford. If you or someone you know has ever used the TurboTax app to file your taxes - well, Alan had a major hand in its creation.

Alan was willing to build what Christopher wanted. However, in order to fully commit to a long term future, he wanted to put the product through his detailed process for determining the right fit. His findings led to the pivot, creating something entirely different, and far more useful.

RealKey is not a Loan Origination System (LOS), Point-of-Sale (POS), or Customer Relationship Management (CRM). It is a new approach to the processing/underwriting/operations side of the mortgage business, an area long neglected through the refi boom of the late 2010s and Covid Era. Now that originations have slowed dramatically, lending institutions are looking for ways to reduce expenses, improve efficiency, and take advantage of the downturn to implement new tools. As Christopher points out, you don’t re-pave roads in the daylight, nor stick your hand into a shark tank until the feeding frenzy subsides.

The RealKey platform utilizes the data from a loan application to create the industry's most complete needs list, including for third parties and not just the borrower and lender. Inviting each party to upload documents and provide data, RealKey uses simplified but thorough instructions, which increase the first time success rate. All parties are assigned roles and access the most up-to-date data and documents. RealKey provides the industry's first centralized chat for each transaction, avoiding the “lost-in-the-spam-folder” problem. Once documents are uploaded, RealKey provides clear guidance to determine next steps, including whether a letter of explanation and supporting documentation is needed, the application needs updating, or a whole new requirement is necessary. All documents are organized and exportable to any other platform in a way that makes them easier to digest by other users, like underwriters, closers, and secondary market departments, integrating seamlessly with any lender or broker, regardless of their POS, LOS, and CRM tech stack.

Though RealKey is laser-focused on mortgage right now, Christopher sees a huge opportunity in the adjacent Escrow, Title, Appraisal, and Insurance markets, along with eventual use in other forms of lending such as auto and student finance. The architecture is robust enough that it could provide the backbone for future spin-offs and/or use as the backend for third-party apps, the way Salesforce is now.

If that sounds like a leap, consider what the group has accomplished over the last few years. With a skeleton team, they had to build a new product while continuing to service the original one, barely out of beta. Though there were revenues, they couldn’t expand the user base for a product that was going away. When seeking additional funding, they were burdened by a flat revenue graph, which reflected an accomplishment under the circumstances but didn't impress investors.

As the transition continued, COVID hit. Despite a burn rate of less than $50,000 per month for the past several years, RealKey was running out of money. It was the ultimate gut check for Christopher and his highly committed team of thought leaders. If there was ever a time to back down or jump ship it was then. Startups often talk about being gritty, but this was proof. Nobody left. Work continued.

By the second half of 2021, the current product was ready for launch. The majority of existing users moved over. RealKey began adding new ones. Their churn rate has never exceeded 3%.

For the past 18 months, they’ve built up to a user base now approaching 4,000. They accomplished this with a concentration on brokers and non-bank lenders, the growth driven by all of 2.5 salespeople. With dramatically improved metrics, RealKey launched their $10 million Series A round with a pre-money valuation of $33 million. That’s at least 5x the level of the Seed round, making for some nice appreciation for those early investors.

RealKey has already received a $2 million wire from round lead Zulu Assets, a Dallas-based family office who had participated in previous fundings. There’s room for a VC to join as a co-lead, and RealKey is taking investment from other sources with a $250,000 minimum.

Money is being used on a 40/40/20 split between the product/engineering side, sales/marketing, and legal/operations. Some of the initial distribution was used to hire a new Head of Engineering and new Head of Product, both with distinguished and relevant pedigrees.

As they continue to improve the product, RealKey is making a major push on the enterprise side to enable them to add some of the largest lenders in the country. The first one up is Flagstar Bank, a core component for almost every broker in the U.S.

Anyone who has ever seen a pitch deck is familiar with the hockey stick growth shown at the far right of the financial projections. It’s always just around the corner. Except in this case, RealKey has already shown dramatic growth since launch. Finishing off the round will position them to take advantage of new availability in the tech labor market and once-in-a-decade receptiveness from targeted customers.

It was a very long time in the desert, but RealKey is homing in on the promised land. Reach out to Christopher if you’d like to connect.

Copyright © 2022 PasadenaAngels, All rights reserved.