The SPAC is becoming a key mechanism for AV startups to survive the long development and deployment phase before becoming commercial enterprises.
Autonomous vehicle (AV) startups have raised billions of dollars to develop and test their self-driving technology. They will need far more to continue developing, testing and eventually deploying various AV use-cases. There is more venture capital available, but at some point most of the AV startups will need to become public companies. There are now two routes they can take — traditional IPO or via a SPAC.
Special purpose acquisition companies (SPACs), have gained a lot of attention lately both in the electric vehicle industry and among AV startups. The SPAC is becoming a key mechanism for AV startups to survive the long development and deployment phase before becoming commercial enterprises.
This column will explore the following questions:
The table below summarizes what SPACs are, their growing popularity and their advantages compared to traditional IPOs. I used some information from an excellent Harvard Business Review article called: SPACs: What You Need to Know (hbr.org)
What is a SPAC?
SPACs are publicly traded corporations formed with the sole purpose of completing a merger with a private company to enable it to go public. There are two phases to be successful: making a SPAC IPO and finding a merger partner.
The SPAC IPO is organized by a sponsor that needs considerable expertise to be successful. The sponsor makes a business plan and provides funding ( a few million dollars) for the operation of the SPAC. Next the sponsor must raise capital from investor — usually in the range of $200 to $700 million. Then the SPAC goes public and the shares are traded on stock exchanges.
In the merger phase, the SPAC management finds a private company as a suitable merger partner. The SPAC has two years to reach a merger agreement. If no merger agreement is made, the sponsor can either seek an extension or return all invested funds to the investors. If the SPAC returns the investments, the sponsor loses its capital used for operating the SPAC.
After the merger agreement, the SPAC starts a road show to confirm the valuation and raise additional capital which is called PIPE or Private Investment in Public Equity. More work is needed to finalize agreements, get approvals of investors and complete the merger. Investors can withdraw their capital during this phase and often a percentage of investors do so.
SPACs have been around in various forms for decades but were poorly regulated initially. SPAC regulations are much better now and are likely to see more improvements. The Harvard Business Review article believes today’s SPAC ecosystem is fundamentally distinct from the one that existed as recently as 2019, characterized by different risks, stakeholders, structures and performance.
In the last two years SPACs have taken off in the U.S. In 2019, 59 SPACs were started, with $13 billion invested for an average of $220 million per SPAC. In 2020, 247 were created, with $80 billion invested or an average of nearly $324 million per SPAC. In the first quarter of 2021, 295 SPACs were started, with $96 billion invested for an average of $325 million per SPAC. In 2020, SPACs accounted for over 50% of new publicly listed U.S. companies.
However, the SPAC market has slowed in 2Q 2021 and there are indications that the SEC (Securities and Exchange Commission) will be scrutinizing SPAC activities more closely in the future. This should cool down excessive actions and will be good for quality SPAC activities.
Compared with traditional IPOs, SPACs often offer a private company higher valuation, less dilution, and less time to become a public company. SPAC also offer more certainty and transparency and have lower fees and fewer regulatory restrictions.
There are additional benefits to AV startups in using a SPAC to go public. SPACs has the potential to solve the funding problem for technology startups with long-term product development requirements. AVs are in this category along with quantum computing and others. Essentially, SPACs can take over when the VC industry has done its part, or the startup want to retain a higher share or control of its ownership when large additional funding is required.
In a SPAC merger filling, the startup’s long-term business plan is included and gives the investors perspectives on future operational performance. In traditional IPOs such long-term business plans are not allowed. Instead the bankers that are handling the IPOs, provide such long-term business information via their analysts.
The startup that is part of the SPAC merger should know its business better than the bankers’ analyst and hence should provide a better projection of its future business prospects. But this is a two-edged sword and making an unrealistic business plan in the SPAC filing will be a big mistake.
There are risks in using a SPAC — especially in an overheated and volatile marketplace. Some SPACs will merge with startups that will fail or do poorly. Some of the SPAC sponsors may be inexperienced and lead to poor financial results. Some SPAC investors may lose money. An April post from SEC has good information on SPAC risks: SEC.gov | SPACs, IPOs and Liability Risk under the Securities Laws
There are two IPO events in the life of a SPAC. The first IPO happens when the sponsors create the SPAC with investors buying the SPAC shares. The second event is the merger with a private company—usually a startup. Between the two events lots of changes are possible that can impact the risk range of the SPAC investment.
AV SPAC & IPOs
The next table is a summary of AV startups that have gone public using SPACs or intend to. TuSimple is the only AV company that has done a traditional IPO and it is included in the table. More information on the companies are included below the table. Note that much of the data in the table are projections when SPAC merger was announced and could change by closing time.
Aeva is a lidar startup founded 2017 with a focus on Frequency Modulated Continuous Wave (FMCW) lidar. The lidar specs are quite strong. Aeva received VC funding of $48 million before SPAC started. Aeva’s partners include Denso, TuSimple, VW, ZF and one unnamed OEM.
Aeva announced a SPAC merger with the InterPrivate Acquisition Corp. on November 2, 2020. The merger was completed on March 15, 2021. Aeva raised an impressive $560 million from the SPAC and PIPE funding.
Aurora Innovation is a leading developer of AV software platforms. Aurora is active in multiple AV use-cases including robotaxis, autonomous trucks and goods AVs. It acquired Uber’s AV group which is covered here: Breaking down Aurora-Uber ATG Deal | EE Times. Since its founding in 2017, Aurora has raised $1.22B in venture capital.
Aurora has agreed to go public via a merger with Reinvent Technology Partners Y, a SPAC led by LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus. The implied valuation of the merger is $13 billion, and Aurora is expected to raise $2 billion from the deal.
This is likely to be an important SPAC event for the AV industry. It is important that this SPAC is successful for the future of AV SPACs.
AEye is a leading lidar company with added camera data. AEye was founded in 2013 and has raised $89 million in VC funding. On February 17, 2021, AEye will merge with CF Finance Acquisition Corp. III in a deal that values the company at $2 billion. AEye is projected to raise $455 million when the deal closes. The SPAC investors include GM Ventures, Subaru-SBI, Intel Capital, Hella Ventures and others.
Embark is developing an AV software platform for autonomous trucks. Embark is planning to use a SaaS business model where it charges a fee per mile driven for AV software and hardware. It was founded in 2016 and has $117 million in VC funding. On June 23, 2021, Embark and a public SPAC, Northern Genesis 2, announced a merger that value the combined company at $5.16 billion and will raise $614 million when the merger closes.
Innoviz is another lidar startup that was founded in 2016 in Israel. It received over $250 million from VCs before the SPAC started. Investors include Aptiv, Magna, Samsung and SoftBank. Partners include BMW and three Tier 1s—Aptiv, Harman and Magna.
Innoviz completed a SPAC merger with the Collective Growth Corporation and began trade on NASDAQ on April 6, 2021. The SPAC merger provided Innoviz with $380 million in additional capital.
Luminar is a leading lidar company that was founded in 2012. It received over $250 million in VC funding before its SPAC—including investments from Volvo Car and Daimler Trucks.
On August 24, 2020, Luminar announced it was merging with a SPAC, Gores Metropoulos. At that time a post-deal market valuation of $3.4 billion was projected. The merger was completed on December 3, 2020 and Luminar raised $420 million. Luminar’s lidar revenue was $14 million in 2020—up 11% from 2019.
Ouster is another lidar startup company that has gone public via a SPAC. Ouster was founded in 2015 and received $90 million in VC funding. Ouster’s revenue was nearly $19 million in 2020 and projects sales exceeding $33 million in 2021. Ouster is providing lidars to a variety of segments including multiple AV use-cases, ADAS, robotics, mining, warehouse and port-shipping automation.
On December 22, 2020 Ouster agreed to go public via a SPAC merger with Colonnade Acquisition Corp. The valuation at that time was $1.9 billion. The merger was completed on March 12, 2021 and Ouster raised around $300 million in additional capital.
Plus is a developing an AV software and hardware platform for autonomous trucking. Plus was founded in 2016 and has received $520 million in VC funding. Plus is using an aftermarket business model where it provides the hardware and software for the autonomous driving system that can be used on most existing trucks. It is testing autonomous trucks in China and U.S. and plan future testing in Europe.
Plus is planning to merge with Hennessy Capital V in SPAC agreement that was announced on May 10, 2021. The SPAC deal give Plus a valuation of $3.3 billion and will raise about $500 million when the merger closes.
In June 20212, Plus received an order from Amazon to purchase at least 1,000 Plus autonomous truck retrofit units. As part of the order, Amazon received warrants for 20% of Plus’s outstanding stock.
Quanergy is a lidar supplier that was founded in 2012 and has received $135 million in VC investments. Quanergy and CITIC Capital Acquisition Corp. entered into a SPAC agreement on June 22, 2021. The SPAC deal give Quanergy a valuation of $1.1 billion and is expected to raise $278 million when the merger closes in second half of 2021. Quanergy has over 350 customers and 40 partnerships globally.
Velodyne was the pioneer in lidar technology and was founded in 1983. It’s lidar technology was developed in 2005 for the DARPA challenge. Velodyne received around $225 million in VC funding. Ford, Baidu and Hyundai Mobis were leading investors.
Velodyne and Graf Industrial Corporation announced a SPAC agreement to merge on July 2, 2020. This was the first SPAC in the AV market. The merger closed on September 30, 2020. The valuation at IPO was $4.0 billion and $150 million was raised.
Velodyne revenue was $95 million in 2020, $101 million in 2019, $143 million in 2018 and $182 million in 2017. It looks like Velodyne’s revenue has been falling from declining lidar prices and increasing competition.
Since the Velodyne IPO, there has been a falling out between the Velodyne founder and current management and lawsuits have been filed. It is difficult to determine if the lawsuits are due to the SPAC activities or disagreement on how to reverse Velodyne’s declining revenue.
TuSimple is a leading AV software platform for autonomous trucks. It was founded in 2015 and has received over $640 million in VC funding. TuSimple had nearly 900 employees worldwide in April 2021.
TuSimple was the first AV company to go public via a traditional IPO. TuSimple started trading on NASDAQ on April 15, 2021. Its valuation was $8.5 billion at that time. TuSimple raised $1.35 billion at its IPO. TuSimple has autonomous truck operations in U.S. and China.
I found ten AV related companies that have competed a SPAC IPO or have started a SPAC IPO — seven lidar startups and three AV software platform startups. The three AV software platform companies will become public in 2H 2021. Five lidar startups have completed their SPAC IPOs while two more have started the process.
There are five lidar companies that have SPAC IPO history. It is interesting that all of them are currently trading lower than the stock price at their IPO date.
Even if the SPAC IPOs from five lidar companies have not performed well from stock price perspectives, they have provided the lidar companies with a lot of capital that will give them a better shot for long-term success — some more than others.
This indicates that more future SPACs will happen for other AV startups. The investors are likely to be more cautious—at least the investors with short-term horizons. The success of the AV market segments are all long-term opportunities and remain very large future prospects. Such large new opportunities rarely come along in any industry.