Many proptech startups, born and funded in the heyday of low interest rates, are struggling. With investment in US-based real estate startups falling from $11.1 billion in 2021 to $3.7 billion last year, according to PitchBook data, some are selling themselves, while others are closing up shop. Two recent examples are the latest victims of a challenging interest rate environment and a slowdown in real estate fintech funding. Rental proptech startup Divvy Homes is being acquired by Charleston, South Carolina-based Maymont Homes, Fast Company reported last week. Maymont is a division of Brookfield Properties. EasyKnock suddenly shut down, NPR reported last month. The closure follows several lawsuits filed against proptech companies and an FTC consumer alert over the controversial sale-leaseback model, which involves buying homes from owners and renting them back. While 9-year-old Divvy declined to comment, a source familiar with the matter confirmed to TechCrunch that Divvy is in talks with Brookfield and is “close to signing a purchase agreement.” This person argued that the acquisition was a fire sale. However, neither the company nor the sources indicated how much Brookfield might pay for Divvy, so it’s not clear whether the price is a bargain or a bounty. Sold, fire or not, not all are surprised. Signs of trouble began to appear at Divvy in 2022, when the company began laying off staff. As of November 2023, Divvy has had its third layoff in a year. The startup has previously raised more than $700 million in debt and equity from notable investors such as Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z), among others. Divvy’s last known funding took place in August 2021 – a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital at a value of $2 billion. The Series D round was announced just six months after the $110 million Series C. Divvy Homes’ last known valuation was $2.3 billion in 2021, according to PitchBook. EasyKnock, a startup that bills itself as a tech-enabled home-resale provider, was founded in 2016 and has raised $455 million in funding from backers, including Blumberg Capital, QED Investors, and venture capital firm Northwestern Mutual, according to PitchBook. data. About $200 million of that capital is debt that allows the company to buy homes, according to people familiar with the startup. So what went wrong? In its heyday, Divvy Homes claimed to be different from other real estate tech companies because it worked with renters who wanted to become homeowners by buying the home they wanted and renting it back for three years while building “the savings needed to own. themselves,” he said. But the Federal Reserve began raising interest rates in 2022 with a mission to curb inflation. For companies like Divvy Homes, which buy homes as part of their business model, high rates are damaging, limiting their ability to buy homes and make money from those purchases. EasyKnock’s business model also involves home buying and renting. But the arrangement appeals to homeowners with poor credit scores because it gives them access to quick cash, along with the option to repurchase their home in the future. High interest rates are also taking a toll, due to debt to finance its operations, a source familiar with the company told TechCrunch. But EasyKnock has an additional problem. More than two dozen lawsuits were filed against EasyKnocks, and Michigan’s attorney general alleged that the company used “deceptive practices” by buying homes from people in financial distress at low prices and then paying high rents. According to our sources, EasyKnock was bankrupt when it closed, with too much debt. And with interest rates still high, and funding still difficult to come by, we can expect more of this type of news from the real estate fintech space in the coming months and possibly all of 2025. Do you know about proptech startups in trouble? Contact Mary Ann at maryann@techcrunch.com or via Signal at 408.204.3036 or Marina.temkin at techcrunch.com. This story was updated after publication on January 18 to clarify the type of sale that Divvy is reportedly in talks to complete.
