- Knotel is selling to Newmark, an investor, and filing for Chapter 11 bankruptcy.
- The one-time office unicorn lost a total of $202.3 million in the first 10 months of 2020, per newly-leaked documents.
- Visit Business Insider’s homepage for more stories.
Flexible workspace provider Knotel filed for bankruptcy and said it plans to sell its business to the publicly-traded real-estate services company Newmark, the company said Sunday.
Knotel, once one of the brightest and most valuable names in an ascendant industry, filed under seal for Chapter 11 reorganization in US Bankruptcy Court in the District of Delaware, following in the recent footsteps of other flex-office companies.
When contacted by Insider earlier on Sunday, Knotel spokesman Mousa Ackall repeatedly said the company had not filed for bankruptcy. He later put out a statement announcing the sale and the filing, which does not apply to Knotel’s international operations.
Ackall did not respond to multiple requests for comment, nor did the company’s external agency, Kekst CNC.
Newmark, one of Knotel’s largest creditors, said it will provide $20 million of debtor-in-possession financing for Knotel’s day-to-day operations through the bankruptcy process, including for salaries and outstanding bills. Newmark had participated in Knotel’s Series B and C fundraising rounds in 2018 and 2019, respectively, investing roughly $120 million into the company, according to financial information that was leaked to Insider by a source.
The pandemic has been punishing for several workspace firms. In December, Serendipity Labs filed for bankruptcy and the Montreal-based workspace firm Breather said it would abandon its over 300 locations in the US and Canada. Months earlier, Regus placed dozens of individual workspace locations it operates across the country into bankruptcy in order to shed or restructure those commitments.
Newly leaked documents show the extent to which Knotel’s business in the US has been strained, with debts and unpaid bills that accrued in 2020. Knotel lost a total of $202.3 million in the first 10 months of 2020, according to the documents.
For months, Knotel has been hit with dozens of lawsuits in several states by landlords and creditors, who claim the firm owes millions of dollars in unpaid rent and other debts, including from before the pandemic. Amid the tumult and mounting financial liabilities, the company, whose CEO once said he aimed to overtake the flexible workspace giant WeWork, had been planning to dramatically scale back its business.
In a slide from a November presentation viewed by Insider, Knotel stated it would seek to cut back its global portfolio of 4.8 million square feet of space by 60% and shed over 80% of the 3.4 million square feet it leases in the US and Canada.
In January, Knotel’s CEO and cofounder Amol Sarva told employees he had secured an undisclosed amount of rescue funding. Knotel would not comment on that purported fundraising. Sarva also told investors recently that the company brought in about $250 million in revenue for 2020, per a source with knowledge of the discussions. That would mark a significant jump from 2019, when the company recorded $160 million in revenue, per unaudited financials reviewed by Insider in the spring.
In late January, the company gave notice to a tenant that it planned to vacate its space at 200 West 41st Street, according to a source, leaving that customer to scramble to retreive their belongings from the space before it was padlocked.
Widening losses during the first 10 months of 2020
In recent weeks, Insider received documents from a source with direct knowledge of Knotel’s financials that revealed how damaging the pandemic had been to the company’s business.
On average, the company brought in about $22 million each month in revenue for the January through October period, according to the financials, which cover the first 10 months of the year and have not previously been reported. Cash outflow, which averaged about $17.3 million from January through August, accelerated to $34.7 million and $32.6 million in September and October, respectively.
Other highlights from company’s financial statements through October, which were confirmed with a second source, included the following:
- Knotel lost a total of $202.3 million in the first 10 months of 2020, including $50.6 million in the first quarter, $46.6 million in the second quarter, and $59.4 million in the third quarter. Its net loss was nearly $223 million for the full year 2019, Insider previously reported.
- The company had $13.5 million in the bank in October, compared with $32.8 million in January 2020.
- It reported total current assets, which include cash, accounts receivable, and other items, at $68.5 million in October, compared with $103.3 million in January 2020.
- Its total current liabilities continued to tick up: the company recorded $216 million in liabilities in January 2020, and $364 million in October. Within its liabilities, accounts payable swelled from $54.4 million in January to $119.8 million in October, and notes payable jumped from $6 million in January to $75.4 million in October.
- Its total liabilities, both short term and long term, were $161 million more than its total assets at the end of October.
- Knotel’s business in the European Union and UK has remained relatively steady by one key metric: contracted annual recurring revenue, which dipped by less than $4 million in the UK between January and October and even rose by $6 million in Europe over the same period. But in the US, contracted annual recurring revenue dropped by more than $80 million over the 10 months.
Prior to the provision in debtor-in-possession financing, Knotel hadn’t raised significant new money since August 2019, despite plans to do so. Over the summer, Sarva told staff he had brought in $10 million and sought to raise $100 million by the end of August, Insider previously reported.
The company said it raised $400 million in the August 2019 fundraising in a Series C round. Sarva implied a valuation of at least $1.3 billion at the time in a Bloomberg interview. Of that round, $250 million was set aside for buying buildings on behalf of lead investor Wafra, an effort that never materialized, per sources with knowledge of the company’s finances.
Investors in that 2019 funding round included three Japanese investors — Mori Trust, Itochu Corp, and Mercuria Investment Co, along with returning investors Newmark Knight Frank, Norwest Venture Partners, and New York City real-estate firm Sapir Organization.
Get in touch! Contact reporter Meghan Morris on a non-work phone using encrypted messaging app Signal at +1 (646) 768-1627, email, or Twitter DM.
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