The hype surrounding a special purpose acquisition company (SPAC) could have cooled down a year after it was Wall Street’s hottest new product. However, companies designed to merge or acquire promising start-ups that require quick access to a large amount of capital without the cost, time and regulatory hassle of traditional initial public offerings Suitable for tackling the crisis of change. SPAC is just beginning to get hot due to climate technology.
Phyllis Newhouse learned it directly this month. After a 20-year career in cybersecurity in the US military, Newhouse decided to take a puncture wound leading a private-sector tech company. She collaborated with venture capitalist Isabelle Freidheim to Athena Technology Acquisition Corp, an all-female-led SPAC that was released in March at a value of $ 250 million. Was launched.
Newhouse wasn’t a hassle about the type of company Athena targets. She went through 20 startups in different disciplines. She said we just wanted to find a company in the industry that offered innovative and groundbreaking solutions. But our standards were very strict. We were looking for innovation. I was ready to publish and wanted a good management team.
The company Athena ultimately chose was the only company working on energy or climate change. California-based Heliogen was founded in 2013 by longtime solar energy entrepreneur Bill Gross and received early seed funding from Bill Gates. Heliogen builds a condensing solar thermal array. In this array, a field of mirrors directs sunlight to the tower, where heat (up to 1,800 degrees Fahrenheit with Heliogens technology) is collected and converted into electricity or poured directly into the factory’s furnace.
Although the basic technology has been around for decades, Newhouse was impressed with the innovations of the two Heliogens. An algorithm that tells the mirrors to achieve maximum efficiency, and a small footprint that can be installed next to an energy-intensive industrial facility rather than a plant. A distant desert.
Athena merged with Heliogen on July 7, raising $ 415 million in cash and opening up a solar company with a valuation of $ 2 billion. In an interview, Gross said the money would rise from legislators, investors and the general public when targeting customer-based carbon-intensive sectors such as steel and cement manufacturers, where decarbonization options are not plentiful. He said he would come when he was slamming the door in response to pressure. To show action on the climate. According to Gross, ArcelorMittal, the world’s largest steel producer, is a shareholder and anchor customer.
He said the market wanted more than we could offer as a private sector. With more funding, we can become leaders in this area.
Climate technology leads the world of SPAC
It’s not just Heliogen. At least 28 climate technology startups have been acquired by SPAC, raising at least $ 7.5 billion since early 2020, according to data compiled by Silicon Valley Bank (SVB). Most are low-carbon transportation businesses. Recent examples include electric bus maker Proterra, EV battery maker SES, and rooftop solar financier Sunlight Financial. At least 50 SPACs are currently looking for climate-related acquisitions, according to accounting firm Corn Resnick.
Despite the number of climate SPACs dropping from 9 in the first quarter of 2021 to just 3 in the second quarter, SVBs will spend about $ 37 billion through SPACs to climate technology start-ups in the next 24 months I predict that there is a possibility.
Kelly Belcher, managing director of SVB’s energy focus, said climate technology is leading SPAC’s entry into the world. However, Belcher said private investment in public equity (PIPE) finance, where public companies sell shares directly to specific investors at special prices, has reached a saturation point and slowed as a way to raise funds for acquisitions. I warned that it seemed to be there. , This could totally ease expectations for SPAC. PIPE funds are commonly used to undermine SPAC transactions. In the case of Heliogen, it reached 40% of the transaction.
Reasons why the disclosure of climate technology is good
The success of SPACs depends heavily on the ability of founders, such as Heliogens Newhouse, to find future market trends and opportunities that other investors have missed or are not ready to raise. In a rapidly warming world that requires complex new solutions, investors with expertise in the subject area may find it best to find the next blockbuster at the forefront of new technology.
What SPAC does is allow industry experts to raise money and go find diamonds in rough stones, said Travis Wofford, vice chairman of the merger and acquisition of law firm Bakerbots. Told. Why are so many of these clean technologies? The reason is that high-growth industries focused on new technologies need smart people who can understand the technology and business potential. If no one gives you money to develop a drug, it doesn’t matter if you have a cure for cancer.
Climate technology start-ups are also particularly likely to benefit from SPACs, Woffford said. Building expensive hardware such as solar farms and car factories tends to require a lot of capital (compared to app software, for example). .. Startups tend to secure higher ratings than traditional IPOs through SPAC, Wofford said.
In the future, SPAC could even be a useful tool for legacy fossil fuel companies to accelerate their transition to cleaner sources, Wofford said. Climate change startups that just launched today could merge with SPACs sponsored by up-end companies. He said large oil and gas companies will have more opportunities to bring expertise in assessing these clean tech goals.
It will take decades to know which climate SPAC will really succeed
So far, climate-related SPACs are working well compared to other sectors. Shares of climate change startups published through SPAC in 2020 rose 131% on average from the merger to the end of the year, but rose 50% in all sectors.
Lordstown Motors, a manufacturer of electric trucks released through SPAC in October 2020, had significant outliers that clearly demonstrated the dangers of being released too early. The company was founded with the aim of countering Tesla after the stock price plunged. After being sued, the federal government began investigating the former CEO for misrepresenting the sales outlook before producing a single truck.
The Lordstown blunder was caused by premature hype, immature technology, and SPAC, which was under great pressure for its leaders to sign contracts, but had little expertise in the clean technology sector. .. But even companies that have been doing well so far will not be tested for another 10 or 2 years until the global energy transition goes further.
If today’s clean technology SPAC sponsors make good bets, the companies they acquire will be new economy giants. Otherwise, they could be a huge waste of investor money.
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