Trivia question: Which company trades at ~15,260x EV/LTM (last twelve months revenue) as of Friday afternoon?
Special-purpose acquisition companies, or SPACs, have made a splash in 2020, especially in the tech world.
I don’t pretend to know all of the details on SPACs, but I figure like me, some of you may want to understand them better. Here are the basics:
- SPACs raise money from IPO investors and place it in a trust until the sponsor identifies and negotiates a merger with an operating company. The target becomes a publicly-traded stock.
- Each SPAC comes with a share and warrant IPO. Most price the stock at $10 per share and the warrants at $11.50. The variable is the warrant fraction which is based on the demand for the SPAC.
A record number of SPACs have been raised in 2020, and at a much higher capital raise per deal. Currently, over $30B is held in SPACs, and at the current pace, 2020 will finish 3-4x higher than any other year.
Traditionally, SPAC terms tended to be more onerous than that of traditional IPO filings. The numbers above highlight a new level of competition entering the market which has led to better terms, and a lower cost-of-capital for the company being acquired.
The valuations of recent SPACs like Luminar and Desktop Metal have come under intense criticism and scrutiny. But, they solve an important piece of the puzzle for investors and founders in hard tech, which will play a role in the energy transition.
SPACs create a new avenue for liquidity, particularly for early-stage investors and entrepreneurs who want to capture some of the wealth they've created, and unlock a new way to access long-term capital for companies that have 20+ year goals.
As a result, we have increased the incentives for founders to tackle hard problems and for investors to back them at the earliest stages - something we desperately need to solve the technological challenges of the energy transition.
Who are the most obvious candidates for SPACs in the energy tech world? Let's start with a set of criteria.
- Proprietary, hard-tech
- Founded 7-10 years ago
- A large market with room for growth
- Current investors might need liquidity
Using these qualifiers, we can select companies where an influx of capital will scale a costly, but defensible technology. We also need a growing market where winners will have a long-term advantage.
Here are my top 5 candidates:
1. ChargePoint
Description: ChargePoint develops and manufactures technology for its network of electric vehicle charging stations.
First Raised: 2009
Last Raised: 2020
Total Funding: $660M
2. Skydio
Description: Skydio uses artificial intelligence to create flying drones that are used by consumer, enterprise, and government customers.
First Raised: 2015
Last Raised: 2020
Total Funding: $170M
3.Carbon
Description: Carbon is reinventing how polymer products are designed, engineered, manufactured, and delivered, towards a digital and sustainable future
First Raised: 2013
Last Raised: 2019
Total Funding: $583M
4. General Fusion
Description: General Fusion develops utility-scale fusion power using magnetized target fusion.
First Raised: 2009
Last Raised: 2019
Total Funding: $192M
5. Smart Wires
Description: Smart Wires specializes in grid optimization solutions that leverage its patented modular power flow control technology.
First Raised: 2011
Last Raised: 2019
Total Funding: $179M
Who are you betting on as the next SPAC candidates in energy? Find me on Twitter and share your thoughts!
Trivia answer: Nikola