From the outbreak of two COVID-19 variants to the collapse of a significant iBuyer, 2021 dealt a series of blows that stunned the U.S. financial market throughout the year. For fintech company Knock, those events are substantial reasons why the power buyer is laying off nearly half of its workers.
On March 15 the company announced it would begin cutting 46% of its 250-person workforce—approximately 115 people—as a “series of macroeconomic events that roiled financial markets” stalled plans to go public.
“Today’s announcement weighs heavily on us and me, in particular,” said Knock CEO, Sean Black, in a March 15 statement where the tech company also announced its staff cuts.
Knock teams with 115,000 agents that help promote and use the fintech company’s products, including its home-swap service, which lets homeowners sell their home to the company and pay rent until they’re ready to move or purchase their next home and sell to Knock afterward.
Since launching Knock in 2015, Black tells RISMedia that he and his fellow co-founders had run the tech company with a “people-first” value system.
“We live and die by that, so obviously, that was a terrible part of this whole experience,” he says.
Black adds that he and his team built Knock to scale in anticipation of the public offering. After missing its window, he says the company has “had to right-size based on where we are as a private company as opposed to where we thought we were going to be as a public company.”
“It’s pretty obvious that money is scarce, and it’s going to become more expensive,” Black says. “I know that from the rumblings in the networks that we are in…that we’re not going to be the last one to be doing these types of things.”
Knock is the latest in a growing list of tech-focused real estate or lending companies to announce significant cuts to their workforce, joining companies like Better.com, which recently cut 3,000 of its employees—nearly 35% of its workforce—weeks ago.
While shifts in the lending market—particularly the shrinking of the refinancing environment—have adversely impacted online lending companies like Better and Utah-based InterFirst, Black says that Knock has benefitted from the pivot in the mortgage environment.
“We have the luxury and envy of being 100% new purchase,” he says. “We don’t do refi at all. If you look at these big companies like Rocket or Better, last year, 89% of their volume came from refi, which went away.”
Black confirms that his company will provide severance packages and healthcare benefits for impacted employees. Knock is also proactively helping them find new work.
Black implies that the company has gone as far as reaching out to companies like Realogy subsidiary RealSure—admittedly a Knock competitor—to help its displaced workers.
Knock has also extended its employee stock agreement from 90 days to five years to allow affected employees to still benefit as future stockholders.
“They worked really hard to get us to where we are today, so we wanted to give them the benefit of that,” Black says, adding that the five-year extension will provide ample time for Knock to launch another IPO so impacted workers won’t have to go out of pocket to exercise their stock options.
Knock also announced that it recently secured $220 million of new private funding as it pulled back from its IPO plans. Foundry Group led the round of funding with participation from existing investors, First American Financial and RRE Ventures and new investors.
The funding announcement came nearly a year after Knock announced it hired Goldman Sachs to explore opportunities to take the company public at a valuation of $2 billion.
Knock set out to raise more than $400 million in its pursuit of an IPO, but in September 2021, the company fell short and was only able to raise $150 million.
Despite pulling back from its IPO plans, Black says that Knock hasn’t permanently given up on its aspirations of becoming a publicly traded company.
“We think we can be back in that window probably in the third quarter of next year,” he says.
Black says that the recent capital his company raised provides a “solid foundation” for the company as it looks to become profitable by the end of 2022. He tells RISMedia that the company could achieve profitability as early as the end of the summer.
“Ironically, in all this, the business has not been better,” he says, adding that Knock had its best month in January of this year.
Despite the challenges Knock has faced over the past several months, the company has experienced significant growth in transactions, revenue and gross profit, according to Black.
Knock also expanded its footprint from 14 to 70 markets in 2021. And has since hit 75 markets in early 2022.
“Profitability is in sight,” Black says. “I think the biggest factor in that is our agent network.”
He adds, “We’re not spending insane amounts of money on TV advertising. We are doubling down on our network, and they are doubling down on us because it is still tough to compete in this housing market.”
Jordan Grice is RISMedia’s associate online editor. Email him with your real estate news ideas to email@example.com.