Divvy Homes Sale: Shareholders May Receive Nothing

Divvy Homes Acquisition: Shareholders Face Potential Loss

The recently announced $1 billion acquisition of the rent-to-own company, Divvy Homes, is anticipated to result in no financial return for certain investors, as indicated by individuals with knowledge of the transaction.

The Proptech Industry's Volatility

The specifics of the deal, alongside Divvy’s evolution from a promising startup to an acquisition target, underscore the fluctuating fortunes experienced within the property technology (proptech) sector over the last ten years.

Founded in 2016 and based in San Francisco, the company successfully secured over $700 million in both debt and equity funding. Notable investors included Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). Its valuation peaked at $2.3 billion in 2021.

Despite the $1 billion purchase price representing half of its former peak valuation, the acquisition by Brookfield Properties can still be viewed favorably within an industry that has witnessed numerous closures and bankruptcies.

Shareholder Impact

However, a letter from Divvy CEO and co-founder Adena Hefets, reviewed by TechCrunch, reveals a financial setback for some shareholders.

“Upon closing of the transaction, Divvy intends to sell substantially all of its assets, including its home portfolio and brand, to Brookfield for approximately $1 billion. Following the repayment of outstanding debts, transaction expenses, and liquidation preferences to preferred shareholders, we currently project that neither common shareholders nor those holding Series FF preferred stock will receive any distribution,” the letter stated, addressing shareholders, former employees, and supporters.

Understanding Founders Preferred Stock

Series FF preferred stock, often referred to as Founders Preferred Stock, is a class of shares typically granted to a company’s founders. According to the law firm Cooley, these shares are issued during incorporation to enable founders to sell stock in conjunction with future funding rounds.

TechCrunch has contacted both Hefets and Divvy Homes for further comment and will update this report as new information becomes available.

An additional source, speaking on condition of anonymity but verified by TechCrunch, confirmed that equity holders will receive “nothing” from the sale, meaning founders, employees, and venture capitalists will not see a return on their investment.

Divvy’s Business Model and Challenges

Divvy operated on a rent-to-own basis, partnering with individuals aspiring to homeownership. The company would purchase a desired property and then lease it back to the renter for a three-year period, allowing them to accumulate savings for eventual purchase.

The company encountered difficulties as mortgage interest rates increased significantly in 2022, leading to three rounds of layoffs within a single year. Divvy’s most recent funding round occurred in August 2021 – a $200 million Series D led by Tiger Global Management and Caffeinated Capital, following a $110 million Series C round six months prior.

CEO’s Perspective on the Sale

Hefets conveyed in her letter that the decision to sell was a difficult one, reached after a comprehensive evaluation of Divvy’s strategic options and extensive deliberation.

She explained that the move followed “years of navigating challenging market conditions, including rising interest rates, and implementing as many cost reductions as feasible.”

Looking ahead to 2025, the company determined that selling its home portfolio was the optimal path forward to maximize capital return to shareholders.

“Having dedicated nearly a decade to this company and believing in its mission, this outcome was not my intention. While I am not pleased with the financial result, I take pride in the positive impact we had on our customers’ lives,” Hefets concluded.

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