Many proptech startups, born and funded through 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 most recent casualties of a difficult rate of interest atmosphere and the years-long slowdown in actual property fintech funding.
Hire-to-own proptech startup Divvy Houses is being acquired in a hearth sale by Charleston, South Carolina-based Maymont Houses, 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 house owners 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 hearth 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 worth is a cut price or a boon.
Its sale, hearth or not, isn’t solely a shock. Indicators of bother started showing at Divvy in 2022, when the corporate started shedding employees. By November 2023, Divvy had carried out 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 buyers reminiscent of Tiger World Administration, GGV Capital, and Andreessen Horowitz (a16z), amongst others. Divvy’s final recognized 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 Houses’ final recognized 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 unsuitable?
In its heyday, Divvy Houses claimed to be completely different from different actual property tech firms as a result of it labored with renters who wished to grow to be owners 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.
However the Federal Reserve started elevating rates of interest in 2022 on a mission to curb inflation. For firms like Divvy Houses, which bought properties as a part of its enterprise mannequin, excessive charges have been devastating, limiting its capacity to buy properties and earn a living off these buys.
EasyKnock’s enterprise mannequin additionally concerned shopping for properties and renting them. However its association attracted owners 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 advised TechCrunch. However EasyKnock had further issues. Greater than two dozen lawsuits have been filed towards EasyKnocks, and Michigan legal professional common 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 keeping 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 come back by, we will seemingly anticipate extra of such a information from the actual 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 maryann@techcrunch.com or by way of Sign at 408.204.3036 or Marina.temkin at techcrunch.com.