Know Who Drives Return

Deep Dive on the Aurora + RTPY SPAC Deal w/ Chris Urmson and Michael Thompson

October 12, 2021 Boardroom Alpha Season 1 Episode 9
Know Who Drives Return
Deep Dive on the Aurora + RTPY SPAC Deal w/ Chris Urmson and Michael Thompson
Show Notes Transcript

Aurora CEO Chris Urmson and Reinvent's (RTPY) Michael Thompson join David Drapkin to talk self-driving technology, why Aurora is setup for success, and the overall SPAC market.

Aurora / Reinvent just announced their shareholder vote on the deal is happening on November 2nd.

Reinvent Technology Partners Y (RTPY), is a special purpose acquisition company (SPAC) led by LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus.

More on Aurora: https://aurora.tech/
More on Reinvent: https://www.reinventtechnologypartners.com/

Discussion Details

  • Overview of Aurora and its technology, partnerships
  • Why public now vs. an additional private round
  • Why Reinvent, process of finding a SPAC
  • Sponsor alignment with public shareholders
  • Keys to success as a public company
  • 2023 Truck launch and go-to-market strategy
  • Why Aurora vs. a GM or Waymo?
  • Valuation in context vs. Peers and latest raise?
  • Telling Aurora's story to the public
  • Capital structure of the company post close
  • Reinvent as a SPAC sponsor - picking SPAC targets
  • Future of the SPAC market from a sponsor perspective
  • Biggest Risk for Aurora
David Drapkin (Boardroom Alpha):

Hey everyone! Welcome back to the Know Who Drives Return the podcast brought to you by Boardroom Alpha. Today, it's my pleasure to welcome on Chris Urmson, the CEO of Aurora. And Michael Thompson, the CEO of Reinvent Technology Partners Y. Aurora, a self driving truck, self driving technology company and Reinvent announced a $10.6 billion business combination back in July. And I'm really excited to discuss the transaction with with both of you. So Chris, Michael, thank you so much for taking the time to talk to us today.

Chris Urmson (CEO @ Aurora):

Thanks for having us here. Glad, glad to get a chance to chat with you.

David Drapkin (Boardroom Alpha):

Hey, so Chris. So first off for our listeners, can you give us a quick overview of Aurora and a little bit about your technology?

Chris Urmson (CEO @ Aurora):

Yeah, so Aurora, we've been around for almost five years now. We're on the mission to deliver the benefits of self driving technologies safely, quickly. And broadly. The product we're building is the Aurora driver, which is a combination of software hardware and data services that enable vehicles to drive safely through the world. And we've designed that that product as a platform that works for big tractor trailers, down to little, you know, electric cars and everything in between. The way we're bringing this to market is through partnerships. So we work with Toyota, the world's number one car manufacturer, we work with Paccer and Volvo Trucks. These are two of the top three truck manufacturers in North America that make up about 48% of the US truck market. We're partnered with Uber, the world's number one ride hailing platform and FedEx the largest carrier in the US by number tractors and trailers. And so we bring the driver, our partners who make the vehicles bring the vehicles, obviously, and then the folks who use those in commerce use them, and they pay us a fee or drivers a service fee. For operating those vehicles. For them, we have built what we think is pretty incredible technology and an amazing team, we're about 1600 people spread across the country. And we're really focused on getting this technology to market and shooting for the end of 23.

David Drapkin (Boardroom Alpha):

That's exciting. So one of the obvious questions is you mentioned we're looking to go to market in 2023, what makes now the right time to transition into being a public company, you know, versus exploring, you know, and additional private financing or other capital markets transaction.

Chris Urmson (CEO @ Aurora):

Yeah, for us, it's really about you know, kind of getting access to the capital we need to build this business, ultimately our business is going to be really asset light and you know, really strong margins because there's drivers a service model is, you know, is kind of like a usage based software type model. But between now and then there's this giant chasm we have to we have to cross around the technology. So bringing Capital Partners in and having them be able to take part in the growth of the company, the success of our story, I think is really valuable to us as elastic, accelerate the development program. And it brings this incredible group of investors on board if you look at the the the folks that have come in, both been with us and coming in through the pipe, we've got folks like t Rowe and fidelity MSM, Bailey Gifford, this incredible investor base that we want to have travel with us on this journey. Right, and on that, let's talk about the SPAC decision and reinvent in particular, I'm sure they were you know, several spax trying to call you and and have interest in you guys given you know, the incredible technology you have and and and the future growth that's possible, particularly in self driving. So you know, a what was that process like, you know, going through, you know, the that process to find us back and sort of what drove drove you to reinvent specifically as being the right partners to help Shepherd Aurora forward. So So for us, we kind of turn this back process on its head and wanted a process that was as close to a high quality IPO is possible. And so that meant we first actually went out to some of these big long term mutual funds and talk to them and try to understand the market dynamic. We went, you know, can we use them to price the transaction rather than pricing that directly with with our partners reinventing, it was like, Okay, this is the right kind of price in the marketplace. And then we looked at, I think we must have looked at 20 or 30 SPACs. We have a lot of them out there. Yeah. We went through and met with a half dozen roughly. And at the end of the day, we believed in the folks at reinvent we believed in the strategy of kind of this venture capitalist scale model that they have. And we saw we could you know have alignment between them and Aurora, and so that made it the you know, the the clear right choice for us.

David Drapkin (Boardroom Alpha):

Right. And I guess to follow up on that one was was it important that reinvent had previous SPAC experience and to you guys also speak a lot about you know, alignment of the sponsor, the sponsor capital, with with with the proform public shareholders. So, a, you know, how is it reinvents experience, play into position and be, how are you guys thinking about alignment?

Chris Urmson (CEO @ Aurora):

On the experience point, it was less about their experience with SPACs. And more about our experience with the reinvent team, so reinvented been an investor in Aurora from early from our Series B. Reid Hoffman, who's one of the sponsors has been on our board from early on. And so I knew Reid, we knew the reinvent team, and we knew the way they thought about this and and we're both aligned, this is not a going to put it in the market, flip it and get rich quick, right, this is a build something of enduring value, build a company that's going to be here for the next century. And right and have a profound impact on transforming transportation. And so we wanted much like the other capital partners, we've had, as a private company, we wanted investors who were going to have that mentality and, and have the patience to see this build into the company that we expect it to be. And then, you know, we were able to in the process of kind of negotiate the deal, we put in place structural elements to the deal, that align those incentives, where where the reinvent, partners promote, they vest into based on the performance of the stock. So this is something that I think for shareholders, they should find really reassuring is that, you know, if the stock does well reinvent guys will do well, but but if the site doesn't perform, they don't. Right. And I think that's, you know, that that's an alignment of incentives, that matters a lot to us.

David Drapkin (Boardroom Alpha):

Right, right. And we'll we'll get to some of the dynamics of how deSPACs are trading in the public markets and a little bit, but back to, you know, Aurora, specifically, what do you think are some of the keys to success in, in moving from, you know, private company, particularly, you know, pre-market, sorry, pre pre product launch to being a public company, and having quarterly earnings releases? And, you know, constant scrutiny from from public shareholders? How can what are some of the keys to success in managing that process? And just that transition?

Chris Urmson (CEO @ Aurora):

Yeah, so I guess we're gonna figure that out. But I think that the short answer is we, you know, we've always respected our shareholders, and we wanted to bring them along in the journey, we've tried to have the right people in the vote, right, I think that, you know, the company gets the shareholders it deserves. And so for us, it's going to be telling the story of progress, talking about, you know, the the strength of the partnerships and the progress we're making, both with our vehicle program partners, and, you know, kind of keeping people abreast of those programs, with our customer partners, who will be using our vehicles in, you know, to serve their customers, we'll be talking about our progress towards a safe vehicle in the market, because at the end of the day, that's the that's the bar, right, is we have to have a product that's, you know, not creating unreasonable risks on the road that's out there that's creating value and, and doing so safely. And then we'll be talking about the the technology and showing you how we're making that progress over time. And, you know, hopefully that will be you know, that that is the the thing that people are betting on is that we're making progress across all of those, and that that ultimately grows into this incredible business over time.

David Drapkin (Boardroom Alpha):

No, that's great. Thanks for that. And so you mentioned looking to launch in in late 2023, I believe, with trucks. So can you talk a little bit about a, your go to market strategy B, you know why you're thinking about starting in the trucking space versus, you know, pedestrian ride hailing or any another type of.

Chris Urmson (CEO @ Aurora):

Yeah, sure. Yeah. So So for us, you can think of the word driver as this integrated common core technology and product that we know that it's literally the same software and hardware that drives a truck that drives a car. And so it becomes where do we think it when we think about the go to market, it becomes where do we? Where do we think we can grow the business more quickly? Where do we think that we can have the you know, the biggest impact and ultimately, that's the best return for shareholders. And for us, it's clear that trucking is that right first path, and there's a few reasons for this. So one is as you think about scaling the business, you wanna think about what what's kind of the thing that's going to rate limit that and we look at, if you look at the right hailing application of the trucking application in the trucking applications, the the business can be scaled by operational performance, whereas in ride hailing, it's going to be much more about technical All advancement and that's going to be the limit. And what do I how do I think about that? Well, if you picture a mile of freeway in Texas, and then you picture a mile of freeway in Arizona, and then you picture a mile of freeway in Minnesota, and they all basically look the same, maybe one's got more cactus and the other one's got more fields, but they basically look the same. And the actors are going to behave the same on them, for the most part

David Drapkin (Boardroom Alpha):

different than in New Jersey, than in New Jersey, miles, about a

Chris Urmson (CEO @ Aurora):

little different in New Jersey. But even in New Jersey, the freeways, pretty similar, right? Whereas if you think about, I think about an intersection in San Francisco, and I go five blocks in any different way, the actors are different, the roads going to look different, the way people behave is going to be different. And so to scale that business and have progress, you're going to have to keep making, you know, you're going to be limited by the rate of technology advancement. Once we crack and are safely able to drive on the freeway with the truck, then we expect to be able to scale that operationally across the US. And we think that's the right way to think about building a business is to, to do that. And then obviously, you know, don't seed the pasture car market, because the way we've built the technology, because ultimately, in the long term, that will be an even bigger market than trucking. But we'll make sure we're set for that. Other reasons why trucking first, it's a gigantic market. So it's a $700 billion sector today, the technology we're building can have a profound impact, it's a market of real need. So in the US, we're short 60,000 truck drivers today, by the end of the decade, we're going to be short 160,000, you read that on a daily basis, the press out of Europe about truck driver shortage, Japan has a massive truck driver shortage. So there's an incredible opportunity to kind of reinforce it and grow the supply chain in a way that, you know, has been, it's been kind of boiling under the surface for, you know, decade plus, and is now coming to the fore. And so what's exciting about that is, you know, as we've talked to customers in the space, for them, it's not about replacing the drivers they have, it's about getting access to drivers they can't get. And as we've talked to customers, it's you know, jeez, we could double we could triple our business, if we could just get more drivers, but we're dealing with 90% turnover, we can't find the drivers. And so we can bring, we can bring a real excellent solution that will improve safety, and and work, you know, shoulder to shoulder with the people that have driving vehicles today. That's just incredibly exciting. And, and the economics make a ton of sense as well, of course.

David Drapkin (Boardroom Alpha):

Yeah, I mean, it's it's so interesting, the these themes of, you know, worker shortages, you know, across industry, and, you know, technologies such as yours to help, you know, remedy that problem in a way. So I'm a, say, I'm a prospective investor, you know, why, why back, you know, Aurora versus maybe GM, or Waymo or, or Google or any, any number of the incumbents?

Chris Urmson (CEO @ Aurora):

Yeah, I think there's, you know, there's clearly good companies out there with great people at them. But I, when I think about the landscape, I think about the people in the team. And I think if you look at Aurora, we're about 1600 people, the vast majority of them are in product development. And yes, it's an incredible group of people. I think, if you ask around the industry where the top talent is, we do really well on those conversations. So and we're at that kind of critical mass. And with that group of people, we have a deep experience, that means that as we've been developing the technology we've been thoughtful about, where the dead ends, you know, I helped found and ran what's now Waymo, for seven half years, Sterling, was the lead autopilot, at Tesla. Launched Model X with them. Drew is one of the founding people for Ubers program. So we you know, we have an incredible cast around is that really just understand, okay, let's, let's make sure we're investing in this place. Because ultimately, that's going to be the difference between a bit of demo where, and a real product, let's make sure we're building that foundation. So I think that that that depth of people matters a lot. I think partnerships, so ultimately this to to actually have an impact in the space, you have to work with others. And these are complicated, mature, amazing businesses. And we think we can help supercharge those businesses. And so if you look at the partnerships that we have, I think barnatan it's the strongest set of partners in the industry. So Toyota number one global car manufacturer, that's an incredible partner to have. Paccar and Volvo Trucks to the top 3, 48% of the US market. Incredible companies, right that are well trusted. FedEx, that, you know, this is the largest carrier by tractors and by trailers in the US. They want to work with us, they're a partner of ours, Uber, the number one ride hailing platform on the planet, right. So if you think about how you're getting the technology and the product is great, but then you need to be sprung load to go into market and be able to deliver the value and so having those partnerships enables that So those are, you know, just show the big ways I would think about us relative to some of the competitors.

David Drapkin (Boardroom Alpha):

Right, that's helpful. So shifting back to the actual transaction for a second, I think you struck the valuation at $10.6. How can we think about that valuation in context, you know, A versus some of your peers, and B versus what sort of step up that that represents via your last, you know, private capital financing?

Chris Urmson (CEO @ Aurora):

Yeah. So I think the way that that I think about this is you're kind of worth what the market will pay for you. And this was why it was important for us to go out and have those conversations with, you're not kind of exploiting the, the hyperbole that was around kind of SPAC moment, but like, let's go look at the investors who are not in this for some short term arbitrage, but are looking at the long term fundamentals of the business and want to be, you know, want to be holders of the stock for a period of time, but are, are, you know, good stewards of the capital that they have. And so this is why we went out and we talked with, you know, the, you know, the top names, right, we went out and talked with T Rowe Price, we went and spent the time with Morgan Stanley investment management, we went out spent the time with Bailey Gifford, and we came to them, and we're like, this is what we're doing. This is the path in front of us, we would love for you to be anchor tenants in this. And, you know, help us understand what makes sense. And so that's what led to the valuation. And that's, you know, and that felt like a really robust, healthy process to price the the risk of our business, and it's, we are not a conventional company going public, right, we're much closer to a biotech stock than we are to, you know, kind of a conventional startup making the transition just because of the continued investment we will have to make in the product development pipeline.

David Drapkin (Boardroom Alpha):

Right, which is interesting. We just get there now given to me, you mentioned, I think there's like, there's definitely a misconception in the market with a lot of these SPAC companies that are pre revenue, more VC type like investments, where they're painted as a SPAC. And so in deSPAC land, they're they're all trading down. So what what do you think, you know, in the next three, six months, the performance right off the bat of the sock will be? How do you change the public perception from just oh, they're stacked, we're in a trade down to, you know, really hammering down that story. And, and showing them showing the investing public that, hey, this is an interesting time to get in, you have to ground level of a company that can grow, you know, in the future?

Chris Urmson (CEO @ Aurora):

And I think so I think there's, and again obviously, I'm not going to talk about future performance. Do that. So let me just not go there. Right. But, but but let me, let me. How do I think about this? So, so during this period of time, I think we're going to trade as a function of the asset class. That people are starting to understand the story, we are doing our best to tell the story of Aurora so that investors, the analysts, the public and understand what we're about, about the value we're creating about the plan we're on and and then they can make a judgement whether they want to invest in on the stock or not. I think as we move further away from the the de spak moment, the the kind of the asset type that helped us make that transition from private to public will become less relevant, and more be about our ability to execute our ability to help tell the story to the public, and help them understand it. And you know, when I believe deeply in the team that we have, I believe deeply in the technology that we're building and the approach run and the partnerships we have in place. And so my expectation is, over time, you know, kind of the truth will come out about and, you know, the stock will perform as a function of our ability to execute and our ability to build partnerships that are meaningful.

David Drapkin (Boardroom Alpha):

Right, right. And one more, one more question on the deal before I move on, wrap up. The current environment and SPACs are, you know, higher redemptions. Right. And so you obviously have a very strong big, you know, billion dollar pipe. But how are you thinking about capital structure in a situation where redemptions are high? A, and B, do you think sponsor compensation should be tied to to redemptions?

Chris Urmson (CEO @ Aurora):

Yeah, so I can't speak generally to it because I'm not visible to all deals. But as is clear, in our s-4, we actually, you know, this is one of the things that I think was really great about the partnership we have with reinvent is we both recognized that this was about bringing value to to the to the combined business and to having aligned incentives. And so you know, part of the the deal with the Reinvent team is that that their promote is actually proportional to the amount of capital they are able to bring to the game through the SPAC and, and through their investment. And so, we have that alignment already, which I think is a very healthy thing for both of us. So yeah, we think that, like I, fundamentally my core belief, you should get paid for the work you do, and the value you bring. And so whenever you can structure deals that align, you know, kind of the compensation with the value created, then that's the way it should operate.

David Drapkin (Boardroom Alpha):

Yeah, and I think that all these types of deals will be helpful for the future of this back market, sort of reverting to a healthier, leaner, more rational, more rational place, if you will. Yeah, go for it.

Chris Urmson (CEO @ Aurora):

I actually just say like, and I think that's one of the things that that we have respected and valued with the Reinvent team, right. Is it really is wanting to be part of something that matters, wanting to be obviously compensated for the value that they bring, but doing that in a fair and constructive way. And, you know, it's like, that's, again, that's what you'd want it a partner, right? So when he's going to be there with you to kind of build build value for your shareholders and do something meaningful in the world.

David Drapkin (Boardroom Alpha):

Michael, maybe this is a question for you. You know, Reinvent, this is your third deal, I believe, sort of what what drove you guys towards Aurora? And you know, what, what do you normally look for in a target for for your SPACs?

Michael Thompson (CEO Reinvent Technology Partners):

Yeah, well, well, Chris mentioned it a minute ago, we use this term venture capital at scale. And if you look at what Aurora and the team at Aurora are currently building, that's exactly what we're investing in. This is an amazing group of people, they've created amazing technology, we're really, really excited about the ability for them to roll that technology out into the market and have a commercial product in the next couple of years. And so what we look for reinvent, and this goes back to the investment that we made in the company through our fund a couple of years ago, and the Series B that was led by Sequoia and Amazon was also a large investor. In that round. We look for World Class teams. And for an asset like this, we actually wrote a quite a detailed presentation that's on our website on the SEC website. That goes through our thesis in quite a bit of detail. But our simple thought process is number one, is this a substantial market that we're talking about? If you look at it, as Chris said, if you look at the trucking market alone in the US, it's $700 billion. It's just a huge opportunity. Number two, the enabling technologies are there, they're being built today. Some of the things that these guys have pioneered, we think are amazing, the simulation engine, the FMC, VW LIDAR, etc. So the enabling technologies are there. And this is the type of team that can build them. Number three, the unit economics look incredible at scale. This is kind of a Twilio on steroids model usage, base model drivers a service model. And then finally, this is really the critical piece. Is it a world class team? Is it the best team in the market, and our view is very much that's the case here, that's been our view, going back to when Reid first was advising Chris, you know, way back when and a seed investor in the company and a longtime board member, and importantly, will remain a board member after this transaction. As Chris was saying, this is very much a long term investment from Reinvent's perspective. But the other thing I would say is over the past six or seven months, as we've been doing our diligence, we've been super impressed by every conversation we've had up and down the organization. So it's been a really amazing process for us to not only further know, Chris, and Drew and Sterling and the rest of the senior team, but also know everyone at the company, you know pretty well at this point. And if you look at the event that they put on last week, the Aurora Illuminated last week, when we met with both sell side analysts and and investors, I've been to a number of these events, as I'm sure you have. And this was just a extraordinarily well done event. And they go through a lot of detail, a lot of visualization. All this now, by the way is on their website. So you know, anyone can go look at it. It's just it really brings to life, this incredible technology that they've built and that they're building, so we couldn't be more excited about it. We spent a lot of time thinking about what mobility is going to look like in the future you probably saw the transaction we did with Joby. Our thesis on job is in many ways similar to the thesis here, another amazing world class team. So we're just really excited about this partnership and a long term value that we think this company is going to create.

David Drapkin (Boardroom Alpha):

Right, right. And like you mentioned the the proforma company board. You know, I think that's also something that is almost should be required when you think about this SPAC sponsors teaming up with targets. And so you know, one quick one quick last one on SPACs before we wrap so how do you see, you know, this market evolving, obviously, there's hundreds of stocks out there, you know, pretty saturated, you know, what do you what do you see is the future of the asset class.

Michael Thompson (CEO Reinvent Technology Partners):

This is just my personal view. This has been my view for a while. I think like any other emerging asset class evolving asset class, you're going to see significant tiering over time. I think that's probably already started. I think that there are certainly challenges in the market today, there were clear challenges this past summer, when we were raising the pipe for this for this transaction. And as Chris was alluding to, this was a pressure tested pipe. Yeah, this was done in the summer, this was well after the whatever you want to call it, the shake up in the market spraying Exactly. And to our knowledge, this is the only billion dollar pipe in the US. It's been done since April. It was done with world class investors, like Chris was saying, and so we view this valuation as very much a pressure tested market driven valuation. That was done at a time when the stock market had already gone through a pretty volatile period and a pretty meaningful shake up. So obviously, I don't have a crystal ball in terms of what's what it's going to look like. But I think that if you go back to the I've always used this, this this analogy, when junk bonds one day became high yield, you had some pretty significant turmoil, but then you had a very healthy market after the fact. But there was pronounced tiering that had occurred. So that's probably the my best guess as to how this continues to evolve. I think it's very much the case that there's gonna be winners and losers like in any other market that we're aware of. And so where we really tried to focus is not only where we thought we could be valuable partners, but also a team that had a vision that we could get behind for the next decade plus, right. And so if you look at Joby if you look at what we're doing here with Chris and Aurora, that's that's exactly the type of investments we look to make.

David Drapkin (Boardroom Alpha):

Got it. Got it, helpful. And just just to wrap it up, Chris, what what do you see as the biggest risk to execution? Is it safety? Is it you know, the technology itself? And then any any any final parting words, you know, that that you'd like everyone to know, ahead of as you approach closing?

Chris Urmson (CEO @ Aurora):

Yeah, no, no, thank you, I think on the biggest risk, it's really around crossing the technological chasm to get to the point where the product is safe enough to be on the road, right. And we think, you know, as you've seen in in the self driving space, there's been a lot of companies in the space, there's been a lot of consolidation, as you know, smart people kind of get confronted with reality. I think this is one of the places where you, Aurora has this unique advantage, that's the quality of the team experience, we have the fact that we've been building this foundation to go and and, you know, operate and give us confidence to mitigate that risk. And we expect consolidation of space to continue, we expect the road to be in a position to take advantage of that over over time. I think the big thing is just this, it's, it feels incredibly, I feel like just an incredibly privileged position, right, we have this incredible investor base with us. We have partners that, you know, you can count on that are, you know, in blue chip, incredible people, and we've got a team that is just kicking butt. And so, you know, expect us to continue to be, you know, kind of making incredible progress, creating value for our shareholders. And, you know, we're excited to have people with us on that journey.

David Drapkin (Boardroom Alpha):

Right. Well, Chris, and Michael, again, thank you so much for taking the time. Exciting stuff, you know, going on over at Aurora so excited to see what happens and then follow your progress in the future. So thanks again.

Michael Thompson (CEO Reinvent Technology Partners):

Thank you.

Chris Urmson (CEO @ Aurora):

Thanks so much for having us.