An electric vehicle battery maker backed by Bill Gates and Volkswagen is joining a growing list of startups going public through special purpose acquisition companies (SPACs), or reverse mergers, an obscure financing arrangement that’s rattling the IPO market this year.
QuantumScape, a two-year-old company that produces solid-state batteries for electric cars, said on Thursday it has agreed to merge with “blank check” SPAC Kensington Capital Acquisition to list shares on the New York Stock Exchange under the ticker QS in the fourth quarter.
Kensington is aiming for a $3.3 billion valuation for the combined company. Under the merger agreement, QuantumScape will receive more than $1 billion in cash and new funding from Volkswagen and Qatar’s sovereign wealth fund.
Solid-state batteries are believed to be a promising alternative to today’s mainstream lithium-ion batteries, like those used by Tesla. They are less flammable, charge quicker and have a higher energy density that enables a longer driving range. The only downside is that solid-state batteries are expensive to produce with existing technology.
Kensington Capital Acquisition said QuantumScape was the most promising company to create long-term shareholder value among hundreds of startups it had considered for a reverse merger. The SPAC was founded in 1999 by Justin Mirro, a former engineer for General Motors and Toyota.
QuantumScape is backed by Bill Gates’ Breakthrough Energy Ventures. Other investors include Stanford University, German auto supplier Continental, Chinese automaker SAIC Motor and a roster of Silicon Valley VC firms.
A SPAC is a special business entity that goes public for the sole purpose of buying another company regardless of how much funding it raises on the public market—which is why it’s often called a reverse merger company or a “blank-check” company.
Going public through a SPAC allows a private company to avoid the long and costly process of a traditional IPO. The unconventional financing structure is having a moment in 2020. This year so far, 84 companies have gone down this path, raising over $33 billion from the public market.