Many proptech startups, born and funded throughout the low-interest-rate heydays, are within the throes of wrestle. With investments into U.S.-based actual property startups falling from $11.1 billion in 2021 to $3.7 billion final yr, in response to PitchBook knowledge, some are promoting themselves off, whereas others are closing store.
The two most up-to-date examples are the newest casualties of a difficult rate of interest surroundings and the years-long slowdown in actual property fintech funding.
Rent-to-own proptech startup Divvy Homes is being acquired in a hearth sale by Charleston, South Carolina-based Maymont Homes, Fast Company reported final week. Maymont is a division of Brookfield Properties.
EasyKnock abruptly shut down, NPR reported final month. This closure adopted a number of lawsuits filed towards the proptech firm and an FTC shopper alert about its controversial sale-leaseback fashions, which concerned shopping for houses from the homeowners and concurrently leasing the houses again to them.
While 9-year-old Divvy declined remark, a supply accustomed to the matter confirmed to TechCrunch that Divvy is having conversations with Brookfield and is “near signing a purchase order settlement.” This individual disputed that the acquisition was a hearth sale. However, neither the corporate nor the supply shared how a lot Brookfield might pay for Divvy, so it’s not but clear if the worth is a cut price or a boon.
Its sale, hearth or not, isn’t solely a shock. Signs of hassle started showing at Divvy in 2022, when the corporate started shedding workers. By November 2023, Divvy had performed its third layoff in a yr’s time.
The once-buzzy startup had raised greater than $700 million in debt and fairness from well-known traders corresponding to Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z), amongst others. Divvy’s final recognized funding occurred in August 2021 — a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital at a $2 billion valuation. The Series D spherical was introduced simply six months after a $110 million Series C. Divvy Homes’ final recognized valuation was $2.3 billion in 2021, in response to PitchBook.
EasyKnock, a startup that billed itself as the primary tech-enabled residential sale-leaseback supplier, was based in 2016 and had raised $455 million in funding from backers, together with Blumberg Capital, QED Investors, and Northwestern Mutual’s company enterprise arm, in response to PitchBook knowledge. Approximately $200 million of that capital was in a type of debt that allowed the corporate to purchase the houses, in response to an individual accustomed to the startup.
So what went improper?
In its heyday, Divvy Homes claimed to be totally different from different actual property tech firms as a result of it labored with renters who wished to develop into householders by shopping for the house they wished and renting it again to them for 3 years whereas they constructed “the financial savings wanted to personal it themselves,” it stated.
But the Federal Reserve started elevating rates of interest in 2022 on a mission to curb inflation. For firms like Divvy Homes, which bought houses as a part of its enterprise mannequin, excessive charges had been devastating, limiting its potential to buy houses and generate income off these buys.
EasyKnock’s enterprise mannequin additionally concerned shopping for houses and renting them. But its association attracted householders with poor credit score scores as a result of it gave them entry to fast money, together with the choice to repurchase the house at a future date.
High rates of interest additionally damage it, because it took on debt to finance its operations, sources accustomed to the corporate instructed TechCrunch. But EasyKnock had extra issues. More than two dozen lawsuits had been filed towards EasyKnocks, and Michigan legal professional common alleged that the corporate used “misleading practices” by buying houses from these in monetary stress at low costs after which charging them excessive rents.
According to our sources, EasyKnock was bancrupt when it shut down, overburdened by debt.
And with rates of interest nonetheless comparatively excessive, and funding nonetheless tough to return by, we are able to doubtless count on extra of this kind of information from the true property fintech house within the coming months and maybe for all of 2025.
Are you conscious of a proptech startup in hassle? Contact Mary Ann at maryann@techcrunch.com or through Signal at 408.204.3036 or Marina.temkin at techcrunch.com.
