The recent acquisition of rent-to-own startup Divvy Homes for $1 billion, announced on Wednesday, is anticipated to leave some shareholders without any returns, according to sources familiar with the situation.
The details of the acquisition, alongside Divvy’s evolution from a promising startup to an acquisition target, highlight the turbulent changes within the proptech sector over the past decade.
Founded in 2016 and headquartered in San Francisco, Divvy Homes secured over $700 million in both debt and equity funding from prominent investors, including Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). By 2021, the company’s valuation soared to $2.3 billion.
Although the acquisition by Brookfield Properties for $1 billion is approximately half of its peak valuation, it can still be viewed as a successful outcome within an industry plagued by numerous closures and bankruptcies.
Nevertheless, it represents a setback for certain shareholders, as conveyed in a letter from Divvy CEO and co-founder Adena Hefets, which was reviewed by StartupSuperb.
The letter indicated that “if the transaction is completed, Divvy will transfer nearly all its assets, including its home portfolio and brand, to Brookfield for about $1 billion. However, once outstanding debts, transaction expenses, and the liquidation preference of preferred shareholders are settled, it is regrettable that no returns will be provided to common shareholders or holders of Series FF preferred stock.” This communication was directed to shareholders, former employees, and supporters of Divvy.
Series FF preferred stock, or Founders Preferred Stock, is typically designated for founders at the time of incorporation to facilitate stock sales among founders during subsequent equity financing activities, as defined by the law firm Cooley.
StartupSuperb has sought comments from Hefets and Divvy Homes and will update the article upon receiving a response.
Another source informed StartupSuperb that equity holders had received “nothing” from this transaction, leaving “founders, employees, and venture capitalists” with “no compensation” from the sale. The source’s identity has been verified by StartupSuperb, albeit they wished to remain anonymous.
Divvy operated under a rent-to-own model, assisting renters aiming to become homeowners by purchasing properties and leasing them back for a three-year duration while fostering the savings required for ownership.
The company faced challenges as mortgage interest rates began to rise in 2022, resulting in three known rounds of layoffs within a year. The latest funding round for Divvy occurred in August 2021, a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital, announced merely six months after a $110 million Series C round.
Hefets expressed in her letter that the decision to pursue a sale was difficult and stemmed from a comprehensive evaluation of Divvy’s strategic alternatives, involving extensive discussion about potential options.
She noted that this decision followed “years of contending with challenging market conditions, particularly rising interest rates, and implementing numerous cost-cutting measures.”
As the company contemplated its future prospects for 2025, the conclusion was drawn that selling the “portfolio of homes now and maximising the return of capital to shareholders” represented the most advantageous path forward.
Hefets remarked, “After nearly a decade dedicated to this company and believing in its mission, this is not the outcome I envisioned… Although I cannot take pride in the financial results, I take pride in the positive impact we had on our customers’ lives.”
