SPACs and ClimateTech
Yes, SPACs have gone from a fringe to a market driver… 248 SPACs in 2020 alone, 200 in the beginning of 2021!
And yes, there are questions on whether this mad rush of cash into SPACs signals a peak of a bubble. SeekingAlpha tears down some of the negatives.
But under this SPAC-mania there is an underlying theme which could become very interesting for those companies building the technologies that could help save the planet.
According to Cleantech Group, “In 2020, we counted 30 transactions where a cleantech-relevant target was announced, 15 of whom went on to complete the transaction by year end.”
“Of the 15 SPACs who completed in 2020, their business combination including the listing of the new entity, they achieved an average enterprise value of approximately $2 billion and raised an average of $487 million in cash to fund future growth plans.” And yes the majority of those were EVs, batteries and LIDAR.
And this made me think about the potential role that SPACs could play in the evolution and scaling of Climate Tech.
- There is clearly an appetite from investors (retail and institutional) for climate-positive public stocks.
- Many of these companies will require both greater access to capital and perhaps longer time than “traditional” tech companies
- Climate Tech companies need to sell a positive vision of the future enabled by their technology. A traditional IPO forbids you from telling a future story, a SPAC does not.
So, technical risk, requiring large amounts of funding, which, if it works could have a positive impact for humanity… which made me thing of Biotech. As a Biotech investor friend taught me, Biotech IPOs are a fundraising milestone not a liquidity milestone. Biotech companies require large amounts of funding to continue pushing the science through the clinical approval funnel. The market accepts the technical risk and the underlying story on the positive future impact of the technology is implied (“cure cancer”, “prevent diabetes”…). The data below shows how much technical risk some of these companies are still holding when going public with 27 of the IPOs in 2020 being at the preclinical or Phase 1 stage and 60% of them raising > $150m.
So what if Climate Tech could leverage SPACs as a a fundraising event rather than a liquidity event in which investors were willing to accept technical risk, require to be sold on the future vision, and provide a path to market for technologies that might require longer to scale than a traditional venture fund cycle’s 10-year period.
But to be clear, there will certainly be scars along the way. Some of these UnSPACed companies (because when you go public via a SPAC you are actually unSPACing) do not yet have the processes, tools or experience to survive the quarterly pressure of public market scrutiny… but I for one am hopeful that this could become another potential funding path for many of the various levers we need to pull concurrently to set us on the right path.