Knotel

What did it do?

Knotel was a New York-based flexible office start-up that built and ran made-to-measure headquarters carrying each client's own brand, leasing them out on flexible contracts. Unlike WeWork's shared-desk model, it offered private offices that tenants could grow into or shrink out of, positioning itself as "headquarters as a service". By 2019 it operated more than 200 locations across 11 cities, from New York to São Paulo.

Why did it shut down?

As the company expanded rapidly on long-term leases and costly fit-outs, it found itself with more empty space than expected. According to Business Insider, its 2019 loss reached $233 million; the company disputed the figure. The Real Deal reported that lawsuits and evictions had begun even before the pandemic. When Covid-19 crushed demand for offices, Knotel laid off or furloughed half its staff, revenue fell and some landlords sued. With its search for new funding going nowhere, the company filed for bankruptcy in February 2021 and sold its assets to Newmark.

The story

In March 2020 Knotel's employees received the bad news in two parts: 30 per cent of the workforce was being laid off and 20 per cent furloughed. Only seven months earlier the company had closed a $400 million funding round and, as a unicorn, had come to be seen as one of WeWork's most serious rivals. By the time Covid-19 arrived, New York's fastest-growing office start-up was already standing on fragile ground.

Knotel was founded in 2016 by Amol Sarva, a co-founder of Virgin Mobile, and Edward Shenderovich, a former venture capitalist. The idea was to turn the WeWork model on its head: instead of shared desks, build each company a headquarters carrying its own brand that could grow or shrink as needed, and lease it on a flexible contract. A $25 million Series A followed in 2017, and in 2018 a $70 million Series B led by Newmark Knight Frank and The Sapir Organization. With the $400 million round in August 2019, the company said it operated more than 4 million square feet across over 200 locations in 11 cities, including New York, London, Berlin, Paris and São Paulo.

The bill for that growth was steep. According to financials Business Insider said it had seen, the company lost $233 million in 2019; Knotel disputed the figure. Long-term leases and expensive fit-outs, combined with more vacant space than expected, put the balance sheet under strain. The Real Deal had reported that even before the pandemic the company was dealing with lawsuits and evictions. In the second quarter of 2020 revenue fell by about 20 per cent to $59 million, and some landlords sued, claiming that profit-sharing agreements had been breached.

In February 2021 Knotel filed for bankruptcy and agreed to sell its assets to Newmark, the property brokerage that was also one of its investors, for a reported $70 million. Newmark also provided around $20 million of financing during the process. Most of the roughly $560 million invested in a company valued at $1.6 billion less than a year earlier simply evaporated.

Knotel's story is a reminder that the flexible office business is, at heart, a maturity-mismatch business. A company that sells flexibility to customers while giving landlords long-term commitments has to cover the gap out of its own pocket the first time demand falls.

Lessons for founders

• If you sell customers short-term flexibility while giving landlords long-term lease commitments, work out in advance how many months you could survive a 20 per cent drop in occupancy.
• In models that grow through leased space, experiment early with structures that share risk with the landlord, such as revenue-sharing or management agreements.
• The market leader stumbling does not prove your own model is sound; look for the same risks on your own balance sheet.

Sources

1. A look at how proptech startup Knotel went from a $1.6B valuation to filing for bankruptcy (TechCrunch, 2021-02-05)
2. Knotel Files for Bankruptcy as Pandemic Strains Office Rentals (Bloomberg, 2021-02-01)
3. CEO Who Celebrated WeWork's Demise Must Fix Own Firm: Knotel (The Real Deal, 2020-01-31)

This section is compiled from public sources (Wikidata, news archives and company announcements). Figures are given as they appear in those sources; unknown fields are left blank. If you spot a mistake in an entry, you can send us a correction.

Is something in this entry wrong? Request a correction → Method