The $1 billion sale of rent-to-own startup Divvy Homes to Brookfield Properties is drawing scrutiny as some shareholders may walk away with nothing. Announced Wednesday, the acquisition comes as the proptech industry continues to grapple with rising interest rates and market instability.
Founded in 2016 and headquartered in San Francisco, Divvy Homes raised over $700 million in debt and equity from investors such as Andreessen Horowitz (a16z), Tiger Global Management, and GGV Capital. By 2021, the company had achieved a $2.3 billion valuation. However, the acquisition price of $1 billion is less than half its peak valuation, signaling the challenges the sector has faced in recent years.
Shareholders Left Empty-Handed
In a letter sent to shareholders, former employees, and supporters, Divvy CEO and co-founder Adena Hefets outlined the financial implications of the sale. After repaying debt, covering transaction costs, and fulfilling liquidation preferences for preferred shareholders, the company estimates no payouts will go to common shareholders or holders of the Series FF preferred stock.
Series FF preferred stock, often issued to founders during incorporation, typically allows them to sell shares during later financing rounds. Despite these provisions, a source told TechCrunch that all equity holders—including founders, employees, and venture capital investors—will likely receive no returns from the transaction.
TechCrunch contacted Hefets and Divvy Homes for comment but has not yet received a response.
The Challenges Behind the Sale
Divvy’s rent-to-own model aimed to assist renters in becoming homeowners by purchasing homes for them and renting the properties back while they built savings over three years. Despite its mission, the company faced headwinds as mortgage interest rates surged in 2022. The economic environment forced Divvy to conduct three rounds of layoffs within a year.
Its last funding round, a $200 million Series D in August 2021 led by Tiger Global Management and Caffeinated Capital, marked the end of its fundraising activities.
Hefets described the decision to sell as a difficult but necessary step following years of challenging market conditions. In her letter, she explained, “We made as many cost cuts as possible, but ultimately, selling our portfolio of homes was the best way to return as much capital as possible to shareholders.”
While acknowledging the financial disappointment, Hefets expressed pride in the company’s impact. “This was not the ending I had hoped for,” she wrote, “but I am proud of the impact we had on our customers’ lives.”
A Cautionary Tale for Proptech
Divvy’s trajectory from a high-flying startup to a distressed acquisition reflects broader challenges within the proptech industry. As rising interest rates continue to weigh on business models reliant on affordable lending, Divvy’s story serves as a reminder of the risks and volatility in the sector.
Featured image courtesy of www.divvyhomes.com
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