How do you like the View?
Lacking window shades, its valuation may blind you
One of the interesting developments this year has been the boom in SPACs (this article is a good primer). After my years as a banking analyst I moved on to a family office. Before I joined, the team had invested in SPACs trading below their cash value during the financial crisis. It had been an elegant and basically risk-free trade that disappeared when markets normalized but would remain in the firm’s lore.
Back then, SPACs had a questionable reputation, typically being used by creative dealmakers as a way to take lower quality companies public and pocket the promote. The deck was stacked against longer term investors (see this study for the numbers).
As Bill Ackman recently explained (~minute 12.20 on SPACs, 14.40 the below on sponsor compensation):
“The typical SPAC structure: you raise a 400 million dollar SPAC and you get a deal done and you get a hundred million of common stock for the so-called sponsor or founder. That’s a nice gig but it it's not the ideal, it doesn't create a lot of alignment with investors. Really motivates people to do deals as opposed to good deals - obviously they prefer a good deal versus a bad deal but that amount of dilutive compensation makes it hard to do a deal that makes sense.”
Hence I initially didn’t pay much attention when SPACs exploded this year in a market awash with liquidity, retail traders, and exciting concept stocks - electric vehicles etc. Now SPACs are red hot with nearly $70 billion already raised this year.
The fun thing about SPAC deals is you get a quick look at all kinds of different deals: the good, the bad, and the headscratchers. Even if you don’t find a great idea (less likely in this market) there’s always something to learn.
For example, on Monday CF Finance Acquisition Corp. II agreed to acquire View, a maker of smart windows/smart glass, at a $2 billion equity valuation. CF is short for Cantor Fitzgerald, a New York based institutional broker and investment bank.
Cantor’s first SPAC, CFFA, acquired another company in the financials space: GCM Grosvenor, a Chicago-based fund of funds/alternative asset manager. View on the other hand is more of a classic unicorn, having raised $1.1 billion from the Softbank Vision Fund in 2018.
View manufactures smart windows for commercial buildings at a factory in Memphis. The smart glass eliminates the need for blinds or shades, leaving unobstructed views and freeing up some space. They also somewhat reduce the energy usage for air conditioning.
Assuming it all works as intended, this seems like an interesting technology that should see widespread adoption over time, at least in higher end offices. Of course with COVID/WFH this has not been a kind year for office real estate. Perhaps unsurprisingly, the company laid off workers in April 2020.
I was wondering why the company would come public now and not wait until the commercial real estate market recovers post pandemic. Well, per the investor presentation, there is about $109 million in cash left. Given the substantial cash burn it’s definitely time to raise capital.
The company is still quite small, expecting revenues of only $31 million this year. By comparison, fellow “real estate tech” firm Latch had $100 million in sales in 2019. Perhaps the bigger headscratcher is the lack of growth in 2019 relative to 2018. The past three years have hardly been inspiring.
Of course expectations are for hockey stick growth in the future. The company has a substantial backlog but one wonders to what extent the pandemic will lead to delayed or cancelled projects and squeeze landlords’ budgets.
This you buy for an equity valuation of $2 billion.
And while real estate/construction is certainly a big market and seems ripe for innovation, I’m not convinced that the first mover should own this “smart window” category unless they can maintain a lead in technology, cost, or lock others out through patents.
Would the tenant care, or even know, if the building’s smart glass was made by View or a competing company? As the company highlights in its “ROI” slide, this is a product sold to a commercial buyer after in a lengthy sales and planning process based on the numbers: what is the premium compared to standard glass, how does it compare to savings on energy, blinds, space, and a potential uplift in rent.
Which is why I thought this slide was something else:
I like to scroll through Glassdoor reviews and look for themes, even though it has become less useful over the past few years - I’ve found that some companies “manage” the rating by encouraging high reviews. Any company with layoffs will have its share of frustrated venting and View is no different.
This comment however, from a former salesperson and posted in 2018, was interesting:
“Managers from tech, not construction industry. At one point because they were desperate for sales, the execs told the sales team to drive around and "attack" all the buildings that had started construction. Now...if you know the construction industry, by the time construction starts all plans have been submitted and approved. Changing it is a huge pain in the you know what. Definitly (sic) this approach doesn't buy you friends in an industry that is all about friend to friend deals.
Send some senior execs to shadow the glass installers and get to know them better. You are all PhDs and they often just have HS diplomas or an associates so you feel superior to them. Your job should be to help them, not try to overstep them by making deals directly with developers.”
This reminded me of Peter Thiel’s point that it’s easy for startups to underestimate the importance and difficulty sales and distribution. Building a better mousetrap is not enough (unless you find a way to use “bottom-up sales” like Atlassian).
“But for whatever reason, people do not get distribution. They tend to overlook it. It is the single topic whose importance people understand least. Even if you have an incredibly fantastic product, you still have to get it out to people. The engineering bias blinds people to this simple fact. The conventional thinking is that great products sell themselves; if you have great product, it will inevitably reach consumers. But nothing is further from the truth.” Peter Thiel on Startups
Anyway, having a flawed sales organization would be a major problem here (not saying it is - this would be an area to nail down in due diligence).
Given the valuation, lack of growth to date, and potential headwinds in office real estate, this deal is a headscratcher for me. I think it’s an interesting product though and a company worth revisiting later in 2021 to see if they execute as promised. And I do look forward to working and living in spaces that are in fact “smart” and without hideous blinds.