SPACs or Special purpose acquisition companies are the golden route for most startups aiming to raise funds through public equity. Though the shine has started fading in recent times, there are still many who have confidence in this money-raising model. Serial sponsor Alec Gores is one of them. The private equity billionaire announced a deal to take the European electric vehicle startup Polestar public at a $20 billion valuation. Polestar will combine with the SPAC company Gores Guggenheim Inc.
This makes Polestar one of the most valuable electric vehicle companies to go public through a SPAC. It even tops Saudi-backed Lucid’s $12 billion valuation through Michael Klein’s Churchill IV. Although it’s $15-a-share private investment in a public equity deal, known as a Pipe, set a valuation of $24 billion.
Polestar is backed by Volvo Car Group, Chinese carmaker Geely, and some big celebrities. There are concerns about Polestar going the SPAC route. Though there was a boom in SPACs in the last two years, the story is changing somewhat now.
Last year, SPACs raised a record $83.4 billion across 248 public offerings, according to SPAC Research, and another 170 SPAC initial public offerings have raised $54.7 billion this year. The clock is ticking for most newly listed SPACs as they need to find companies to acquire within two years of their formation.
SPACs, backed by record levels of capital, pursue early-stage startups in their bid to zero in on the next Tesla or Amazon or budding decacorn. For startups, instead of going through the stage C or stage D funding route, SPACS have become the default route to raise money as fast as possible.
The concerns are that most of these startups have not reached the mature stage of being able to handle a public IPO.
But Gores says the Swedish EV company is already manufacturing vehicles and has projected $1.6 billion in revenue for 2021. The money raised will be used to ramp up production of its flagship vehicle Polestar 2, which will double the revenues next year. The company is also readying to launch its sport utility vehicle model Polestar 3.
The SPAC market has fallen out of favor, with investors redeeming cash at increasingly higher rates. However, investors are still validating the SPAC route but are not too happy to park their capital in this vehicle.
Also, the initial share price hype with the SPACs has gone down. Investors are withdrawing money faster than is healthy for the startups. Most are not waiting to see how the companies perform. Companies are now getting a fraction of the cash they expected when they agreed to a deal.
Gores is confident that this is the right direction for Polestar to take. He cites the nine transactions he has done worth about $60 billion and says that all his deals have a redemption rate below 5 percent.
Polestar has put in place a $950 million minimum cash requirement for the deal to complete. The company is set to receive a little over $1 billion, hence cutting down any hopes of redemptions.
