Smart lock startup Latch began trading on Monday on a SPAC listing that raised $ 453 million and valued the company at over $ 1.5 billion. Shares issued through a special purpose vehicle operated by Tishman Speyer Properties rose 4% on the first day of trading.
“Using the Tishman Speyer portfolio as an incubator for new ideas and new products … was really too good to be without it,” says Luke Schoenfelder, co-founder and CEO of Latch, who was added to Advance Guide’ under 30s list in 2018 has been recorded.
Latch, which had sales of just $ 18 million last year, was founded in 2013 and is best known for its smart locks that can be unlocked with a smartphone. Schoenfelder and his co-founders came across the concept after trying to solve a simpler problem: “How do you run out of orange juice in the morning and get a fresh box delivered straight to your fridge at the end of the day?” The CFO of Latch , Garth Mitchell said Advance Guide earlier this year.
The team realized that access to property was the first hurdle in implementing this concept and soon found it in the smart lock market. They aimed at residential property from the start, as the scaling potential was so much higher than that of commercial operations.
Latch was valued at more than $ 400 million after its Series B round raised $ 126 million in 2019 when one in 10 new multi-family projects in the U.S. deployed its technology. The company says it will use the new funding to expand into Europe and develop new business opportunities in the commercial space. A year ago, when offices closed and tenants fled big cities, things looked even grimmer. “We had to make some tough decisions in the spring to end our burn down,” says Mitchell.
Now rental demand is recovering in many urban areas and commercial landlords are looking for workers to return to the offices, while new security protocols have made contactless entry systems more attractive. Latch launched Visitor Express, a contactless system for offices, in early 2021. In total, its products have been bought or reserved in over 300,000 units across the country, mostly in residential areas. Revenue rose from under $ 15 million in 2019 to $ 18 million last year, according to public records, but losses also rose from $ 50 million to $ 66 million.
The company followed many of its competitors through a SPAC listing that allows companies to bypass the audit of a traditional IPO, including some regulatory requirements and holding road shows that allow potential investors to interview executives about the opportunities and risks.
SPACs provide a faster way to get to market by taking a publicly traded shell company (the SPAC) and merging it with a target company like Latch. Shell company investors generally take high fees, which offers a no-loss opportunity for many of their financiers and a much riskier scenario for less experienced retail investors attracted by the hype.
Latch and his colleagues are now leading the way on these risks, says Howard Schilit, author of Financial gimmicks. Porch and Opendoor have already gone public via SPACs, while WeWork, Better, Sonder and Offerpad are planning corresponding listings. And it’s not limited to real estate. PWC cited the “continuing SPAC attack” as the driving force behind 389 initial public offerings that closed in the first quarter of the year for a total of $ 125 billion.
“There have always been successful SPACs, even though, on average, SPACs have never been a good investment for public shareholders,” said Michael Klausner, Nancy and Charles Munger Professor of Business at Stanford Law School. He adds that “the SPAC bladder appears to be emptying. You never know when a bubble will burst or deflate completely, but I think a reasonable conclusion from the market is that the process of deflation is taking place. “
For his part, Schönfelder insists that Latch would have gone public with or without a SPAC bubble, and points out the numerous merger offers he had submitted.
“If you look at the institutional investors who took part in our deal … Fidelity, BlackRock, Wellington,” he says, “I think there would have been many different flavors of appetite.”