Power Buyer Knock Forced into Big Layoffs and Abandons IPO Plans as it Raises $220M

The U.S. home financing platform Knock has announced that it has raised $220 million in funding and is looking to expand its services into 15 new local housing markets in the states this year.

Unusually for a company that has just raised hundreds of millions in a funding round, Knock will also be letting go around 115 workers, a figure which represents 46% of its total employees.

Knock was a first-mover in the new generation of so-called 'power buyers' operating in the increasingly tight U.S. housing market. Using technology and an innovative financial model, Knock essentially makes its customers cash buyers through its Home Swap (for customers buying and selling) and Knock GO (for customers who are only buying) products.

Knock's CEO Sean Black explains the model to OnlineMarketplaces.com's founder Simon Baker at the virtual Global Online Marketplaces Summit 2020.

Despite a red hot housing market and exceptional growth in revenue (+33% MOM) and profit (+25% MOM) in the first half of 2021, Knock has faced external problems which started when it engaged Goldman Sachs to take the company public via a SPAC merger in the Spring of 2021.

Goldman Sachs had initially valued the company at $2 billion but, according to the company, external factors over the last year eventually forced Knock to go cap in hand to investors in 2022. The result is the $70M in equity and $150M in debt announced this week along with the redundancies and a year-end profitability drive.

Knock's CEO Sean Black detailed the company's rollercoaster last 12 months in a blog post covering the SPAC slump, the resurgence of COVID, the collapse of Zillow's iBuying business and the bear market resulting from the war in Ukraine that ultimately led the company to abort the public offering and instead seek financing at a heavily reduced valuation.

One interesting passage from the blog post confirms what some in the industry have suspected for some time - Knock is a very attractive acquisition target for several large U.S. proptech firms.

"While investors were on the sidelines, we were approached about an acquisition. It was December 15, which meant we would have to work through the holidays to evaluate an acquisition - a stretch to say the least. It was love at first sight, but like many love stories, timing is everything.

Unfortunately, no agreement could be reached in part because the would-be acquirer’s stock, and therefore buying power, had been cut nearly in half from recent highs like most other tech stocks. We parted with a potential partnership and we got back to raising a private round with the hopes that the new year would bring renewed enthusiasm to the markets and investors."

Possible identities of the unnamed would-be acquirer include Redfin (CEO Glenn Kelman interviewed Black recently for Inman.com) and Zillow (company President Susan Daimler recently admitted that Zillow is looking at and thinking about power buying).