Divvy Homes’ Layoff Struggles Continue
Divvy Homes, a rent-to-own startup, faces its third round of layoffs in a year due to rising mortgage rates impacting the real estate tech sector. The company, backed by investors like Tiger Global, just laid off 94 employees across the US.
According to a letter sent to Oregon’s Office of Workforce Investments by Divvy Homes’ Head of Talent, Rachel Ergmann, these layoffs will become effective on November 7, affecting various roles within the company, including vice presidents of sales, compliance, human resources, and communications/public relations. Notably, software engineers and account executives are among those facing the cut.
The latest layoffs at Divvy are expected to cut the workforce by almost half, although the exact number is undisclosed. Extrapolating from this, it’s estimated that Divvy Homes had around 200 employees before these cuts. However, Divvy Homes has not responded to requests for further details from TechCrunch.
The tough economy, high capital costs, and the need to save cash attribute layoffs. The source highlights Divvy’s economic model struggles in the current high-interest rate environment. They suggest a return to full operational capacity might depend on more favorable interest rates.
Divvy Homes had previously survived a series of layoffs, including a February 2023 layoff that led to the departure of the company’s Head of Growth Marketing and a September 2022 layoff affecting approximately 40 employees, constituting around 12% of the workforce.
Divvy Homes, once known for its innovation in real estate tech, enabled renters to buy and rent a property back for three years, facilitating their path to ownership. This unique approach allowed renters to save towards eventual homeownership.
The company attracted over $700 million in debt and equity from prominent investors like Tiger Global Management, GGV Capital, and Andreessen Horowitz (a16z). In August 2021, a $200 million Series D funding round led by Tiger Global Management and Caffeinated Capital valued the company at $2 billion. PitchBook data shows that Divvy Homes had reached a valuation of $2.3 billion in 2021.
The surge in mortgage interest rates has posed a significant challenge to Divvy’s business model. Interest rates have climbed steadily since March 2022, reaching levels not seen in over two decades. The average rate on 30-year fixed mortgages is 7.42%, limiting Divvy’s ability to buy homes and generate revenue.
Divvy Homes faced financial issues, with higher rent charges and more client evictions in some markets. There were also concerns about potential delays in essential repairs. The New York Times investigated, revealing that Divvy’s model often led renters to face higher-than-average monthly bills.
Divvy Homes is one of many real estate tech companies struggling with surging interest rates. Online mortgage lender Better.com has faced significant layoffs since December 2021 and had a dull stock market debut. Last year, Reali shut down despite having raised $100 million just a year prior. These developments underscore the challenges faced by prop-tech companies as they navigate the evolving economic landscape.
