Knotel, a co-working company that was valued at $1.6B recently went through a bankruptcy.
@amol, the founder of Knotel, said his single biggest mistake was bringing in a bad investor. Here's the story:
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It all started when Amol allowed Newmark to invest in their Series B. The CEO of Newmark then suggested that Knotel use an investment bank they knew(Cantor Fitzgerald) for their banking needs. So Knotel agreed and worked with them to issue debt on top of the equity.
When covid hit the co-working space, things got tough. Amol had agreed with his banks to refinance the loan to extend the debt while they waited out the pandemic. While things were challenging it looked like they were going to make it through.
Here's where things get interesting. On December 30, 2020 Amol gets a call from his lenders saying: 1) They aren't going to refinance the debt anymore 2) They had sold the debt to someone else
Amol then gets another call from the Chairman of Newmark(their investor), who tells him they bought the debt. Apparently, behind Amol's back, Newmark had put together a plan to force a takeover of Knotel.
They told Amol the entire debt was due in <48 hours and gave him two options: 1) Shut down the entire business immediately 2) Go through a bankruptcy to wipe out all the equity holders In bankruptcy Newmark would then buy Knotel for pennies on the dollar.
With a gun to his head, Amol put Knotel through the bankruptcy. After the bankruptcy, Newmark took over Knotel. All the shareholders were completely wiped out and Newmark owned what was once worth $1.6B for pennies on the dollar.
Amol said his biggest lesson was not doing enough dilligence on his investors to really understand how they will act when things get difficult. The reputation of an investor is based on how they act when things go well AND when things go bad.
When choosing an investor, make reference calls with founders who have gone through both good AND challenging times with that investor. The right investors can accelerate your startup. The wrong ones can kill your startup. Choose wisely.
