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Real estate tech companies continue to be hit by high mortgage rates

Welcome back to The Interchange, where we take a look at the hottest fintech news from the previous week. This week, we look at one startup’s layoff, another with an employee 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 valuation of over $2 billion to rounds of layoffs

Last week I reported Divvy Homes“Third round of layoffs in a year. This is the latest casualty in a struggling 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 to “move from renter to renter status.” [home]owners.” I then covered the company’s $110 million Series C in February 2021.

Of course, at that time the real estate market was very different. Interest rates were still relatively low, and although markets were tight, people continued to buy homes. Like most businesses, Divvy was initially unsure how the COVID-19 pandemic would impact its business. But as 2020 progressed — and the entire world spent more time at home than ever before — Divvy said it saw increased demand. So much so that the startup managed to raise an additional $200 million, six months later, for an estimated valuation of $2.3 billion.

Fast forward to 2022. Mortgage rates had doubled and fewer people were putting their homes on the market or looking to buy a home. For a company like Divvy, whose business model is to buy homes and then rent them to people who want to build capital, this is not a positive development.

Rising interest rates meant the company likely had to charge higher rent to cover the mortgages it took out. So it’s no surprise that in 2022, Fast Company and the New York Times reported that Divvy was charging higher rents than other landlords in some markets. It’s also not shocking that the startup laid off around 40 people in September 2022.

But that was only the beginning. In February 2023, the company laid off more workers. And last week, I reported on the layoffs of 94 employees, or about half of its workforce. Again, this is no surprise 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 emails 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, human resources and communications/PR, as well as a recruiter senior, a number of software and account engineers. frames.

The real estate technology, or proptech, sector has been hit hard by rising mortgage interest rates. Layoffs have abounded both at publicly traded companies such as Opendoor, Compass and Redfin and at startups such as Better.com (which recently went public itself) and Homeward. Other startups didn’t survive at all. Reali announced in August 2022 that it had begun a shutdown and would lay off most of its workforce by next month.

Real estate is a fascinating space since we are all involved in it in one way or another. (Did you know I was a real estate journalist in a past life?!) While it’s not good to see startups layoffs or close their doors, it’s unfortunately part of the cycles the industry goes through on a regular basis. There are always ups and downs. Sometimes it’s a seller’s market. Sometimes it’s a buyer’s market. Sometimes it’s cheaper to rent. Sometimes it’s cheaper to own. Only one thing is certain: you never get bored when covering this space. -Mary Ann

(opens in a new wiA new buyout option for employees

There are a number of reasons why a small business may need to change ownership. And while startups, like Teamshares, have the ability to acquire companies that don’t have a succession plan, that may not always be what a company needs.

Last week I wrote about Common trust, a startup offering a buyout option through employee shareholding. 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 company culture and history of helping customers.

At the heart of Common Trust is a unique legal vehicle called a perpetual purpose trust that allows small businesses to exit while remaining independent.

“Employee ownership is the most scalable approach to serving this market, preserving generational businesses and quality jobs in cities and towns across America, and can be achieved for a fraction of the cost brokers charge , usually 10% of the transaction,” Schlag said in an email interview. Learn more. -Christine

Weekly News

As Zack Whittaker reports: “Square said there was “no evidence” that a cyberattack caused an outage that prevented customers and small businesses from using the payments giant’s technology between Thursday and Friday morning. The payments technology giant said in a post-mortem analysis of the day-long outage that it was caused by 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 search and load websites from around the world. More here.

In a guest article, NavanMichael Sindicich of Michael Sindicich writes that “fintech faces a reckoning. Over the past two years, central banks have raised interest rates from their COVID-era lows to the highest levels in a generation. And today, the economic models that have won the affection of consumers seem increasingly fragile. It’s only a matter of time before the house of cards collapses.” More here.

Citizens Bank launches a new private bank focused on startups. Mary Ann spoke at length with Sam Heshmati, who joined the institution in July as head of emerging venture capital and innovation banking. Heshmati had been with First Republic Bank for over a decade and helped launch its startup practice. He details what it was like to witness the collapse of the First Republic from within, as well as how Citizens intends to become the “bank of record” for the innovation sector. More here.

Other articles we read:

How Charlie Javice got JPMorgan to pay $175 million for… what exactly?

Deel changes its terms of service and removes high-risk trading sites

Monzo, the $4.5 billion UK digital bank, launches an investing feature

Fountain offers integration with the Branch payment platform

Everyware uses Visa Direct and launches instant payments

Episode six launches BNPL plan as businesses seek working capital

Chase Payment Solutions partners with Gusto to add payroll

Fundraising and mergers and acquisitions

Seen on TechCrunch

Perfios raises $229 million for its real-time credit underwriting solutions

Swan secures $40 million to bring integrated banking to Europe

Parallax takes the friction out of cross-border payments

Alza comes out of stealth to offer affordable and inclusive financial tools to immigrants

Seen elsewhere

Kin home insurance technology hits $1 billion valuation

Treasury4 raises $20 million in new capital

CLARA Analytics Raises $24 Million in Series C Funding

Exclusive: a16z leads $17 million deal at bond trading startup

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

N5 raises funds

Spring Activator acquires Future Capital to expand impact investing

Discover the Fintech scene at Disrupt 2023

Check out the Fintech scene at TechCrunch Disrupt 2023, taking place in San Francisco September 19-21, where we’ll cover Web3, banking and more. Last minute passes are always available. Save 15% with code INTERCHANGE. Register now!

Real estate tech companies continue to be hit by high mortgage rates

Image credits: Bryce Durbin


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