Divvy Homes, the prop-tech startup that buys homes on behalf of renters and guides them to eventual ownership, announced Friday a new round of funding that nearly quadrupled its valuation to $2 billion.
Co-led by Tiger Global Management and Caffeinated Capital, Divvy’s latest round raised $200 million in equity, Divvy CEO Adena Hefets told Bloomberg. Existing investors and others including Andreessen Horowitz, Singapore’s GIC, GGV Capital and Moore Specialty Credit participated in the round, which pre-empted a capital raise that could have featured new investors, she said.
“We’re aiming to bring a legitimacy to alternative home financing options,” said Hefets.
The Divvy Homes business model is aimed at boosting homeownership; Divvy purchases the home, then rents it back to the interested party for up to three years while they build their equity, credit and savings.
For the new renters, approximately 25% of each subsequent monthly payment goes toward saving for a down payment, setting customers up to apply for a traditional mortgage when they are ready. A customer builds up to 10% of the value of the home over their three-year lease, but can buy the home at any time.
Despite historically-low mortgage rates in the face of the COVID-19 pandemic, many banks began tightening underwriting requirements for approvals. This forced a myriad of potential homebuyers, eager to take advantage of the low rates, to reconsider buying or being outright denied by lenders.
Hefets hopes the Divvy model will give people a roof over their heads in a time in history when home stability is crucial.
Tiger Global Management in particular has been a heavy hitter when it comes to funding Divvy’s homeownership goals. The investment firm led Divvy’s last funding round just five months ago when the company snapped up $110 million in a Series C funding round.
“Over the next 10 years, we believe Divvy Homes has the potential to help more than 100,000 families become financially responsible homeowners,” Scott Shleifer, a partner at Tiger Global, told Bloomberg. The startup is part of a broader wave of companies seeking to redefine the way Americans access home ownership, he said.
According to Hefets, almost 25,000 real estate agents work with Divvy, over three times the number that did a year ago.
And the idea is quickly gaining popularity. Landis Technologies, a company with a similar business model, hauled in $165 million in debt and equity financing less than a month ago. The proptech startup backed by celebrities Will Smith and Jay-Z aims to help renters become homeowners through a qualification technology that determines if renters have the potential to become homeowners in a 12- to 24-month period.