SPACs, the climate tech space and new sources of capital
Investment required for climate change mitigation
To meet the global commitment of net-zero carbon emissions by 2050, so that society can limit global warming to 1.5°C, large investments into new technologies and companies are needed. IPCC estimates that the annual investment required are a minimum of US$1.6 trillion/year until 2050. Barbara Buchner and her team at the Climate Policy Initiative estimates that in 2018 annual flow reached US$ 579 billion. In other words, we need to increase flow of capital by a factor of ca. 3 x the current level.
The increased capital needs outlined above overlap with increased demand from different investor classes. A variety of companies, governmental and multilateral agencies are also interested in sustainable climate change mitigation investments. Renewable energy related investments have attracted significant investors’ attention, but clean energy, battery storage, green transportation investments are also receiving increased attention.
SPACs as an additional structure to channel venture capital into climate change innovation
Special Purpose Acquisition Companies, or SPACs, are companies with no commercial operations that are created with the sole purpose of raising funds via an Initial Public Offering, an IPO (sometimes referred to as a “reverse” IPO). This structure has been around for decades but increased in popularity recently. Until August this year, more than 50 SPACs have been formed in the US market, raising over US$21 billion in capital.
The funds that SPACs raise in an IPO are put into an interest-bearing trust account. The amount raised is restricted and can only be used to complete an acquisition (if not returned to investors in case no acquisition takes place within two years). Once an acquisition has been completed, a SPAC usually gets listed on a major stock exchange. SPACs often also raise funds through PIPEs, Private Investments into Public Equities, as institutional investors make more substantial investments into the new listed entity, increasing the cash inflows into the companies.
If you invest in a SPAC prior to an acquisition is announced, you are betting on i) the probability that the vehicle will make a successful acquisition within the 18 to 24 month window that is usually the timeframe to complete a deal (after that point, cash must be returned to investors), and ii) the experience in deal generation, strategy and execution of the team behind the SPAC. Post deal completion, potential investors need to underwrite the path to commercialisation and robustness of the product & technology. That is where some of the recent SPACs failed to deliver, shortly after very successful post completion share performance.
Nikola Corp (NKLA), was taken public in June 2020 via a SPAC named VectoIQ. Nikola’s shares have not performed very well as a short seller accused the company of overhyping its technology.
Hyliion Inc (HYLN), a company that makes electric propulsion systems for trucks, started trading at the NYSE a few months ago, after merging with a SPAC named Tortoise Acquisition Corp. Hyliion’s shares also dropped significantly after the listing.
Velodyne Lidar Inc. (VLDR), a company that develops lidar sensors considered to be critical for autonomous vehicles and drones, also went public after merging with SPAC Graf Industrial Corp. Shares hit a high point in September but have also dropped considerably since.
What’s in the pipeline?
According to a variety of recent articles in the news, several SPACs are being brought to market. In addition to Hyliion and Velodyne, there are other clean-energy companies with SPAC partners, namely:
- Canoo Holdings Ltd (https://www.canoo.com/ a California based EV startup) and Hennessy Capital Acquisition Corp. agreed to merge in August and to list shares on Nasdaq;
- Lordstown Motors Corp (now on Nasdaq as RIDE, https://lordstownmotors.com/ an Ohio based maker of electric commercial pickups) and DiamondPeak Holdings;
- Fisker Inc (now on NYSE as FSR, https://www.fiskerinc.com, a Southern California developer of EVs) and Apollo Global Management Inc.-backed Spartan Energy Acquisition Corp;
- Luminar Technologies Inc (https://www.luminartech.com an autonomous vehicle sensor and software company). and Gores Metropoulos Inc agreed to merge and list on the Nasdaq under the new ticker symbol LAZR;
- QuantumScape Corp (a developer of next generation batteries to power EVs, https://www.quantumscape.com) agreed to merge with Kensington Capital Acquisition Corp, the combined entity will be listed on the NYSE under the ticker QS;
- Switchback Energy Acquisition Corporation (NYSE ticker SBE) and Chargepoint, a Californian based company operating a network of 15,000 charging stations, have confirmed a SPAC merger in a recent filing with the SEC. When the merger is final, the new company will be known as ChargePoint Holdings;
- Eos Energy Storage LLC (providers of a sustainable alternative to lithium batteries, based on zinc hybrid cathode https://eosenergystorage.com) agreed to merge with Riley Principal Merger Corp. II, the combined company will be renamed Eos Energy Enterprises, Inc. (“Eos Energy”) and intends to list its shares of common stock on Nasdaq under the ticker symbol EOSE;
iClima has put in place a data based, fact driven proprietary methodology for the development of equity indices with a laser focus on decarbonisation. One of the tests we submit the companies that merit being added to our benchmark is a commercialisation test. The companies in our benchmark all are in revenue generating phase. We will continue to monitor the financials of the companies above, as well as that of other companies with relevant climate change solutions and ascertain if they fulfil the requirements to be added to our benchmarks. We expect SPAC deals to continue to be popular in the US market, and are excited to follow the space!