Tens of billions of dollars are flowing into cleantech from a specific investment vehicle — special purpose acquisition companies (SPAC). The lack of technical and fiscal due diligence is considered a feature by the SPAC and startup founders who make a lot of money, but for moving the climate needle or creating companies with inherent value, the story is much more mixed.
A SPAC is a publicly traded stock with no business model, revenues, or operations. It exists only to do a reverse takeover of another company, providing the initial SPAC speculators a payout, and gives the taken over company an easier way of getting listed and gaining market capitalization. While they’ve been around for decades, the frequency of their use has soared in recent years. Per Investopedia:
“In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs. By comparison, only 59 SPACs came to market in 2019.”
And a lot of these SPAC reverse takeovers are occurring in the climate space, as investors try to get in on the next big green thing, and often are hoping to help climate action as well.
I’ve written about them before in the nonsensical space of electric vertical takeoff and landing urban air taxis and most recently in a piece on the ineffective, expensive, carbon-debt laden, mechanical failure of an electricity storage solution, Energy Vault. Others, like Heliogen, I’d written critically about (part 1, part 2) without considering the investment pathway, but they turned out to be SPAC-funded as well. In each case, the plummeting market capitalization as the reverse takeover ran its course was a clear indicator. I had come to these technologies from my usual perspective of assessing the actual market and technologies, not the investment vehicles, but my attention has been snagged by SPACs. And to be clear, with one of the firms I’m an advisor to, I had a briefing on SPACs from an investment house so that we had expert insight into how they operated. I’m not an expert on them or M&A in general, but I have significant context.
When I posted the Energy Vault article on LinkedIn, I referenced air taxi market capitalization losses and asked if there were examples that ran counter to these examples where due diligence clearly failed. With that, I have a longer list and can make more of an assessment of the results of cleantech SPACs as a space. This is a work in progress, so if you are aware of a SPAC-funded cleantech venture I missed, please let me know.
Clearly there’s a challenge of some sort in the space, when the group lost close to 70% of market capitalization, while the Dow Jones Index in the current bear market is only down 13%. As a note, a commenter on my LinkedIn post claimed that it was hard to find a company that wasn’t off 50% due to the bear market, a clear overstatement, and even if true, 70% is greater than 50%.
It also appears concerning that 7 of 16 of the firms have class-action lawsuits alleging misrepresentation, insider dealing, and the like, and in a couple of cases multiple lawsuits.
It’s important to point out that these lawsuits are untested in court, so this may be smoke without fire. But seriously, this is a lot of smoke, and the technical and market underpinnings of many of these companies are clearly weak. My opinion on Joby, Archer, Ehang, Lilium, Energy Vault, and Heliogen is a matter of public record. I think that they are non-viable due to a combination of technology, pathways to certification, and lack of actual markets.
As for the others:
- ESS has some potential, although the iron redox process has been well known for a long time, so I reserve judgement. Better than many of Breakthrough’s investments, so there’s that.
- EOS I was unaware of, but it appears to share l-ion’s limitations of tight coupling of energy and power without having the value proposition of a clear cell-based approach suitable for multiple applications. At first glance it’s a potential niche technology that’s inferior to redox flow and pumped hydro for grid storage without the massive value proposition of the efficiency curve due to l-ion’s maturity and market dominance at multiple form factors.
- Stem seems like a reasonable firm, but definitely overvalued at SPAC launch given lack of differentiation, and 75% market cap loss is indicative. Convergent Energy + Power is more interesting to me than Stem, and has similar software. Software to optimize storage isn’t rocket science or easily protected IP.
- Solid Power is speculative but interesting. Reasonable SPAC period valuation, limited drop, which is reasonable for a non-revenue company. I’m waiting for reality on solid-state batteries, and interested.
- Tritium has a growth market, and independent status for DC fast charging. It will be interesting to see how it plays against other charging organizations. It’s not rocket science, it’s logistics, for the most part, so delivery quality matters. Also low bump and reasonable post-SPAC valuation.
- EVGO is like Tritium, in that it was an operating company with revenue in 2020 pre-SPAC, and was less exuberantly priced and dropped less.
- Li-Cycle had a strong valuation prior to late 2020 SPAC reverse takeover, and before stupid valuations of cleantech SPACs. Early in the SPAC hype cycle, although a time series assessment I did found no pattern to losses versus dates of SPACS.
- Proterra I’m iffy on. Scaling a major ground transportation manufacturer is hard, and China’s manufacturers have already built 500k electric buses. It’s unclear to me why a US pure play bus and bus charging company has a competitive advantage.
And so, that’s the world of cleantech SPACs in a nutshell. Caveat emptor.
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