Many tech start-ups, born and funded during the boom days of low interest rates, are in the throes of war. With investment in U.S.-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.
The two most recent examples are the latest victims of a challenging interest rate environment and the years-long slowdown in real estate fintech funding.
Rental technology startup Divvy Homes is being acquired in a sale by Charleston, South Carolina-based Maymont Homes, Fast Company reported last week. Maymont is a division of Brookfield Properties.
EasyKnock shut down suddenly, NPR reported last month. That shutdown followed several lawsuits filed against the proptech company and an FTC consumer alert about its controversial sale-leaseback models, which involved buying homes from owners while simultaneously renting the homes back to them.
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 an acquisition agreement.” This person countered that the purchase was a fire sale. However, neither the company nor the source shared how much Brookfield could pay for Divvy, so it’s not yet clear whether the price is a bargain or a boon.
Its sale, fire or not, isn’t entirely a shock. Signs of trouble began to appear at Divvy in 2022, when the company began laying off staff. By November 2023, Divvy had made its third layoff in a year.
The once buzzing startup had raised more than $700 million in debt and equity from well-known investors such as Tiger Global Management, GGV Capital and Andreessen Horowitz (a16z), among others. Divvy’s last known funding occurred in August 2021 – a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital at a $2 billion valuation. The Series D round was announced just six months after Series C. Divvy Homes’ last known valuation of $110 million was $2.3 billion in 2021, according to PitchBook.
EasyKnock, a startup that bills itself as the first technology-enabled rental housing provider, was founded in 2016 and has raised $455 million in funding from backers including Blumberg Capital, QED Investors and the venture arm of of Northwestern Mutual corporations, according to PitchBook. data. About $200 million of that capital was in a form of debt that allowed the company to buy the homes, according to a person familiar with the startup.
So what went wrong?
At its peak, Divvy Homes claimed it was 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 to them for three years while they built out ” necessary savings to own,” it says.
But the Federal Reserve began raising interest rates in 2022 on a mission to curb inflation. For companies like Divvy Homes, which bought homes as part of its business model, the high rates were devastating, limiting its ability to buy homes and make money from those purchases.
EasyKnock’s business model also includes buying houses and renting them out. But his fix appealed to homeowners with poor credit scores because it gave them access to quick cash, along with the option to repurchase the home at a future date.
High interest rates also hurt it, as it took on debt to finance its operations, sources familiar with the company told TechCrunch. But EasyKnock had additional problems. More than two dozen lawsuits were filed against EasyKnocks, and Michigan’s attorney general alleged the company used “deceptive practices” by buying homes from those in financial stress at low prices and then charging them high rents.
According to our sources, EasyKnock was insolvent when it closed, overwhelmed by debt.
And with interest rates still relatively high, and financing still hard to come by, we’re likely to expect more of this kind of news from the real estate fintech space in the coming months and possibly all of 2025 .
Do you know of a proptech startup in trouble? Contact Mary Ann at maryann@techcrunch.com or via Signal at 408.204.3036 or Marina.temkin at techcrunch.com.
