Breaking news this week as Divvy Homes, a real estate fintech startup, reported a sale to Brookfield Properties amounting to a staggering billion dollars in total consideration. This comes after the rent-to-own startup achieved a pinnacle valuation of over $2 billion in 2021. Considering the challenging situations most proptech firms have recently found themselves in, this doesn’t appear to be a disastrous deal, especially when compared to EasyKnock and similar startups that have collapsed entirely.
Yet, not all is as it seems on the surface. Despite a billion-dollar sale, the payout for most shareholders is less than impressive. A key factor contributing to this is the mountain of debt that Divvy had accumulated, including a debt financing figure of $735 million from October 2021 alone. Consequently, a significant portion of the billion-dollar consideration is being funnelled towards settling these debts, transaction costs, and fulfilling liquidation preferences to preferred shareholders. CEO and Co-founder Adena Hefets, in a letter to stakeholders, stated that neither common shareholders nor holders of the Series FF preferred stock would benefit from any consideration.
Despite its commercial success, Divvy has also faced criticism for inadequate property maintenance, alleged eviction practices and potentially unfair rent rates. When considering these additional factors, the success of the $1B sale becomes more ambiguous. Even Hefets confessed that she was “not proud of the financial outcome.”
Original source: Read the full article on TechCrunch
