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September 19, 2023

Divvy Homes, From Valuation Highs to Layoffs, The Real Estate Tech Rollercoaster

Last week, Divvy Homes faced its third round of layoffs in a year, a sign of a struggling real estate tech sector

The tale of Divvy Homes, once soaring high with a $2.3 billion valuation, has taken a sharp downturn in recent times. The real estate tech sector, battered by rising mortgage interest rates, witnessed Divvy's struggle firsthand.

In the not-so-distant past, Divvy Homes embarked on a mission to help Americans transition from renters to homeowners. A $43 million Series B round in September 2019 and a $110 million Series C in February 2021 fueled their ambitious goals.

However, the dynamics shifted dramatically in 2022. Escalating mortgage rates and dwindling homebuyers left Divvy facing a challenging scenario. To cover the mounting mortgage costs, Divvy likely had to raise rents. Reports surfaced that Divvy was charging higher rents than other landlords in certain markets, leading to layoffs of around 40 employees in September 2022.

The woes continued into 2023, as mortgage interest rates reached two-decade highs, prompting further layoffs. A total of 94 employees, approximately half of the staff, were let go.

Despite numerous attempts to reach Divvy for comment, the company remained silent on the matter.

Divvy's plight reflects a broader trend in the real estate tech sector, commonly referred to as proptech. Mortgage rate surges led to layoffs not only at Divvy but also at industry giants like Opendoor, Compass, and Redfin, as well as startups like Some startups, like Reali, were unable to weather the storm and had to shut down.

The real estate sector is a dynamic one, marked by cyclical fluctuations that affect us all. While the challenges faced by startups are regrettable, they are an inherent part of the industry's ebb and flow. It's a realm where the market swings from being favorable for sellers to being advantageous for buyers, where the decision to rent or own is ever-changing. One thing remains constant: covering real estate is always an intriguing journey. - Mary Ann.

Transitioning ownership is a critical juncture for many small businesses, and while startups like Teamshares specialize in acquiring companies without succession plans, this might not always align with a company's needs.

Enter Common Trust, a startup offering an employee ownership buyout option. The company recently secured $2.6 million in seed funding, led by Crossbeam Venture Partners.

Founded in 2022 by Zoe Schlag and Derek Razo, Common Trust recognizes that employees often wish to stay with a company boasting a stellar corporate culture and a history of customer-centric values.

At the heart of Common Trust's innovative approach is a legal entity known as a perpetual purpose trust. This enables small businesses to make an exit while retaining their independence.

"Employee ownership is the most scalable approach to serve this market, preserving generational businesses and quality jobs in cities and towns across America, and can be achieved at a fraction of the cost that brokers are charging, typically 10% of the transaction," explains Schlag.

Neil Hodgson Coyle
Neil Hodgson-Coyle
Editorial chief at TechNews180
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