A sign is posted on the exterior of Lucid headquarters on March 29, 2023 in Newark, California. Lucid is just one of many companies that undertook a special purpose acquisition company, or SPAC, deal.
Justin Sullivan/Getty Images
It’s 2021. A young, pre-profit startup meets a “blank check” investment company. They merge, and money seems to fall out of the sky.
But two years later, the Bay Area’s tech workforce is feeling the effects of that wild investment craze, one layoff round at a time.
Spanning the manufacturing and software industries, a herd of startups that went public through special purpose acquisition company mergers are laying off swaths of employees in 2023. The SPAC deals, as they’re known, suddenly delivered firms hundreds of millions of dollars in cash by providing them with an easy route to a public listing — money that companies burned through as profits proved elusive and stock prices tanked.
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A SPAC, or “blank check” company, raises investor funds and then merges with a startup; the startup takes the SPAC’s place on the public markets, often boosting its share price. The SPAC sponsors get shares for extremely cheap, yielding a quick profit. Wall Street banks get hefty fees. The startups themselves get hundreds of millions of dollars in fresh capital. The SPAC trend accelerated Silicon Valley’s classic cycle of boom and bust, funneling huge piles of cash to startups that sometimes overhired or otherwise proved incapable of wisely spending.
SPACs have been around for decades, but in 2020 they started growing in popularity as a route to quick venture capital profits. The glut of funding came just before interest rates began to rise and economic uncertainty roiled the tech industry. But for many Bay Area firms, that money has delivered months of tumult, not the free-and-clear path to prosperity that some associate with a public listing.
Embark Trucks, an autonomous driving startup, went public through a SPAC at a $5.2 billion valuation in November 2021, netting the firm hundreds of millions of dollars in cash. But manufacturing delays plagued the business. The stock dropped. CEO Alex Rodrigues wrote in March that “the capital markets have turned their backs on pre-revenue companies.” In the same email, he announced he was laying off 70% of the company’s staff, or 230 workers. By June, Embark had been purchased for a mere $71 million.
It wasn’t the only company, even if its story is one of the more drastic.
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Astra, a rocket manufacturer that netted $500 million in a 2021 SPAC deal, just laid off a quarter of its staff and announced it had less than $27 million in remaining cash. Tempo Automation, after a SPAC deal late last year, has seen its stock price plummet to pennies in just months — the firm, in July, cut nearly every employee and even chopped its CEO’s salary. Luxury carmaker Lucid laid off 1,300 workers in March, two years after its SPAC listing, as it reportedly FOLLOW US ON GOOGLE NEWS