Many proptech startups, born and funded during the height of low interest rates, are in the midst of a struggle. As investments in U.S.-based real estate startups fell from $11.1 billion in 2021 to $3.7 billion last year, according to data from PitchBook, some are selling themselves, while others are closing their businesses.
The two most recent examples are the latest victims of a challenging interest rate environment and the years-long slowdown in real estate fintech financing.
Rent-to-own proptech startup Divvy Homes is being acquired in a liquidation sale by Charleston, South Carolina-based Maymont Homes, Fast Company. reported last week. Maymont is a division of Brookfield Properties.
EasyKnock was abruptly shut down, NPR reported last month. This closure continued several lawsuits filed against proptech company and a FTC Consumer Alert about their controversial sale-leaseback models, which involved buying houses from owners and simultaneously renting them back to them.
While Divvy, 9, declined to comment, a source familiar with the matter confirmed to britcommerce that Divvy is holding talks with Brookfield and is “close to signing a purchase agreement.” This person questioned whether the acquisition was a liquidation sale. However, neither the company nor the source shared how much Brookfield might pay for Divvy, so it’s not yet clear whether the price is a bargain or a boon.
Its sale, burned or not, is not entirely a surprise. Signs of trouble began to appear at Divvy in 2022, when the company began laying off staff. By November 2023, Divvy had made its third layoff in a year.
The once-buzzing startup had raised more than $700 million in debt and equity from well-known investors such as Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z), among others. Divvy’s last known funding occurred in August 2021. a Series D financing of 200 million dollars led by Tiger Global Management and Caffeinated Capital with a valuation of $2 billion. The Series D round was announced just six months after the $110 million Series C. Divvy Homes’ last known valuation was $2.3 billion in 2021, according to Proposal book.
EasyKnock, a startup that billed itself as the first technology-enabled residential sales and leasing provider, was founded in 2016 and had raised $455 million in funding from backers including Blumberg Capital, QED Investors and Northwestern Mutual’s corporate venture arm. , according to PitchBook. data. About $200 million of that capital was in a form of debt that allowed the company to buy the homes, according to a person familiar with the startup.
So what went wrong?
At its peak, Divvy Homes claimed to be different from other real estate technology companies because it worked with renters who wanted to become homeowners by purchasing the home they wanted and renting it for three years while they built up “the savings needed to become a homeowner.” themselves,” he said.
But the Federal Reserve began raising interest rates in 2022 with the mission of curbing inflation. For companies like Divvy Homes, which bought homes as part of its business model, the high rates were devastating, limiting their ability to buy homes and make money on those purchases.
EasyKnock’s business model also involved buying homes and renting them out. But their deal attracted homeowners with poor credit ratings because it gave them access to quick cash, along with the option to buy back the home at a future date.
High interest rates also hurt it as it took on debt to finance its operations, sources familiar with the company told britcommerce. But EasyKnock had additional problems. More than two dozen lawsuits were filed against EasyKnocks and attorney general of michigan alleged that the company used “deceptive practices” buying homes at low prices to those in financial difficulty and then charging them high rents.
According to our sources, EasyKnock was insolvent when it closed, overloaded with debt.
And as interest rates remain relatively high and financing remains difficult to come by, we can likely expect more such news from the real estate fintech sector in the coming months and perhaps throughout 2025.
Are you aware of a struggling proptech startup? Contact Mary Ann at maryann@ britcommerce or via Signal at 408.204.3036 or Marina.temkin at britcommerce.