Ousted Knotel CEO Says 'Nepotistic' Deal With Newmark Led To 'Disaster' Bankruptcy
Amol Sarva lost control of Knotel, the flexible workplace company once valued at more than $1B last year, and he is laying the blame at his own feet, he said last week, because he regrets his dealings with the chairman of Newmark and Cantor Fitzgerald.
Knotel in February said it would be taken over by Newmark, with the real estate firm providing $20M in debtor-in-possession financing to allow Knotel to keep running through the bankruptcy proceedings.
In a video with the YouTube web series The Business of Business, posted last week, Sarva details the circumstances that led up to the startup’s collapse, with nepotism and the “dog-eat-dog” nature of the business listed as primary causes. Ultimately, he said the company is in someone else’s hands, because of his own “bad” decision to accept Newmark funds and “let these guys into the company.”
He also said if he had managed the relationship with Newmark better, he may have still been playing a key role in running the firm today.
In 2019, Knotel reached unicorn status after closing a $400M funding round, with Newmark as one of the returning investors. Sarva said on the video that Newmark CEO Barry Gosin approached Knotel operators, saying Newmark wanted to put the company behind Knotel, saying “we’ll help you.”
Newmark then introduced the company to investment bank Cantor Fitzgerald, per Sarva. Cantor Fitzgerald's founder and chairman is Howard Lutnick, also the chairman of Newmark. Upon the urging of Newmark, Sarva said, Cantor Fitzgerald became the startup’s bank.
"It was one of my regrets to do this nepotistic thing,” Sarva said.
On Dec. 30 last year, Sarva said he was contacted by Knotel's venture lender, the bank TriplePoint Capital, which said it had sold the debt, even though a refinancing plan was in the mix.
Soon after, Sarva said he was contacted by Lutnick — though he does not name him but refers to him as “this guy who is the chairman of Newmark and the managing partner of Cantor Fitzgerald.” Over the period of a few days, Sarva learned that Newmark had bought Knotel's debt, he said.
Lutnick called again a few days later, Sarva claims, saying he now “owned all the debt." Sarva said that the company was told it was in default in various ways and was about to be foreclosed on.
“[They said] you’re going to have to shut down your whole business, or we can lend you another $20M now on the condition that you bankrupt the company, run an auction for it and let us buy it,’” Sarva said. “It was just like, consummate Wall Street.”
Earlier this month, Sarva sent an email castigating Newmark for installing a “group of Adam Neuman[n]-era WeWork bros to lead the company forward."
Newmark tapped former WeWork Vice Chairman Michael Gross to guide Knotel through the process.
Sarva said in the video he regrets not doing “diligence” on Lutnick.
“What a cluster, it was a disaster,” he said, adding the whole process negatively affected investors, employees and customers. “Arguably, it’s all in their rights, and it's capitalism and it's a dog-eat-dog world … but you can choose how you want to behave in life."
“The real estate business is full of all these shady people, and they are very outspoken about each other,” Sarva added, acknowledging that he should have done greater research before taking on Newmark's financial injection.
At the time of bankruptcy, Knotel listed both estimated liabilities and assets between $1B and $10B. Gosin said Newmark was providing capital to “rightsize its business."
At the start of the coronavirus pandemic, Knotel laid off and furloughed employees around the world, with Sarva saying “business as usual” was over. Knotel was soon accused of skipping on rent payments and sued by several landlords who claimed they were owed money.