QuantumScape, the battery technology company that was taken public via SPAC, has enjoyed a return on its investments and achieved substantial improvements in charging times to batteries. This innovation potentially unlocks many transformative improvements in transportation technology. I want to talk about the lesser told story regarding its initial funding.
Initial innovation was funded by none other than the federal government. The Department of Energy’s Advanced Research Projects Agency (E-ARPA) provided the backdrop through its Batteries for Electrical Storage in Transportation (BEEST) program. The program disbursed $35MM for ten projects – the ultimate Venture Capital™️ spray-and-pray project. But who better than the United States government to provide essentially pre-seed research dollars with no ultimate financial outcome in mind?
The government’s announcement in the E-ARPA blog above about QuantumScape’s IPO reflects the unique needs of permanent and experimental capital needed to support innovation. The need is international; Japan’s government is assembling its own fund to support decarbonization in the amount of approximately $19 billion to subsidize solid-state battery technology among other energy improvements.
Indeed, innovation in the space of financialization of innovation itself still has room to grow. Andrew Lo, professor of finance at MIT, provides a summary of innovative ideas for funding cancer research, including ideas around Credit Default Swaps (CDS) triggered by FDA rejection, in this interview.
Underwriting a CDS that paid out upon FDA rejection would of course require confidence on the part of the issuer that such an occurrence could be adequately priced. The sheer nature of biotech research may itself prevent such an issuance, as it has to date, but the proliferation of financial products such as SPACs to bring capital to speculative research has certainly been validated. QuantumScape itself proves this with strong YTD stock market returns yet to be supported by any GAAP revenue.
An optimist would see a lot to seize upon. Government investment activity along with financial innovation to “insure” investors into biotech or cancer research both prove hopeful. The former is borne out time and time again – Mariana Mazzucato has expounded on the myth of pure private sector innovation, a notion that would only be reiterated with QuantumScape’s success. The latter, inclusive of SPACs, has stoked an influx of capital to fund solid-state batteries.
The investment ecosystem shows its best attributes when involving both governments and private investors to ensure committed capital to support innovation at technology’s edges. QuantumScape’s story so far proves this notion.
San Francisco Securities Outlook 