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 12 months, 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 setting and the years-long slowdown in actual property fintech funding.
Hire-to-own proptech startup Divvy Houses is being acquired in a fireplace 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 client 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 aware of 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. Nevertheless, neither the corporate nor the supply shared how a lot Brookfield may pay for Divvy, so it’s not but clear if the worth is a cut price or a boon.
Its sale, fireplace or not, isn’t solely a shock. Indicators 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 12 months’s time.
The once-buzzy startup had raised greater than $700 million in debt and fairness from well-known buyers comparable to 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 Buyers, 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 aware of the startup.
So what went unsuitable?
In its heyday, Divvy Houses claimed to be totally different from different actual property tech firms as a result of it labored with renters who needed to grow to be owners 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 mentioned.
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 skill 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 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 aware of the corporate informed TechCrunch. However EasyKnock had extra issues. Greater than two dozen lawsuits have been filed towards EasyKnocks, and Michigan lawyer normal 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 troublesome to come back by, we will possible anticipate extra of such a information from the true property fintech area 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 by way of Sign at 408.204.3036 or Marina.temkin at techcrunch.com.
