The $1 Billion Divvy Homes Acquisition: A Mixed Bag for Shareholders
The recent acquisition of rent-to-own startup Divvy Homes for a staggering $1 billion has stirred up quite the buzz in the proptech industry. Announced on Wednesday, this deal is a testament to the turbulence the sector has faced over the last decade, yet it leaves some shareholders empty-handed. The journey of this San Francisco-based startup, from its promising beginnings in 2016 to becoming a sought-after acquisition target, illustrates the highs and lows that have characterized proptech.
A Rollercoaster Journey
Divvy Homes had successfully raised over $700 million in debt and equity from investment heavyweights like Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). By 2021, the company was riding high with a valuation of $2.3 billion. Fast forward to now, and Divvy’s sale to Brookfield Properties for $1 billion marks a significant drop from its peak valuation.
“If the transaction closes, Divvy will sell substantially all of its assets…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, CEO and Co-founder of Divvy
The Impact on Shareholders
The acquisition, though seen as a victory in an industry riddled with shutdowns and bankruptcies, spells disappointment for some shareholders. As per a letter from Divvy’s CEO Adena Hefets viewed by TechCrunch, common shareholders and holders of Series FF preferred stock might not see any returns post-transaction.
Divvy’s unique rent-to-own model involved purchasing homes renters aspired to own and renting them back for three years to help them save enough to eventually own the home outright. Despite this innovative approach, rising mortgage interest rates in 2022 posed challenges that led to multiple layoffs within a year. Divvy’s last funding round was a $200 million Series D in August 2021 led by Tiger Global Management and Caffeinated Capital.
Reflecting on Strategic Decisions
In her candid communication with stakeholders, Hefets expressed that the decision to sell was not taken lightly. It came after thorough consideration of Divvy’s strategic alternatives amidst tough market conditions marked by rising interest rates. Despite her disappointment with the financial outcomes, Hefets took pride in the positive impact Divvy had on its customers’ lives.
“With almost a decade of pouring myself into this company…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
Looking Ahead
As Divvy Homes transitions under new ownership, this acquisition is a reminder of both the potential and pitfalls inherent in innovation-driven sectors like proptech. For those closely watching or participating in this space, it underscores the importance of resilience amidst evolving market landscapes.
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