The $1 billion acquisition of rental startup Divvy Homes, which was announced Wednesday, is expected to leave some shareholders unpaid, according to sources familiar with the deal.
The terms — and Divvy’s journey from buzzy startup to acquisition target — reflect the rollercoaster ride the high-tech industry has endured over the past decade.
The San Francisco-based startup, founded in 2016, 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. By 2021, the company was valued at $2.3 billion.
And while Brookfield Properties’ $1 billion acquisition of Divvy was at half the peak valuation, the acquisition can still be considered a win in an industry that has seen a series of closures and bankruptcies.
Still, it’s a loss for some shareholders, according to a letter from Divvy CEO and co-founder Adena Hefets, which was seen by TechCrunch.
“If the transaction closes, Divvy will sell substantially all of its assets, namely its portfolio and house brand, to Brookfield for approximately $1 billion. However, after paying off its outstanding debt, transaction costs and liquidation preference over preferred stockholders, we unfortunately estimate that neither the common stockholders nor the holders of Series FF preferred stock will receive any consideration “, says the letter, which was sent to the shareholders. former employee and “Divvy supporter”.
FF Preferred Shares, also known as Founders’ Preferred Shares, are a type of share issued to the founders of a company. Law firm Cooley defines shares as issued to founders “at the time of incorporation for the purpose of facilitating sales of shares by the founders in connection with future equity financings.”
TechCrunch has reached out to Hefets and Divvy Homes for comment and will update the article with any response.
Another source told TechCrunch that the equity holders were “reduced” so “founders, employees and VCs” will receive “nothing” from the sale. The identity of the source, who asked to remain anonymous, has been verified by TechCrunch.
Divvy operated a rental model in which 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 up the “necessary savings to own it themselves,” he said. .
The company ran into some trouble when mortgage interest rates began to rise in 2022, prompting it to carry out three well-known rounds of layoffs in one year. Divvy’s last known funding took place in August 2021 – a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital. The Series D round was announced just six months after a $110 million Series C round.
Hefets also shared in the letter that “the decision to sell was not an easy one” and “came after a thorough review of Divvy’s strategic alternatives … and a significant discussion about our options.”
She said the move followed “years of battling tough market conditions, including raising interest rates and cutting costs as much as possible.”
As the company considered what to expect in 2025, it decided the best way forward was to sell “its portfolio of homes now and return as much capital as possible to shareholders”.
“With almost a decade since I joined this company and believing in this mission, this was not the end I had hoped for… Although I am not proud of the financial result, I am proud of the impact we had on our customers.” lives”, added Hefets.
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