Divvy Homes, the rent-to-own startup that gained attention and investment from Tiger Global and other high-profile investors, is laying off 94 employees. The layoffs — its third round in the past year — represents the latest blow to the real estate tech company, as mortgage interest rates have continued to surge.
The 94 employees are spread across the United States, with some based in the company’s San Francisco headquarters as well as remote employees in other locations such as Colorado, Florida, Ohio, Texas and Washington, according to a September 7 letter that Divvy Homes' head of talent Rachel Ergmann sent to Oregon’s Office of Workforce Investments.
The job cuts affect people working in a wide range of roles, including the vice presidents of sales, compliance, people and comms/PR, as well as a senior recruiter, a number of software engineers and account executives. The terminations will take effect as of November 7.
It's not known how many employees remain at the company.
A source familiar with internal happenings at Divvy said the most recent round of layoffs made up almost half the company. Doing the math, that means it likely had just under 200 employees prior to the cuts. TechCrunch reached out to Divvy Homes for additional details but had not heard back at the time of writing.
The source added: "The layoffs were attributed to the macroeconomic climate, the current cost of capital, and the need to conserve cash. The economics of the company don't work when interest rates are this high, and it's likely the company won't be close to fully operational until interest rates go down."
Divvy laid off in February an unknown number of people, including the company’s head of growth marketing, according to real estate publication Inman. That followed a September 2022 layoff of about 40 people, or some 12% of its workforce at the time, as reported by Inman.
Innovative model gone wrong?
In its heyday, Divvy Homes claimed to be different from other real estate tech companies because it worked with renters who wanted to become homeowners by buying the home they wanted and renting it back to them for three years “while [they build] the savings needed to own it themselves.”
The once-buzzy startup has 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. Divvy's last known funding occurred in August 2021 -- a $200 million Series D funding led by Tiger Global Management and Caffeinated Capital at a $2 billion valuation. The Series D round was announced just six months after a $110 million Series C. Divvy Homes' last known valuation was $2.3 billion in 2021, according to PitchBook.
Mortgage rates dropped to historic lows in 2020, driven by the COVID-19 pandemic. But since March 2022, when the Federal Reserve embarked on a mission to curb inflation, interest rates have soared. According to The Mortgage Reports, “mortgage rates entered August below 7%, but by the end of the month, they had soared to 7.23%, a level not seen in over two decades, according to Freddie Mac’s records.” By last week, they had jumped even higher with the average rate on 30-year fixed mortgages climbing to 7.42%, according to Bankrate.
For companies like Divvy Homes, which purchased homes as part of its business model, the rise has been devastating -- limiting its ability to purchase homes and make money off those buys.
The company also made headlines in October 2022 when Fast Company analyzed rents advertised by Divvy and determined that the company charged higher rents than other landlords in some markets, had ramped up evictions of clients and “could be slow to make repairs,” as reported by Inman.
The New York Times conducted its own investigation, finding that the company’s model “stuck renters with higher-than-average monthly bills.”
Divvy is one of many real estate tech, or proptech, companies that have struggled in the face of surging interest rates. Online mortgage lender Better.com has laid off thousands of workers since December of 2021 and recently experienced a dismal debut on the public markets. Reali shut down last year after raising $100 million one year prior.
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