Many proptech startups, born and funded in the course of 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 line with PitchBook information, some are promoting themselves off, whereas others are closing store.
The 2 most up-to-date examples are the newest casualties of a difficult rate of interest setting and the years-long slowdown in actual property fintech funding.
Hire-to-own proptech startup Divvy Properties is being acquired by Charleston, South Carolina-based Maymont Properties, Quick Firm 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 properties from the homeowners and concurrently leasing the properties again to them.
Whereas 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 fireplace sale. Nonetheless, neither the corporate nor the supply shared how a lot Brookfield might pay for Divvy, so it’s not but clear if the value is a cut price or a boon.
Its sale, hearth or not, isn’t completely a shock. Indicators of bother 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 World Administration, GGV Capital, and Andreessen Horowitz (a16z), amongst others. Divvy’s final identified funding occurred in August 2021 — a $200 million Sequence D funding led by Tiger World Administration and Caffeinated Capital at a $2 billion valuation. The Sequence D spherical was introduced simply six months after a $110 million Sequence C. Divvy Properties’ final identified valuation was $2.3 billion in 2021, in line with 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 Traders, and Northwestern Mutual’s company enterprise arm, in line with PitchBook information. Roughly $200 million of that capital was in a type of debt that allowed the corporate to purchase the properties, in line with an individual accustomed to the startup.
So what went fallacious?
In its heyday, Divvy Properties claimed to be completely different from different actual property tech firms as a result of it labored with renters who needed to develop into householders by shopping for the house they needed and renting it again to them for 3 years whereas they constructed “the financial savings wanted to personal it themselves,” it stated.
However the Federal Reserve started elevating rates of interest in 2022 on a mission to curb inflation. For firms like Divvy Properties, which bought properties as a part of its enterprise mannequin, excessive charges have been devastating, limiting its potential to buy properties and generate profits off these buys.
EasyKnock’s enterprise mannequin additionally concerned shopping for properties and renting them. However 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.
Excessive rates of interest additionally damage it, because it took on debt to finance its operations, sources accustomed to the corporate instructed TechCrunch. However EasyKnock had further issues. Greater than two dozen lawsuits have been filed towards EasyKnocks, and Michigan legal professional basic alleged that the corporate used “misleading practices” by buying properties from these in monetary stress at low costs after which charging them excessive rents.
In line with 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 one of these 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 bother? Contact Mary Ann at [email protected] or through Sign at 408.204.3036 or Marina.temkin at techcrunch.com.
This story was up to date post-publication on January 18 to make clear the kind of sale that Divvy is reportedly in talks to finish.
