Divvy Homes, a Silicon Valley proptech (property combined with technology) start-up in the rent-to-own space, has raised $200 million on a Series D funding round, giving this company unicorn status with a valuation of $2 billion -- and this just six months after a Series C funding round that brought in $110 million. Here's what you should know about Divvy Homes.
This latest funding round for Divvy Homes was co-led by Tiger Global Management and Caffeinated Capital. Existing investors who also participated in this round include Andreessen Horowitz, GGV Capital, GIC (formerly Government of Singapore Investment Corp.), and Moore Specialty Credit. Past investors include Jaws Ventures, Lennar, and SciFi VC.
What Divvy Homes does
Divvy Homes is a rent-to-own, or more accurately, a lease-option company, which uses proprietary algorithms to assist in its homebuying process.
Divvy Homes provides a path to homeownership for would-be homeowners who can never seem to get ahead. Divvy's customers typically haven't been able to save up for a down payment on a home, they have a low credit score, they're self-employed, or any combination of those factors. Simply put, Divvy's customers want to own a home but don't qualify for a mortgage.
What makes Divvy different, and frankly better, than many other players in this space are two things:
- Its customers can pick any home on the market rather than only being able to choose rent-to-own-specific deals, which are far fewer.
- There's a forced savings account aspect of Divvy. Divvy charges 25% on top of market rate rent each month. Most of that extra money goes into an equity account for its customers. By the end of the three-year lease, Divvy's customers should have enough money saved for a down payment to qualify for a mortgage.
If you look at what Divvy customers have to say about the company, the reviews are mixed. Divvy Homes does help many people achieve their goal of homeownership -- Divvy reports about 40% of its customers buy the homes. But that means most customers don't.
Divvy is doing well, closing on more homes in 2021 than it has from its founding in 2017 through 2020. That growth is what made Divvy interesting enough to investors to provide the Series D funding.
Divvy operates in 16 markets and plans to use the new funding both to expand and to add in-house services: mortgage, title, escrow, and real estate agents.
The Millionacres bottom line
Divvy Homes, like many Silicon Valley start-ups, began with a mission, but realism has somewhat overshadowed its idealistic dreams. For example, CEO and co-founder of Divvy Homes Adena Hefets said in a recent press release, "We are a homeownership program, not a landlord."
That comment sounds quite virtuous, but it's untrue. Divvy Homes does help people become homeowners, but the company is very much a landlord. In fact, its customers must sign a three-year lease, with Divvy as the landlord.
And like all rent-to-own outfits, Divvy makes money on people struggling to get ahead, which is a legitimate business model. But it's often a red flag and can be distasteful when a business tries to pretend to be something it's not, or in this case, pretending not to be something it is.