Proptech companies continue to be exposed to rising mortgage rates

Image credits: Simonker/Getty Images

Welcome back to The Interchange, where we take a look at the top fintech news of the previous week. This week we’ll take a look at one startup laying off, another offering an employee equity buyout option, and more. If you’d like to receive The Interchange straight to your inbox every Sunday, head here to sign up!

From a $2 billion valuation to round after round of layoffs

Last week, I reported on Davy Homes‘Third round of layoffs in a year.’ This was the latest casualty in the damaged real estate technology sector.

I first wrote about rent-to-own startup Divvy Homes in September 2019 when it announced a $43 million Series B round to aid its mission to help more Americans “move from renters to homeowners.” I then covered the company’s $110 million Series C in February of 2021.

Of course, at that time, the housing market was very different. Interest rates were still relatively low, and while markets were tight, people were still buying homes. Like most companies, Divvy was initially unsure how the COVID-19 pandemic would impact its business. But as 2020 wore on — and the entire world spent more time at home than ever before — Divvy said it saw only an increase in demand. So much so that the startup was able to raise another $200 million, just six months later, at an estimated valuation of $2.3 billion.

Fast forward to 2022, mortgage rates have doubled and fewer people are putting their homes up for sale or looking to buy a home. For a company like Divvy, whose business model involves buying homes and then renting them out to people aiming to build equity, this was not a positive development.

Higher interest rates meant that the company would likely have to charge more rent to cover the mortgages it took out. So it’s no surprise that in 2022, both Fast Company and the New York Times reported that Divvy was supposedly charging higher rents than other landlords in some markets. It is also not surprising that the startup will lay off about 40 people in September 2022.

But this is just the beginning. In February 2023, the company let go of more workers. Last week, it reported 94 layoffs, or about half its staff. Again, it’s not surprising considering that mortgage interest rates recently reached their highest levels in more than two decades.

The company declined to comment when I reached out, and my email to executives and the media relations team went unanswered.

A WARN letter seen by TechCrunch said the job cuts affected people working in a wide range of roles, including vice presidents of sales, compliance, people, and communications/PR, as well as a senior recruiter and a number of software and account engineers. Managers.

The real estate technology sector, or proptech, has taken a big hit with rising mortgage interest rates. Layoffs have abounded at both public companies like Opendoor, Compass, and Redfin, and startups like and Homeward. Other startups didn’t survive at all. Reali announced in August 2022 that it had begun the shutdown process and would lay off most of its workforce by the following month.

Real estate is a fascinating space because we are all affected by it in one way or another. (Did you know I was a real estate reporter in a previous life?!) While it’s not a good idea to see startups lay off their businesses or close their doors, it’s unfortunately part of the cycles the industry regularly goes through. There are always ups and downs. Sometimes it’s a seller’s market. Sometimes it’s a buyer’s market. Sometimes the rent is cheaper. Sometimes it’s cheaper to own. One thing is for sure: there will never be a dull day when covering this space. – Mary Ann

(Opens in a new wayNew employee buyout option

There are a number of reasons why a small business may need to transition to a new owner. While startups, like Teamshares, have the ability to acquire companies that have no succession plans, this may not always be what the company needs.

Last week I wrote about it Shared trust, a startup company offering the option to purchase employee ownership. The company recently raised $2.6 million in seed funding in a round led by Crossbeam Venture Partners.

Zoe Schlag and Derek Razo founded the company in 2022 with the idea that employees often want to stay at a company with a great corporate culture and history of helping customers.

At the heart of the Common Trust is a unique legal vehicle called the Perpetual Purpose Trust that enables small businesses to exit while also maintaining their independence.

“Employee ownership is the most scalable approach to serving this market, preserving generational businesses and high-quality jobs in cities and towns across America, and can be achieved at a fraction of the cost that brokers charge, typically 10% of the deal,” Schlag said in an interview. By email. Read more. – Christine

Weekly news

As reported by Zach Whitaker: “Square He said there was “no evidence” that the cyberattack caused an outage that left customers and small businesses unable to use the payment giant’s technology from Thursday until early Friday. The payments technology giant said in a report after the daylong outage that the outage was due to a DNS issue. DNS, or Domain Name System, is the global protocol that converts human-readable web addresses into IP addresses, which allows computers to find and download websites from around the world. More here.

In a guest post, Navan“Fintech is facing a reckoning,” writes Michael Sindich. “Over the past two years, central banks have raised interest rates from their lowest levels in the coronavirus era to their highest levels in a generation. And now the business models once beloved by consumers look increasingly fragile. It’s a matter of “Only time for the house of cards to collapse.” More here.

Citizens Bank Launches a new private bank focused on startups. Mary Ann spoke at length with Sam Heshmati, who joined the organization as head of emerging venture capital and innovative banking in July. Heshmati worked at First Republic Bank for more than a decade and helped launch the startup practice. He details what it was like to witness the implosion of First Republic, as well as how Citizens aims to become the “bank” for the innovation sector. More here.

Other items we read:

How did Charlie Javis get JPMorgan to pay $175 million for…what exactly?

Deel changes terms of service, bans high-risk trading sites

British digital bank Monzo, valued at $4.5 billion, is launching an investments feature for the first time

Fountain offers integration with the payments platform Branch

All programs tap into Visa Direct and trigger instant payments

Episode 6 debuts BNPL scheme as companies search for working capital

Chase Payment Solutions partners with Gusto to add payroll

Fundraising, mergers and acquisitions

Seen on TechCrunch

Perfios raises $229M for real-time credit underwriting solutions

Swan has secured $40 million to bring combined banking to Europe

Parallax removes friction from cross-border payments

Alza comes out of the shadows to offer comprehensive and affordable financial tools to immigrants

Seen elsewhere

Home insurtech Kin reaches $1 billion valuation

Treasury 4 raises $20 million in new capital

CLARA Analytics raises $24M in Series C funding

Exclusive: a16z leads $17M position in bond trading startup

Software development startup Caliza raises $5.3 million and launches in Brazil

N5 raises funding

Spring Activator acquires Future Capital to expand impact investing

Discover the fintech stage at Disrupt 2023

Check out the Fintech platform at TechCrunch Disrupt 2023, taking place in San Francisco from September 19-21, where we cover Web 3, banking, and more. Last minute passes are still available. Save 15% with code INTERCHANGE. Register now!

Image credits: Bryce Durbin

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