Divvy Homes just sold to Brookfield Properties for $1 billion.
- The founders got $0.
- The employees got $0.
- Even most of the venture investors got $0.
A billion-dollar exit. Zero for the people who built it. A company that once had a $2.3 billion valuation, that raised from a16z and Tiger Global, that helped 2,000 families become homeowners — sold for a billion dollars and the people who spent years of their lives building it walked away with nothing.
This isn’t just a failure story. as in the end, the assets were worth $1B. This is a capital structure story. And specifically, it’s a debt story.
It’s not B2B per se, but it is a very instructive story of the risks of debt vs. equity
And if you’re a B2B founder who’s been eyeing venture debt, revenue-based financing, or any kind of non-dilutive capital and thinking “free money” — this is the post you need to read.
First, What Actually Happened
Divvy Homes was a rent-to-own startup founded in 2016. They’d buy a home for you, rent it back to you, and set aside a chunk of your monthly payment toward a future down payment. After three years, you could buy the home outright. Elegant model. Real social impact. And extremely capital-intensive — because they literally had to buy houses.
Over its life, Divvy raised more than $400 million in venture equity from top-tier firms. By 2021, they’d hit a $2.3 billion valuation off a $200 million Series D led by Tiger Global.
Then came the debt. In October 2021, Divvy took on approximately $735 million in debt financing.
Read that number again. $735 million. In debt. On top of hundreds of millions in preferred equity that carried its own liquidation preferences.
When interest rates surged in 2022, Divvy’s model broke. Three rounds of layoffs followed. By 2023, they’d paused new home acquisitions entirely. And in January 2025, Brookfield acquired the company for about $1 billion.
CEO Adena Hefets wrote in a letter to shareholders that after repaying outstanding debt, covering transaction costs, and fulfilling liquidation preferences for preferred shareholders, neither common shareholders nor founders’ preferred stock would receive any proceeds.
$1 billion in. $0 out. For the builders.
The Math That Kills Founders
Let’s walk through why this happens, because the math is not complicated. It’s just brutal.
Think of every dollar that comes into your startup as getting in line. And the line has a strict order:
First in line: Debt holders. They get paid back in full before anyone else touches a dollar. They don’t care about your vision, your customers, or your NPS score. They lent you money. They want it back. Plus interest.
Second in line: Transaction costs. Lawyers, bankers, advisors. Exits are expensive.
Third in line: Preferred shareholders with liquidation preferences. Your Series A, B, C, D investors — each with their own liquidation preference. Usually at least 1x (they get their money back before common shareholders). Sometimes 2x or 3x, especially in down rounds or late-stage deals done in tough markets.
Last in line: Common shareholders. That’s you, the founder. That’s your early employees. That’s the people who took below-market salaries because they believed in the equity.
Now do the math on Divvy:
- $1 billion sale price
- Minus ~$735 million in debt repayment
- Minus transaction costs (let’s say $20-40 million conservatively)
- Minus liquidation preferences for preferred shareholders
You’re already past $1 billion. There’s nothing left. The line ran out of money before it got to the people at the back.
That’s not a rounding error. That’s structural.
“But Debt Is Non-Dilutive!”
Here’s the pitch every founder hears: “Take on debt instead of equity. It’s non-dilutive. You keep your ownership percentage. It’s basically free money.”
And technically, that’s true. Debt doesn’t change your cap table. You still own the same percentage of the company after taking on $735 million in debt as you did before.
But here’s what nobody tells you clearly enough: debt doesn’t dilute your ownership — it dilutes your outcome.
Owning 10% of a company worth $2 billion sounds great. But if there’s $735 million in debt ahead of you, you don’t really own 10% of $2 billion. You own 10% of whatever’s left after $735 million (plus interest) gets paid back. Your effective ownership is in a much, much smaller pool.
This is the single most misunderstood concept in startup financing. Founders obsess over dilution — “I don’t want to give up another 15% of the company” — and then happily take on hundreds of millions in debt because it “doesn’t dilute them.” But economically, in any exit scenario below a certain threshold, the debt is far more dilutive to your actual payout than the equity round would have been.
Let me put it even more simply:
Equity dilution reduces your slice of the pie. Debt shrinks the entire pie before you get to eat.
At a certain exit price, dilution doesn’t matter because there’s plenty of pie. But below that price? Debt has already consumed everything. You can own 100% of a company, but if there’s $735 million in debt, your 100% ownership is worth $0 at any exit below that number.
The Waterfall Problem Nobody Models
Every founder should know their “waterfall” — the payout cascade at various exit prices. But almost nobody actually models it. Here’s what it typically looks like if you raise $1.5B+ in equity and debt:
- At a $3 billion exit: Everyone’s reasonably happy. Debt gets repaid, preferences get covered, and there’s plenty left for common shareholders. Founders are rich. Employees are celebrating.
- At a $2 billion exit: Still pretty good. Debt and preferences get covered, common shareholders get a nice return. Maybe not life-changing for the founder, but solid.
- At a $1.5 billion exit: Not great. Debt takes its cut, preferences eat up most of the rest. Common shareholders get something, but it’s a fraction of what you’d expect from a billion-plus exit.
- At a $1 billion exit: This is Divvy. Debt consumes $735M+. Transaction costs take another chunk. Preferences on the remaining equity eat the rest. Common shareholders get $0. Literally zero.
The question every founder needs to be able to answer: At what exit price do I personally make $0?
If you can’t answer that question right now, today, stop reading this post and go figure it out. Because I promise your investors know the answer. Your board knows the answer. And if you don’t, you’re flying blind.
For Divvy, the answer was somewhere around $1 billion — which happened to be almost exactly the exit price they got. The founders essentially needed an outcome above their peak valuation just to see a single dollar.
The 2021 Debt Trap
There’s important context here. Divvy took on its $735 million in debt in October 2021 — the absolute peak of the zero-interest-rate era. At the time, debt was historically cheap, and the logic seemed airtight:
“Interest rates are near zero. Housing only goes up. We can buy homes cheaply and let appreciation do the work. Debt is practically free.”
Except it wasn’t free. It was cheap at origination, but it came with two strings that got very expensive very fast.
First, the debt still had to be repaid regardless of what happened to the housing market or interest rates. When rates surged in 2022, Divvy’s cost of financing went up, their customers’ ability to get mortgages went down, and the entire model started breaking. But the $735 million didn’t care about any of that. It was still owed.
Second, and more subtly, the debt raised the bar for what constituted a “successful” exit. Before the debt, a $500 million exit might have been a great outcome for founders. After $735 million in debt, a $500 million exit literally wasn’t enough to pay back the lenders, let alone anyone else.
This is the trap: every dollar of debt you take on raises the minimum exit price at which your equity is worth anything. It’s like raising the floor in a room — the ceiling didn’t move, but you have a lot less space to stand.
When Debt Makes Sense (And When It Doesn’t)
I’m not here to tell you that debt is always bad. That would be intellectually dishonest. Debt can be a powerful tool for the right company at the right stage. But you have to understand when it works and when it’s a trap.
Debt works when:
- You have predictable, recurring revenue (SaaS is actually well-suited for certain types of debt)
- The debt amount is modest relative to your revenue and realistic exit scenarios
- You’re using it to bridge a specific, time-bound need — not to fund core operations indefinitely
- You’ve modeled your waterfall and the debt doesn’t meaningfully change your $0 threshold
- You’re in a capital-efficient business where the debt accelerates, rather than enables, growth
Debt is dangerous when:
- Your business model requires massive upfront capital expenditures (like buying houses)
- The debt amount is large relative to realistic exit scenarios
- You’re using debt because you can’t raise equity at a valuation you’re comfortable with
- Macroeconomic conditions could shift in ways that fundamentally break your model
- The debt raises your “founders get $0” exit threshold to above your most likely exit price
- You haven’t modeled the waterfall at every plausible exit price
Divvy checked nearly every box in the “dangerous” column. The business was inherently capital-intensive. The debt was enormous relative to realistic exits. And the model was deeply exposed to interest rate risk that nobody was pricing in during the 2021 euphoria.
The Safety Net That Didn’t Exist Here: Management Carve-Outs
Here’s something that makes the Divvy story even more unusual — and even more instructive.
In most acquisitions where equity is underwater, the board approves what’s called a “management carve-out” or “retention pool.” This is a chunk of the acquisition proceeds — typically 5-10% of the deal value — that gets set aside specifically for founders, executives, and key employees, outside of the normal waterfall.
The logic is straightforward: the acquirer needs the founding team to stick around to close the deal, handle the transition, and often run things post-acquisition. If those people are staring at $0 from their equity, they have zero incentive to cooperate. They might as well walk. So the board carves out a pool — often at the request of the acquirer — that gives key people a reason to stay and execute.
This happens all the time. It’s one of the most common mechanisms in distressed or underwater exits. In fact, many experienced founders negotiate carve-out provisions into their term sheets upfront, before things ever go sideways, precisely because they understand the waterfall math.
So why didn’t it happen at Divvy?
There’s no public reporting of any management carve-out or retention package for Hefets or her team. And a few things about the deal structure help explain why:
First, this was fundamentally an asset acquisition, not a team acquisition. Brookfield was buying a portfolio of roughly 7,000 homes and a brand. Maymont Homes, their single-family rental arm, would manage the properties going forward. They didn’t need Divvy’s team to run anything — they already had their own operations across 40+ markets.
Second, by the time the deal closed, Divvy’s team was already gone. Nearly everyone had been laid off across three rounds of cuts, leaving only a skeleton crew handling dispositions. There was no team left to “retain.”
Third, Hefets herself described the outcome in language that strongly suggests she received nothing meaningful. When a founder writes that she is “not proud of the financial outcome” but “proud of the impact” — that’s not someone who quietly got taken care of on the side.
This matters because it reveals an uncomfortable truth: carve-outs are not guaranteed. They require either negotiating leverage (the acquirer needs you), board goodwill (your investors advocate for you), or pre-negotiated contractual provisions. If you have none of these at the moment of sale, you have no safety net.
The Lesson Divvy Teaches Every B2B Founder
Here’s what I want you to take away from Divvy Homes:
Adena Hefets built something real. She helped 2,000 families become homeowners. She built a team that executed in 20 cities. She navigated a brutal market downturn and found an acquirer willing to pay $1 billion. That is an extraordinary accomplishment by any measure.
And she got $0 for it.
Not because she failed. Not because the product was bad. Not because customers didn’t love it. Because the capital structure — the debt, the preferences, the terms she agreed to when money was flowing and the future looked limitless — consumed everything.
Debt isn’t free. It’s a senior claim on your future. Every dollar of debt is a dollar that gets paid before you do. And when the exit comes — whether it’s a triumphant $1 billion sale or a quiet acqui-hire — the capital structure doesn’t care about how hard you worked or how many lives you changed.
It just does math.
And one more thing, because I see this constantly.
Way, way too many founders I work with don’t take debt seriously enough. They assume it’s almost free, and that they’ll easily be able to repay it in the next equity round. It’s just a bridge, right? It’s non-dilutive, right? It’ll all work out when the Series C comes in, right?
Even worse, I often see CFOs and VPs of Finance building debt into the company’s “cash position” before the debt is even called. They’ll show a board slide that says “$40M in cash” when really it’s $12M in the bank and $28M in an undrawn credit facility. That’s not cash. That’s someone else’s money that you owe back with interest, and it can disappear the moment your lender gets nervous.
My advice? Raise debt if you want. But not too much. And ideally, don’t even spend it. Use it as a buffer — a safety net that sits there and lets you sleep at night. The moment you start operating on debt as though it’s revenue or equity, you’ve changed your company’s risk profile in ways that won’t show up until the worst possible moment.
Divvy didn’t take on $735 million in debt because they were reckless. They did it because the model required it, the terms seemed great in 2021, and the money was there. But debt doesn’t care about your intentions. It just does math.
Know your math before you sign.
