Smart-lock startup Latch began trading Monday through a SPAC listing that raised $453 million and values the company at more than $1.5 billion. Shares, issued through a special acquisition vehicle of Tishman Speyer Properties, rose 4% on the first day of trading.
“Using the Tishman Speyer portfolio as a breeding ground for new ideas and new products… was really just too good to pass up,” said Luke Schoenfelder, co-founder and CEO of Latch, who won the 2018 Pyjama People Under 30 award. made list.
Latch, which had sales of just $18 million last year, was founded in 2013 and is best known for its smart locks, which can be unlocked with a smartphone. Schoenfelder and his co-founders stumbled upon 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 straight to your fridge at the end of the day?” Latch’s CFO Garth Mitchell said: Pyjama People earlier this year.
Realizing that access to real estate was the first hurdle to executing that concept, the team quickly tapped into the smart-lock market. They were initially focused on housing, as the scale potential was so much greater than commercial businesses.
Latch was valued at more than $400 million after the Series B round raised $126 million in 2019, when one in ten new multifamily projects in the U.S. used its technology. The company says it will use the new funding to expand into Europe and grow new business segments in the commercial space. A year ago, when offices closed and tenants fled the big cities, things looked much grittier. “We had to make some tough choices in the spring to reduce our burnout,” Mitchell says.
Now, rent demand is picking up in many urban areas and commercial landlords are looking at workers returning to offices, while new security protocols have made contactless entry systems more attractive. Latch launched Visitor Express, a contactless system for offices, in early 2021. Overall, it says its products have been purchased or reserved in more than 300,000 units nationwide, mostly residential. Revenue has increased from less than $15 million in 2019 to $18 million last year, according to public filings, but losses have also increased, from $50 million to $66 million.
The company followed many of its peers in the marketplace through a SPAC listing, allowing companies to circumvent the scrutiny of a traditional IPO, including wading through some regulatory requirements and conducting roadshows that allow potential investors to question executives about opportunities and risks.
SPACs provide a faster way to market by taking a publicly traded shell company (the SPAC) and merging it with a target company like Latch. Empty company investors generally take high fees, creating a no-loss opportunity for many of their lenders and a much riskier scenario for less sophisticated retail investors drawn to the hype.
Latch and his colleagues are now buddies for those risks, says Howard Schilit, author of Financial Shenanigans. Porch and Opendoor have already been made public through SPACs, while WeWork, Better, Sonder and Offerpad have plans to do so. And it’s not limited to real estate. PWC cited the “continued SPAC attack” as the driving force behind 389 IPOs completed in the first quarter of the year, raising a total of $125 billion.
“There have always been successful SPACs, despite the fact that SPACs, on average, have never been a good investment for public shareholders,” said Michael Klausner, the Nancy and Charles Munger Professor of Business at Stanford Law School. He adds that “the SPAC bubble seems to be deflating. You never know when a bubble will burst or completely deflate, but I think a reasonable conclusion from the market is that the deflation process is happening.”
Schoenfelder, for his part, insists that Latch would have gone public with or without a SPAC bubble, citing the multiple merger offers he has filed.
“If you look at the institutional investors that participated in our transaction… Fidelity, BlackRock, Wellington,” he says, “I think there would have been a lot of interest in many different permutations.”