Some shareholders are not expected to receive any payment in the $1 billion deal announced Wednesday to acquire rent-to-own startup Divvy Homes, according to people familiar with the matter.
The terms — and Divvy's journey from hot startup to acquisition target — reflect the roller-coaster ride the proptech industry has endured over the past decade.
The San Francisco-based startup, founded in 2016, has raised more than $700 million in debt and equity from high-profile investors including Tiger Global Management, GGV Capital and Andreessen Horowitz (a16z). By 2021, the company will be valued at $2.3 billion.
Although Brookfield Properties' $1 billion acquisition of Divvy valued it at just half its peak valuation, the acquisition could still be viewed as a win for an industry that has endured a series of closures and bankruptcies.
However, this is a loss for some shareholders, according to a letter from Divvy CEO and co-founder Adena Hefets seen by TechCrunch.
"If the transaction closes, Divvy will sell the majority of its assets, namely its home furnishings portfolio and brands, to Brookfield for approximately $1 billion. However, after repayment of outstanding debt, transaction costs and liquidation preferences to preferred shareholders, We unfortunately estimate that neither common stockholders nor holders of Series FF preferred stock will receive any consideration."
FF preferred stock, also known as founders' preferred stock, is a type of stock issued to a company's founders. Cooley Law Firm defines stock as “stock issued to founders upon incorporation of a company to facilitate the founder’s sale of stock in a future equity financing.”
TechCrunch has reached out to Hefets and Divvy Homes for comment and will update the article with any response.
Another source told TechCrunch that shareholders are "zeroed out" so "founders, employees and VCs" will receive "nothing" from the sale. The identity of the source, who requested anonymity, has been verified by TechCrunch.
Divvy operates a rent-to-own model in which it works with renters who want to become homeowners, buying the home they want and then renting it back to them for three years while they accumulate “The savings needed to own a home.” .
The company ran into some trouble when mortgage rates began to spike in 2022, leading to three known rounds of layoffs in one year. Divvy's last known financing occurred in August 2021, a $200 million Series D round led by Tiger Global Management and Caffelined Capital. The Series D round was announced just six months after the $110 million Series C round.
Hefets also said in the letter that "the decision to sell was not an easy one" and "comes after a thorough review of Divvy's strategic options... and careful consideration of our options."
She said the move came after "years of battling difficult market conditions, including rising interest rates, and cutting as many costs as possible."
As the company looks ahead to 2025, it believes the best way forward is to sell "its current home portfolio and return as much capital as possible to shareholders."
"For nearly a decade, I have devoted myself to this company and believe in this mission, but this is not the ending I had hoped for...While I am not proud of the financial results, I am proud of the impact we have had on our customers Proud of life,” Hefetz added.
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