A look at how proptech startup Knotel went from a $ 1.6 billion valuation to filing for bankruptcy – TechCrunch
This week, flexible workspace operator (and unique unicorn) Knotel announced that it had filed for bankruptcy and that its assets were in the process of acquisition by investor and Newmark commercial real estate brokerage for a report of 70 million dollars.
Knotel designed, built and managed custom headquarters for businesses. She then managed the spaces with “flexible” modalities. In March 2020, it would have been valued at $ 1.6 billion.
At first glance, one would think that WeWork’s rival, which had raised around $ 560 million since its inception in 2016, was another victim of the COVID-19 pandemic.
But New York-based Knotel was reportedly struggling – facing a number of lawsuits and evictions – even before the pandemic hit, according to several reports, like this one in The real deal.
As such, some industry watchers believe the company’s Chapter 11 filing was inevitable despite the fact that it achieve unicorn status after raising $ 400 million in Series C funding in August 2019.
Newmark’s purchase of Knotel’s assets is seen as an effort to recoup some of its investment, according to Jonathan Pasternak, bankruptcy lawyer and pDavidoff artist based in New York Hutch & Lemon.
Anytime a company that has raised more than half a billion dollars implodes, it’s worth taking a look at the roller coaster it was on before it got there.
Virgin Mobile co-founder Amol Sarva and former VC Edward Shenderovich founded Knotel, essentially reverse the WeWork model. There is a hype surrounding the company in its early days.
Knotel raised a Series A round of $ 25 million in February from investors such as Peak State Ventures, Invest AG, Bloomberg Beta and 500 startups. He marketed his offering as “seat as a service” – or flexible office space that could be personalized for each tenant while increasing or decreasing as needed.
In April, Knotel aannounced the closing of a $ 70 million Series B financing led by Newmark Knight Frank and The Sapir Organization. In August, the company said this it operated over 1 million square feet at 60 locations in New York, London, San Francisco and Berlin, and was on track to reach 2.5 million square feet and $ 100 million in revenue. business by the end of the year. Revenue growth increased 300% year over year, according to the company. Customers, users, and clients ranged from VC-backed Stash and HotelTonight startups to corporate clients such as The Body Shop.
“What they’re doing is different,” said Barry Gosin, CEO of Newmark Knight Frank, in a press release, at the time of the round. “It’s a new category that the industry hasn’t seen and is quickly adopting. We have watched their rise from afar and are now delighted to join them on the journey. This marks a change in the way landlords and tenants come together.
In August, Knotel announced the completion of a $ 400 million financing. With the round, the company had achieved unicorn status and was touted as a formidable competitor to WeWork. At the time, Knotel said it operated over 4 million square feet at more than 200 locations in New York, San Francisco, London, Los Angeles, Washington, DC, Paris, Berlin, Toronto, Boston, São Paulo and Rio de Janeiro.
In a statement at the time, CEO Sarva said, “Knotel is building the future of the workplace, and we are delighted to welcome a group of investors who passionately believe in our product, our vision and our ability to deliver. ‘execution. Wafra will help us continue our rapid global expansion and consolidate our leadership position in a rapidly growing, billion dollar flexible office market.
Still, Business Insider US reported that Knotel lost $ 233 million during the year (according to company financial data he claims to have seen) despite a spokesperson disputing the figure. The startup had apparently expanded too far with long-term leases and expensive builds, and was facing more vacancies than expected.
End of March, Forbes reported this Knotel had laid off 30% of its workforce and put an additional 20% on leave, due to the impact of the coronavirus. At the time, it was valued at around $ 1.6 billion.
The company started the year with around 500 employees. As of the third week of March, it had 400 employees – likely due to the aforementioned vacancies. With the new cuts, about 200 employees remained, with the other 200 having lost their jobs or on unpaid leave, according to Forbes.
“The status quo is over,” Amol Sarva, CEO and co-founder of Knotel, said in a statement to Forbes. “Knotel has decided to take strong action to prepare for the worst-case scenario – a protracted health and economic crisis. “
In the second quarter, Knotel’s revenue fell about 20% to about $ 59 million from the first quarter, Forbes reported. Several owners had deposited lawsuits against the company, alleging that Knotel had broken the profit-sharing agreements.
By July, Forbes had reported that Knotel was trying to raise up to $ 100 million, according to various sources “familiar with the matter”.
Knotel went bankrupt, agrees to sell assets to investor Newmark for $ 70 million after being valued at $ 1.6 billion less than a year earlier.
“Newmark’s commitment offers a way forward in this difficult climate,” CEO Sarva said in a statement. “We are optimistic that, through a successful restructuring, we will be able to refocus on our mission of providing state-of-the-art, bespoke flexible spaces in key US and international markets. “
To facilitate the transaction under Section 363 of the United States Bankruptcy Code, a subsidiary of Newmark agreed to provide Knotel with approximately $ 20 million in cash in the form of DIP financing to support Knotel throughout the process. bankruptcy.
Just as the startup and venture capital world has seen WeWork lose a significant amount of value over the past two years, we are paying attention to Knotel’s demise and wondering what that means for the workspace industry. flexible. As much of the world continues to work from home and office buildings remain mostly vacant as this pandemic rages on, we believe things will only get worse before they get better.
This story has been updated after publication to include net loss figures and additional details.