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Joby & SPACs - The SPAC market continues to fly high



By Cian Davitt, Macro analyst at UCD Student Managed Fund


Who is Joby?

Joby aviation is an aircraft company who aim to materialise flying taxis by 2023. They manufacture aircrafts that are electric, and aim to create a vehicle that is a “smarter way to carry people through their lives”. Their futuristic flyers claim to bring its passengers to their destination at a speed of up to 200mph. There are many factors that make this futuristic possibility a potential reality. The company announced that it has agreed to a “G-1” certification basis for its aircraft with the Federal Aviation Administration. This agreement lays out the specific requirements that need to be met by Joby’s aircraft for it to be certified for commercial operations. They have held 600 successful test flights to date, edging ever closer to regulatory approval. Innovation is never complete without forward thinking commercialisation, which has resulted in Joby itself acquiring Uber Elevate. The lofty goal of New York Stock Exchange listing for the California-based aerospace company has been accelerated by the recent talks of an acquisition of the company by founders of LinkedIn and Zynga, through the SPAC, Reinvent Technology Partners. With $125 million already invested in Joby, backers such as Toyota, Intel Capital, and JetBlue Technology Ventures realise that further external investment will solidify the likelihood of a future of flying Uber drivers.


Why use a SPAC?

A special purpose acquisition company (SPAC) is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO). Such a business structure allows investors to contribute money towards a fund, which is then used to acquire one or more unspecified businesses to be identified after the IPO. The great advantage is that SPACs allow companies to provide forward-looking projections, which companies typically don’t do in IPO prospectuses because of liability risk. The SPAC arena has been hotter than ever recently, as it has raised over $44 billion to date this year (144 deals). Often taken on by Fintech companies looking for opportunities in the hottest sectors, it is no wonder that the Joby acquisition involves the likes of Reid Hoffman and Mark Pincus (LinkedIn co-founder and Zynga founder respectively).


The autonomous urban aircraft M&A activity

Interest within Joby is no coincidence as we see a seismic shift toward affordable, green, and flying modes of transportation receiving large backing from venture capitalists. Archer Aviation, a similar electric aircraft startup to Joby has just recently announced its merger with SPAC company, Atlas Crest Investment Corp, which has resulted in $1.1 billion in gross proceeds for the venture. Is this all a symptom of a highly bullish market? Potentially, or not. The technology exists for this type of venture and there is an appetite for alternative safe and clean sources of transportation. According to a report by Morgan Stanley, autonomous urban aircraft could potentially be a market worth $1.5 trillion by 2040. Perhaps the famous Henry Ford quote holds true today; “If I had asked people what they wanted, they would have said faster horses.”


Caution must be adhered to

The further growth in the SPAC market has influenced many critics to address its reminiscence to the Dot-com bubble of the 90’s. There is concern that retail traders fresh from the GME hype have migrated toward this new space with college savings in hand (occupying 46% of the SPAC market to be precise). Without a valuation or any actual business, driving the price of a SPAC up is a risky game that can be driven by high speculation and backed by massive liquidity in the market. Further to this, the autonomous urban aviation industry risks have been outlined by NASA as, and not exclusive to, strict flight requirements, restrictions around urban residential areas and necessarily tight safety regulations that have not been formed yet. We have a long way to go in terms of regulatory requirements which could hinder the growth of Joby and Archer Aviation in the near future.


Conclusion

The thought of autonomous urban air transport is fascinating, and is reminiscent of a Henry Ford mindset of forward thinking technological innovation. However, as with all ventures, a degree of caution must be adhered to. The technology may exist for the industry, but with increased regulatory requirements, and a potentially speculative SPAC bubble, 2024 could be a generous estimation date even for the high flying innovators of Silicon Valley.


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Reference list

https://spacinsider.com/stats/

https://techcrunch.com/2021/02/10/archer-lands-1-1b-order-from-united-airlines-and-a-spac-deal/

https://www.investopedia.com/terms/s/spac.asp

https://www.cnbc.com/2021/02/10/unusual-first-day-rallies-in-spacs-raise-bubble-concern-every-single-one-of-them-has-gone-up.html

https://www.ft.com/content/42feff1d-8228-4c93-bd78-b537d9eb9fa7

https://www.morganstanley.com/ideas/autonomous-aircraft

https://hsi.arc.nasa.gov/publications/Connors_Risk_UAM_Safe_Operating_Standards.pdf


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