A slate of new financial hires, including an interim CFO, will aid the transition from private to public markets, the chairman said. But why, analysts inquired, wasn’t Chief Executive Office Ulrich Kranz on the call? The former BMW AG executive is “still currently the CEO,” Aquila said—hardly a ringing endorsement.
Start-ups often announce strategy pivots and have high staff turnover, but doing all this when you’ve only recently gone public is unsettling. Canoo’s PIPE investors and those who bought shares in the SPAC after the Canoo deal was announced based their decision on the information available at the time. The prospectus compared Canoo’s business model to richly valued subscription businesses such as Netflix Inc., Peloton Interactive Inc. and Spotify Technology SA. That seems even more of a reach now.
Aquila wasn’t finished, either. In the past Canoo had been “a little more aggressive” and “presumptuous” in statements about prospective business opportunities, which didn’t meet “our standard of representation to the public markets,” he said. “This comes back to having an experienced public company team. You’ve got to be careful of the statements you make,” he added, referring to previous company statements about its contract-manufacturing relationships.
Unsurprisingly his remarks now feature in a pair of class-action lawsuits filed by investors who claim they bought the SPAC/Canoo shares based on misleading information. Shareholders haven’t given up entirely on Canoo’s promising technology: The stock is only 5% below where the SPAC sold shares to the public. Still, it’s an inauspicious start and won’t help future fundraising.
Start-up founders should think before hopping on the SPAC bandwagon. The potential valuation uplift and payday are appealing, but are they truly ready for the scrutiny and regulatory rigor of being public?
As for investors, it’s pretty unwise to expect companies with accounting weaknesses to be capable of accurately projecting their future financial performance. While business forecasting is especially difficult right now because of Covid-19, it’s puzzling that the U.S. Securities and Exchange Commission lets SPACs publish such unreliable information.
Increasingly it seems as though companies are saying one thing when they want to raise money and another once the money’s in the bank.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.