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Some startups have turned from PPP loan bailouts to SPAC plunges

When the pandemic broke out, thousands of venture capital-backed startups applied for US government-backed loans. Since then, many of them have publicly raised hundreds of millions of dollars each.

More than 30 venture-funded tech startups with a valuation of more than $ 150 million, SMEs pandemic to employees.

According to a Wall Street Journal analysis of data provided by research firm PitchBook Data Inc, another 15 companies, each worth more than $ 200 million, went public within about a year of receiving the loan.

According to PitchBook, $ 4 billion in paycheck protection programs have been directed to venture-backed start-ups.

Shortcuts from PPP to a lucrative public market show that tech industry has rapidly emerged as a pandemic beneficiary when start-ups prepare for an economic collapse after a short uncertainty last spring. I will.

Ulrich Kranz’s electric car company Canoo, which was released via SPAC in December, is seeking forgiveness for PPP loans.


Photo:

Damian Dovarganes / Associated Press

Low interest rates have driven investors to tech, the open market has welcomed tech IPOs, and a record number of SPACs have called for companies to go public through the merger.

Turnabout also caused disagreements between investors and management as to whether startups are obliged to repay their loans even if they meet government-permitted standards. According to economists, PPP loans were designed to bail out barber shops, restaurants, childcare providers and other small businesses that lack access to other sources of funding. According to the rules of the program, loans that are mainly used to pay employee salaries and meet other criteria are allowed.

Albert Wenger, Venture’s Managing Partner, said: -Capital company Union Square Ventures.

TuSimple, an autonomous trucking company that recently raised more than $ 1 billion in an IPO, has called on the United States to allow a $ 4.1 million PPP loan.


Photo:

TuSimple

According to PitchBook data and the Wall Street Journal analysis of the company’s securities filing, one-third of the 15 most valuable startups that received PPP loans and continued to announce SPAC transactions or IPOs will repay the loan or I promised to repay, and an interview with the company’s CEO.

It’s unclear if all of these loans will be forgiven, but in some cases the CEO of the startup will be forgiven. The lender processes the loan forgiveness according to the rules outlined by the Small and Medium Business Administration, which oversees the PPP.

Electric vehicle charging company Volta Industries Inc. Scott Mercer, CEO and founder of the company, said his company’s approximately $ 3 million PPP loan would be subject to forgiveness, but was repaying it because it had a SPAC deal to raise $ 600 million. I will.

“It was an irreplaceable tool, it helped, and we’re happy to repay it because it took us to a place of unexpected success,” said Mercer. Said. “In April 2020, I didn’t know what a SPAC was.”

Mercer recognizes the PPP loan, which retains 140 employees and, like many CEOs involved, has allowed his startup to maintain enough momentum to attract SPAC offers.

SPAC is a blank-checking company that buys and publishes startups, raising a total of $ 83 billion last year, according to data provider SPAC Research. Companies in the electric vehicle sector are one of the most popular targets.

Momentus Inc, a space technology startup. And 3D printing company Markforged Inc. Each said they had repaid the loan prior to completing the SPAC transaction.

Used car market shift technology Co., Ltd.

He repaid a $ 6.85 million PPP loan the same day he received more than $ 300 million from the SPAC in October.

“We have liquidity and the capital we need to grow,” said George Arison, co-CEO of Shift. “Why keep what you don’t need?”

Other startups say they spend their money properly and want to forgive their loans. Silicon Valley Bank of SVB Financial Group, which counts many start-ups among its clients, has processed approximately 5,000 rescue loans totaling $ 2.5 billion, most of which have been directed to private technology companies. So far, about half of the companies have received forgiveness for partial or full loans, but about 600 have repaid the loans, spokeswoman Julia Thompson said. She said additional companies demanded forgiveness of the loans they received last year and this year.

TuSimple Holdings Co., Ltd.

It raised over $ 1 billion in an IPO last month, giving autonomous truck companies a $ 8.5 billion valuation. According to a regulatory filing, TuSimple has asked the government to allow a $ 4.1 million PPP loan. A TuSimple spokeswoman said the loan could retain more than 300 employees. She didn’t answer the question about repayment.

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Advertising technology company Viant Technology Co., Ltd.

IPO in February, battery startup Romeo Power Co., Ltd.

And electric car company canoe Co., Ltd.

Published via SPAC in December. According to the company’s filings, each company is asking for a loan. Battery maker Enovix Corp. Announced that it was exempted from all $ 1.6 million loans last year and will raise $ 405 million in SPAC transactions in February. Viant, Romeo Power, and Canoo did not respond to requests for comment.

Dave Bliving, Managing Director of the Cottonwood Technology Fund, an early-stage venture capital firm, said: Fund.

The founders say it was impossible to pay salaries because some startups that took advantage of PPP loans had little or no sales. Others were not working for their customer service, sales or factory employees.

Shapeways Inc, a 3D printing company based in New York. “Our business wasn’t going well,” said Jennifer Walsh, Chief Financial Officer and Chief Operating Officer of Wenger, with the support of Wenger’s company, Union Square Ventures. When the pandemic broke out, the factory had to be shut down, almost half of the workers were dismissed, and other workers were partially unemployed.

The company will sign a SPAC contract in the third quarter to raise approximately $ 200 million. At that point, Shapeways will repay the $ 2 million PPP loan, even though it has already been granted forgiveness.

“I would be uncomfortable keeping it,” Walsh said.

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Private companies are flooding with special purpose acquisition companies (SPACs) to bypass traditional IPO processes and go public. The WSJ explains why some critics say investing in these so-called blank-checking companies is not worth the risk. Illustration: Zoë Soriano / WSJ

Write to Heather.Somerville@wsj.com HeatherSomerville

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Some startups have turned from PPP loan bailouts to SPAC plunges

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