Divvy Homes, a rent-to-own startup based in San Francisco, has decided to sell its assets for approximately $1 billion to Brookfield amid financial struggles. Founded in 2016, Divvy Homes had raised over $700 million in debt and equity from prominent investors such as Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). Despite a valuation of $2.3 billion by 2021, the company faced significant challenges due to rising mortgage interest rates, leading to three rounds of layoffs in 2022. In a surprising turn of events, equity holders, including founders, employees, and venture capitalists, will receive no compensation from the sale.
Divvy Homes operated a unique rent-to-own model, assisting renters aspiring to become homeowners. The company would purchase the desired home for the renter and lease it back for three years, allowing them time to accumulate savings to eventually own the property. However, the economic climate proved challenging, prompting Divvy to review its strategic alternatives extensively. Adena Hefets, co-founder and CEO of Divvy Homes, stated that the decision to sell "came after a thorough review of Divvy’s strategic alternatives … and with significant deliberation around our options."
In August 2021, the company secured its last known funding with a $200 million Series D round led by Tiger Global Management and Caffeinated Capital. This funding followed a $110 million Series C just six months earlier, highlighting the rapid financial maneuvering at the time. However, the persistent rise in interest rates presented an insurmountable hurdle for Divvy Homes.
To address the uncertainty forecasted for 2025 and beyond, Divvy Homes resolved to sell its portfolio of homes and return capital to shareholders. Despite this measure, equity holders will not see any financial gains post-sale. Hefets expressed her sentiments on this outcome:
“With almost a decade of pouring myself into this company, and believing in this mission, this was not the ending I had hoped for…While I am not proud of the financial outcome, I am proud of the impact we had on our customers’ lives” – Adena Hefets
The transaction with Brookfield includes the sale of Divvy's home portfolio and brand. Unfortunately, after settling outstanding debts, transaction costs, and liquidation preferences to preferred shareholders, common shareholders and Series FF preferred stockholders will receive no consideration. Hefets elaborated on this outcome:
“If the transaction closes, Divvy will sell substantially all of its assets, namely its home portfolio and brand, to Brookfield for approximately $1 billion. However, after repaying its outstanding indebtedness, transaction costs, and liquidation preference to preferred shareholders, we unfortunately estimate that neither common shareholders nor holders of the Series FF preferred stock will receive any consideration” – Adena Hefets
Divvy's journey reflects the challenging landscape faced by many startups navigating economic uncertainties and market volatility. Despite its innovative approach to homeownership and significant initial backing from investors, the company could not withstand the financial pressures exacerbated by external factors.
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