Q: What brought you to SPACs?
A: With my 20-year anniversary at Morgan Stanley fast approaching, I thought it was the right time to step away and pursue something different in the final decades of my career. I had several plans going into the first quarter of 2020 and then COVID-19 put a stop to them. Around that time, I started hearing about SPACs. I thought they were backwater finance, but various people approached me, and I ended up building a model to get my head around the financial engineering and how to balance the interests of company shareholders, public shareholders, and SPAC sponsors. Early last summer I was out hiking with Joaquin Rodriguez Torres, one of the founders of Princeville Capital and a close friend, and he said out of the blue, ‘Wouldn’t it make sense for you to partner with us on a SPAC?’ Princeville focuses on venture-growth investing and they thought it could be a great synergy: using their global sourcing network, but targeting companies that are later-stage, more IPO-ready. I’ve been having a blast. It’s a privilege to have this third act and to choose who I work with.
Q: Your SPAC – Poema Global Holdings – raised $345 million in January. Opportune timing…
A: We started planning in the fourth quarter of 2020 and, following a wobble in the aftermath of the US presidential election, we were one of the first SPACs to get raised in 2021. It was 6x oversubscribed, so we upsized the offering. It was a great window to raise a SPAC. There was a flurry of issuance in the first quarter and then it slowed down. As of March, there were nearly 550 SPACs outstanding with $155 billion in capital. Pendulums tend to overswing, and my sense is that the SPAC issuance pendulum significantly overswung and the market now has a bit of indigestion.
Q: How difficult was it to find suitable targets?
A: When we were raising, more than 90% of all technology-focused SPACs were looking for deals in the US. The same guys were driving up Route 101 looking at the same companies – there were SPAC-offs where companies pitted SPACs against one another to come up with the best terms. We differentiated ourselves by concentrating on Asia and Europe. It’s been a bit more competitive than I expected, but far less competitive than in the US. Generally, you want two things in a SPAC target: a robust universe of comparable companies trading in the US, so you know there are investors who understand the industry and can translate that knowledge across geographies; and a business that is more than $1 billion in equity value, or you worry about having sufficient liquidity to attract institutional investors to take large long-term positions. We also told the market that we wouldn’t invest in pre-revenue moonshot businesses.
Q: What appealed about Gogoro?
A: One of the first things we loved about Gogoro was its scale – revenue is on track to reach $300 million this year and there is positive EBITDA. And then the valuation is well above $1 billion. Electric mobility is a major theme and there are about a dozen ways to play four-wheeler electrification in the public markets. Gogoro stands out as one way to play two-wheel electrification. The opportunity is massive, especially in Asia with its densely populated urban centers. We also had to make sure the management team is public market-ready. We spent about seven months getting to know each other.
Q: Why was the company open to a SPAC merger?
A: With a traditional IPO, you put in months of work, and then in terms of pricing, it can come down to how the market is doing the week of the IPO. Even when the markets are there, the average gap between IPO pricing and first-day trading in the US last year was more than 60%, so there was a sense that entrepreneurs were leaving money on the table. A SPAC provides certainty on valuation by enabling robust, confidential price discovery when raising the PIPE. We spoke to investors about Gogoro over several months and they could get more granular than in the typical IPO timeframe of a few weeks. A SPAC also allows a company to tell its story with greater precision – using projections, which are not permitted in traditional IPOs – and it often features a high degree of structuring flexibility. You almost always end engineering a bespoke set of terms.
Q: In what ways are your terms bespoke?
A: The sponsor gets 20% of the overall SPAC and that is rolled into the combined company. We will take one-quarter of those promote economics on closing and then the remaining three-quarters don’t vest until the stock price is up 50-100%. This is intended to provide a higher level of alignment with public market investors and demonstrate to them that we are long-term focused.
Q: How difficult was it to raise the PIPE that supports the de-SPAC?
A: Market conditions are difficult, but we were able to rely on a significant amount of strategic participation, bringing in new investors like Foxconn Technology Group, GoTo, and Temasek Holdings. In the public markets, everyone wants those big, traditional long-only investors like Baillie Gifford and Fidelity because they aren’t going to trade in and out of the stock as hedge funds might. We have the same with our strategic investors. There are also operating angles that go alongside the capital and help push forward the business plan.
Q: And Gogoro is not a scooter company…
A: It provides the underlying technology, much like Intel, Microsoft, or Android. Gogoro started manufacturing scooters to prove the case for swap-and-go batteries for two-wheelers. In 2014, there were no electric scooters in Taiwan. Today, more than 10% of scooters are electric and 97% are Gogoro network scooters. The scooter is just part of it; there is also a super-sticky subscription tail revenue. If you buy a Gogoro-enabled scooter, you are also paying a monthly subscription to access the battery swap stations and for the app that tells you what the battery level is and where the nearest batteries are located. But to get to the core of the business, the subscription revenue, you must have the enabling hardware. That’s why Gogoro isn’t a scooter business – it has deep and interesting technology barriers.
Q: How will Gogoro make money in China, where it has partnerships with Yadea and Dachangjiang Group, respectively the country’s leading electric two-wheeler and gas-powered two-wheeler manufacturers?
A: They are joint ventures that will fund the capex to build out a battery swapping network in China. Gogoro will sell enabling hardware kits to Yadea, so its vehicles are compatible. Once a customer comes on to the network, Gogoro gets a share of the subscription revenue in perpetuity for that customer. I’ve spoken to the management teams at the two Chinese companies – and at Hero MotoCorp, Gogoro’s partner in India – and they are very optimistic about the tailwinds for this swap-and-go service.
Q: What are the risks?
A: There is always some market acceptance risk. How quickly will consumers get used to the notion of buying a bike without a battery inside it and signing up for a battery subscription? Right now, China is 70% electric in two-wheelers, but a lot of people are taking batteries home to charge. It’s cheap and easy to do, but some of these batteries are inherently unsafe, especially the ones that are retrofitted or converted. A lot of regulations are coming out, getting people to convert from lead-acid batteries to lithium-ion batteries, and to stop them charging at home.
Q: Is there a competitive threat?
A: There are some copycat battery-swapping services in China, but they don’t have a technology offering that is safe, dependable, and upgradable over the air. Nobody is remotely close. A small handful of players are serving the B2B market, chiefly delivery drivers. No one has penetrated the much larger consumer side of the market because no one has got the large OEMs [original equipment manufacturers] onside. The fact that Gogoro has been chosen by China’s number one electric scooter maker and its number one gas-powered scooter maker says a lot about the technology benchmarking done by these companies.
Q: Are you planning to raise more SPACs?
A: Absolutely. We set out with a vision to build a multi-SPAC franchise. We were not interested in doing an opportunistic one-off trade; the opportunity cost is too high. My view is that, over time, there will be leading franchises in SPACs just like there are in private equity. SPACs are here to stay. The bar has been raised, which favors better-quality sponsors. This is a healthy development for SPACs to become a more dependable source of high-quality, high-growth companies for investors to consider alongside traditional IPOs.
