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Cofounder Knotel 1b Ann Azevedotechcrunch, Ann Azevedo Explains How Knotel Went from $1.6B Valuation to Bankruptcy [TechCrunch]

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Once a billion-dollar company, Knotel is now filing for bankruptcy as the assets are being acquired by Newmark for $70 million. [CoFounder Knotel 1B Ann AzevedoTechCrunch]

Key Takes:

  • Knotel, a flexible workplace designer and operator, went from a $1.6 billion valuation to bankruptcy
  • Knote’s assets were acquired by Newmark for $70 million
  • Knotel faced several lawsuits and numerous evictions before the pandemic, which only made things worse
  • Knotel raised over $560 million since 2016 and grew rapidly, but lost $233 million in 2019 due to signing too many long-term leases and having more empty offices than expected
  • The pandemic caused Knotel’s revenue to drop by 20% in Q2 of 2020, and it laid off 30% of its employees

Back in March 2020, Knotel, a flexible workplace designer and operator, was reported to be valued at over $1.6 billion. As reported on February 6th, 2021, Knotel is bankrupt and is being bought by Newmark for $70 million.

The bankruptcy should be no surprise because Knotel was already facing a number of lawsuits as well as numerous evictions; the pandemic only made it worse. Even before the pandemic, the company was in huge trouble as per reports

Since 2016, Knotel raised over $560 million, making it seem like a successful company (which it was). Not only that, the August 2019 Series C funding of $400 million put the company at an advantage, and it started competing with WeWork, but the covid and post-covid situation bankrupted this billion-dollar business.

Newmark bought Knotel’s assets because Knotel was in financial trouble and Newmark wanted to recover some of the money they invested in Knotel. A bankruptcy lawyer named Jonathan Pasternak believes this is why Newmark made the purchase. When a company that raised a lot of money fails, it’s important to figure out what went wrong.

In 2016, Amol Sarva, who helped start Virgin Mobile, and Edward Shenderovich, who used to invest in new companies, created Knotel. Knotel is different from WeWork because it doesn’t have long-term leases on buildings. People were very excited about Knotel when it first started.

In 2017, Knotel raised $25 million in Series A funding from Peak State Ventures, Invest AG, Bloomberg Beta, and 500 startups in February. The company provided office space that could be customized for each company and could be made bigger or smaller depending on how much space was needed. They called this “headquarters as a service.” [CoFounder Knotel 1B Ann AzevedoTechCrunch]

2018 to 2020

In April 2018, Knotel received $70 million in funding, with Newmark Knight Frank and The Sapir Organization being the leading investors. As of August, Knotel had office spaces in 60 different locations around the world that added up to 1 million square feet. 

The company was growing rapidly and expected to have even more space and $100 million in revenue by the end of the year. Knotel’s revenue had increased by 300% compared to the previous year, and its clients ranged from small startups to large companies like The Body Shop. The CEO of Newmark Knight Frank praised Knotel for its new and innovative approach, which was changing the way landlords and tenants interacted.

2019 was another good year for Knotel at the start, but we might say that the downfall started that year. 

In August 2019, Knotel received $400 million from investors, which elevated the company to unicorn status, making it a potential rival to WeWork. Knotel had several offices in different cities and was expanding rapidly, with CEO Sarva saying that the company was building the future of workspaces. 

Nevertheless, Business Insider reported that Knotel lost $233 million that year. Knotel signed too many long-term leases and expensive projects, and as a result, it had more vacant offices than it had anticipated. [CoFounder Knotel 1B Ann AzevedoTechCrunch]

In March 2020, Knotel started suffering from the pandemic and laid off 30% of its employees. The irony is that Knotel was worth about $1.6 billion at that time. At the start of the year, Knotel was home to 500 employees while only 400 remained until the end of March.

Forbes reported that only 200 employees were remaining after the fresh cuts. “Knotel has decided to take sharp action to prepare for the worst case – a long health and economic crisis,” said Knotel’s CEO Amol Sarva.

Knotel’s revenue dropped by 20% to $59 million in Q2 because of lawsuits from landlords accusing Knotel of violating profit-sharing agreements, Forbes reported. Knotel tried to raise up to $100 million in July, according to sources familiar with the matter, as per Forbes.

In 2021, Knotel filed for Bankruptcy

Once valued at over $1.6 billion, Knotel filed for bankruptcy in 2021 amid the economical chaos. Newmart reportedly bought the company for $70 million. 

“Newmark’s commitment offers a path forward amidst this challenging climate…We are optimistic that, through a successful restructuring, we can refocus on our mission of providing state-of-the-art, tailored flex space in key U.S. and international markets,” said Amol Sarva (CEO of Knotel).

Newmark’s affiliate provided Knotel with $20 million in cash as DIP financing to support the company through the bankruptcy process under Section 363 of the US Bankruptcy Code. Knotel’s bankruptcy has caused concern about the future of the flexible workspace industry, particularly after WeWork’s difficulties in the past. With many people still working from home and office buildings mostly empty, it is expected that the industry will continue to struggle.

What Can We Learn from Knotel’s Bankruptcy 

Knotel raised a lot of money, over $560 million, and was doing well until they lost $233 million in 2019. They made the mistake of signing too many long-term leases and had more empty offices than they expected. 

Knotel’s failure shows that it’s important to be careful with expansion and be prepared for unexpected events. Due to the pandemic and remote work, many offices are empty, and the future of the flexible workspace industry is uncertain. [CoFounder Knotel 1B Ann AzevedoTechCrunch]

Read more:

Mexicobased 20m Series Startupsann Azevedotechcrunch, Mexico-Based Flat.mx raises $20M in Series A led by 500 startups [Ann Azevedo/TechCrunch]

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