U.S.-based Divvy, a rent-to-own startup that surged to a $2 billion valuation during the hot sellers’ market of the pandemic, has laid off 40 employees, reducing its payroll costs by 12%. The cuts are similar in scale to those at a growing number of U.S. real estate startups that thrived over the past two years but are now struggling amid rising mortgage rates and shrinking home values.

Divvy vice president of marketing and communications Kyle Zink wrote in a statement to the AIM Group:

“Today is a challenging day at Divvy. Due to worsening economic conditions caused by inflation and the highest mortgage rates in over 20 years, we have taken the difficult step to part ways with a portion of our team, reducing our headcount expense by 12%. Although we recognized these macroeconomic challenges in late summer 2022 and took steps to substantially reduce our cost structure in response, it unfortunately was not enough. Realistically, the macro environment is likely to remain volatile and challenging for the foreseeable future. As a result, we needed to adjust headcount to reflect the new reality today.”

Founded in 2017 and based in San Francisco, Divvy has been one of the most successful real estate startups in recent years. The company had raised $1.2 billion in debt and equity financing, most recently with a $750 million round of debt in October 2021. In August 2021, it boasted a valuation of $2 billion. Divvy’s major backers include Andreessen Horowitz and Tiger Global Management.

The firm offers a path to home ownership to those without a down payment. For an upfront payment of between 1% and 2% of its value, Divvy will buy a home and then rent it back to the client for up to two years. The company holds about 25% of each monthly payment as savings toward eventual purchase by the client. If the client decides not to buy the home, they can move out and recoup the accumulated savings. Divvy says about 47% of customers choose to buy, a conversion rate that it maintains is “well above” those of its competitors.

Industry peers that have cut staff over recent months include Realtor.com, Orchard, Knock, Tomo, Redfin, Zumper and Homeward.

This article has been updated to include a statement from Divvy.

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