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SPACs are the construct VCs need to fund clean tech



In light of climate change and escalating global energy demand, more emphasis is being placed on emerging clean technologies — ranging from renewables and energy storage to nuclear power. Although these technologies have tremendous potential, they require lots of innovation, and innovation needs abundant capital.

The issue: early-stage financing for clean tech hasn’t been plentiful, and it’s stifling the growth of new energy companies. Why is this? In general, clean tech companies lack the startup advantages of agility and flexibility.

“Moving fast” works for products such as consumer mobile apps and SaaS solutions. The clean tech sector, on the other hand, tends to involve highly regulated, capital-intensive, mission-critical infrastructure.

That has hurt both returns and well-intentioned impact. According to Cambridge Associates, venture-backed companies have returned, on average, -15% internal rate of return (IRR) since 2000. Contrast that to venture-backed companies in healthcare, which returned 24% in IRR over the same time period.

Why clean tech lacks funding

While noble in its aims to make the world a better, cleaner, safer, healthier place through technology, clean tech venture capital has suffered simply because clean tech does not fit the traditional venture capital model. Central to the venture capital model is the ability to de-risk new ideas and significantly capitalize the most promising ones, allowing for liquidity via M&A or initial public offering (IPO).

Early-stage financing for clean tech hasn’t been plentiful, and it’s stifling the growth of new energy companies.

This construct allows for the return of venture capital dollars, plus appreciation that enables VC firms to raise new funds. These capitalization events also allow the venture-backed company to accelerate growth and maximize market impact.

How this construct works is evident when comparing healthcare and clean tech. In healthcare, new innovations are de-risked by VCs. More mature innovations are acquired or reach IPO every year. As a result, the average annual ratio of dollars raised via an exit to VC-invested dollars since 2012 is 1.8. This ratio is only 0.2 for clean tech, an 800-plus percent difference in the wrong direction. This has resulted in poor returns and limited capitalization of clean tech companies.

Enter (or reenter) the SPAC

Given the state of the world’s environment and lack of abundant energy in emerging economies, we need to collectively fix this issue. Special purpose acquisition companies (SPACs) are significantly improving clean tech’s venture capital construct. According to Investopedia:

SPACs are companies with no commercial operations that are formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.

Also known as “blank-check companies,” SPACs have been around for decades. In recent years, they’ve become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019.

In 2020, more than 110 SPACs completed transactions in the U.S., capitalizing these companies with more than $29 billion.

In 2020, SPACs capitalized clean tech companies with almost $4 billion of capital, including Fisker, Lordstown Motors, QuantumScape, Hyliion, XL Fleet and others. This helped push the ratio of funds raised at exit to venture capital invested in 2020 from the previous 0.2 average to a much healthier 0.6, a 200% improvement.

In 2021, we will likely see even further improvement. Why? Because there are 43 active SPACs looking toward or finalizing merger targets with a clean tech focus, potentially providing $12 billion in growth capital. Even if there are no more new SPACs in 2021 and a historically low average of M&As and IPOs, 2021 promises continued improvement for clean tech investment.

Don’t let Nikola tarnish the pack

One of the most high-profile clean tech SPACs was Nikola Corporation. The battery-electric and hydrogen-powered truck maker has attracted much fanfare since going public last June through a reverse merger with special purpose acquisition company VectoIQ. The company’s market capitalization soared and things seemed to be going well, but things became controversial later in the year when the company was accused of making false statements about its technology and other things.

Although examples such as Nikola have the potential to tarnish the emergence of SPACs as a way to spur clean tech investing, they shouldn’t. There are plenty of examples of emerging companies that scream quality and integrity. For example, Stem*, a leader in the energy storage optimization space, is now going public, pending SEC approval, via the Star Peak SPAC.

Public markets are receiving the SPAC with enthusiasm. Assuming the merger happens, Stem will be capitalized with greater than $450 million of cash to accelerate growth and drive impact. It’s an illustration of SPACs as a positive venture capital construct that is needed to make clean tech work and become a thriving sector.

As a long-time clean tech venture capitalist myself, it is interesting that public investment via the SPAC may be the correcting element for the clean tech VC construct. For years, I assumed that corporates would step up their M&A activity at premium valuations to solve this issue, but I’ve spent a long time waiting.

Judging by activity, corporates seem content to continue playing the still very important investor/nurturer role, versus the “owning” role. Regardless, capitalizing promising clean tech companies can only mean one thing: clean-tech-related impact is coming like never before as these companies require and use capital to scale.

New and more diverse approaches to finding and funding new, great clean tech companies are sorely needed. SPACs are going to be the tool needed to bring clean tech up to par with sectors such as healthcare. It’s a development that will benefit all of us.

*Stem is a Wind Ventures portfolio company.


Lime unveils new ebike as part of $50 million investment to expand to more 25 cities



Lime said Monday it has allocated $50 million towards its bike-share operation, an investment that has been used to develop a new ebike and will fund its expansion this year to another 25 cities in North America, Europe, and Australia and New Zealand. 

If the company hits its goal, Lime’s bike-share service will be operational in 50 cities globally by the end of 2021.

The latest generation e-bike, known internally as 6.0, has a swappable battery that is interchangeable with Lime’s newest scooter. Additional upgrades to the e-bike include increased motor power, a phone holder, a new handlebar display, an electric lock that replaces the former generation’s cable lock and an automatic two-speed transmission. The new bikes are expected to launch and scale this summer. 

The hardware upgrade builds off of the 5.8, a bike developed by Jump that was supposed to be deployed in 2020. That never happened at scale because Uber, which owned Jump, offloaded the unit to Lime as part of a complex $170 million investment round announced in May.

“Jump made great hardware,” Lime President Joe Kraus said in a recent interview. “And we made some further improvements on top with the new bike.”

The hardware upgrades and expansion were funded from its own operational funds, not new financing from outside investors, Kraus said. The funding was possible as a result of Lime achieving its first full quarter of profitability in 2020, according to the company.

“We have figured out how to be profitable and we are funding this,” Kraus said.

Lime not only added a new motor to the bike, it moved its location in an aim to make it easier to handle at low speeds and enough power to climb hills, Kraus said. The swappable battery was perhaps its most important upgrade directly tied to its drive towards profitability, Kraus added.

“When our operations teams is roaming around the city, they take can care of bikes and the scooter fleet, which allows us to both operate profitably and continue to have affordable pricing,” he added.

Lime’s investment in its ebike operation comes a month after it announced plans to add electric mopeds to its micromobility platform as the startup aims to own the spectrum of inner city travel from jaunts to the corner store to longer distance trips up to five miles. Lime is launching the effort by deploying 600 electric mopeds on its platform this spring in Washington D.C. The company is also working with officials to pilot the mopeds in Paris. Eventually, the mopeds will be offered in a “handful of cities” over the next several months.

“This idea of how to service more trips five miles within a city is part of why we continue to do multi modality,” Kraus said. “When we add a new modality like bikes into a scooter city, or when we add scooters to a bike city both modalities go up in usage.”

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Istanbul’s Dream Games snaps up $50M and launches its first game, the puzzle-based Royal Match



On the back of Zynga acquiring Turkey’s Peak Games for $1.8 billion last year and then following it up with another gaming acquisition in the country, Turkey has been making a name for itself as a hub for mobile gaming startups, and specifically those building casual puzzle games, the wildly popular and very sticky format that takes players through successive graphic challenges that test their logic, memory and ability to think under time pressure.

Today, one of the more promising of those startups, Istanbul-based, Peak alum-founded Dream Games, is announcing the GA launch of its first title, Royal Match (on both iOS and Android), along with $50 million in funding to double down on the opportunity ahead — the largest Series A raised by a startup in Turkey to date.

While Dream Games will focus for the moment on building out the audience for puzzle games with more innovative ideas, it also has its sights set on a bigger goal.

“We’re building this as an entertainment company,” CEO Soner Aydemir said in an interview, where he described Pixar as a key inspiration not just for size but for quality in its category. “What they did for animated movies, we want to do for mobile gaming. We are focusing on casual puzzle games first because everyone plays these, but we will also move forward with other genres. We want to be a huge interactive entertainment company that builds high quality games.”

The Series A is being led by Index Ventures, with participation also from Balderton Capital and Makers Fund. The latter two backed Dream Games previously, in a $7.5 million seed round in 2019. Index, meanwhile, is a notable VC to have on board: other successful gaming startups it has backed include Discord, King, Roblox and Supercell.

Interestingly, this is not Index’s first investment in a gaming startup founded by Peak Games alums: in December it led a $6 million round for another Istanbul mobile casual puzzle gaming startup founded by ex-Peak employees: Bigger Games.

Dream Games is not disclosing its valuation with this round.

Dream Games raising $57.5 million ahead of launching any games — or proving whether they get any traction — may sound like a risky bet, but there is some context to the story that sets up the odds in this startup’s favor.

The founding team all come from Peak Games, the Istanbul gaming startup that was so nice, Zynga bought it twice — first, in the form of one small acquisition of some specific titles, and then the whole company some years later.

CEO Soner Aydemir is Peak’s former director of product who built the company’s two biggest hits, Toy Blast and Toon Blast. Ikbal Namli and Hakan Saglam were Peak’s former engineering leads. And Peak product manager Eren Sengul and an ex-Peak 3D artist Serdar Yilmaz round out the rest of the founding team.

(Aydemir notes that the team left and formed Dream Games in 2019, about a year before Zynga’s full acquisition.)

The other indicators that Dream Games is on to something are its metrics for its limited test run of Royal Match.

Royal Match — in which players are tasked with helping King Robert restore his royal castle “to its former glory” by rebuilding it through a series of match-3 levels and obstacles, with new rooms, royal chambers and gardens making up the different levels of the game — was launched first as a limited test on iOS and Android in the U.K. and Canada in July leading up to this launch. In that time, Aydemir said it saw 1 million downloads and 200,000 daily average users.

“We think the numbers are very promising compared to previous experiences,” he said.

While Aydemir likes to describe Dream as an “entertainment” company, there is a lot of technology going into the product, from the graphics and the mechanics of the puzzles themselves through to the data science behind them.

“If you want to create an iconic game, you need to combine engineering, art and data science together with high quality user acquisition and a strong marketing approach,” he said.

And he believes that when you focus on these it will inevitably lead to quality, which means you no longer have to focus on simply trying to find a hit.

“We don’t like that approach,” he said. “We don’t want to find a hit.”

That was also the mix that Index also wanted to back.

“Building iconic titles requires a harmonious mix of craft, science and flawless execution,” said Index Ventures partner Stephane Kurgan, who led the round together with Index’s Sofia Dolfe. “The Dream Games team has perfected this mix over many years of working together, and has put it on full display in Royal Match. We could not be more excited to work with them in their journey to build the next global casual champion.”

While Dream Games’ long-term ambition is to build out interactive experiences around different audiences and genres, Aydemir said that casual games, and puzzles in particular, have proven to be a huge hit with consumers.

The strength of that trend has up to now meant that puzzle games generally have proven to have more staying power than other genres in mobile games, which have soared in popularity but also somewhat fizzled out.

“Every year we see the bigger market of users growing by 20%,” he said. “It will remain for decades.”

Interestingly, the focus on casual gaming startups in Turkey seems like a perfect storm of sorts. Undeniably, the proven success of Peak has brought in more punters, but it has also shown the way to developers: you can build a successful and global consumer tech startup out of Turkey, and perhaps puzzles — which focus on shapes — are especially good at transcending different language barriers.. Alongside that, Aydemir pointed out that the country is strong on engineers and developers but slim on opportunities with bigger tech companies.

“Mobile gaming is a younger industry, so that presents an opportunity,” he said.

Updated to correct that Index is not an investor in Rovio, and that the limited test had 200,000, not 200, DAUs.

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Qualcomm veteran to replace Alain Crozier as Microsoft Greater China boss



Microsoft gets a new leader for its Greater China business. Yang Hou, a former executive at Qualcomm, will take over Alain Crozier as the chairman and chief executive officer for Microsoft Greater China Region, according to a company announcement released Monday.

More to come…

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