the chief executive from autonomous vehicle developer Aurora Innovation presented a range of cost-cutting and money-generating options to the board, ranging from a hiring freeze and asset release to a small capital increase, going private and even selling themselves to high-profile tech companies Apple and Microsoft.
The ideas, all aimed at strengthening cash and extending the runway in difficult market conditions, were outlined in an internal memo first reported by Bloomberg and also viewed by londonbusinessblog.com. The internal memo, intended for the board of directors ahead of its August 3 meeting, was mistakenly sent to all Aurora employees, which today number approximately 1,600 people.
After the Bloomberg report, Aurora shares rose a whopping 27%. The stock closed 15.17% higher to $2.43.
Aurora has a “cash runway” that will allow it to continue its operations until mid-2024, according to its second quarter letter to shareholders and noted in the memo. However, Aurora is still a pre-revenue company. And co-founder and CEO Chris Urmson’s memo acknowledged a twofold problem: a challenging financial market that makes it difficult to raise additional capital and shifting timelines by its OEM partners that slow revenues.
Aurora, which has prioritized commercializing self-driving trucks, has pilot partnerships with FedEx, Paccar, Schneider, Werner and Xpress.
Aurora held a board meeting after the email was shared. An Aurora spokesperson declined to comment on what was discussed at the meeting. The company has provided a statement by email stating:“Given the current macro environment, each company should evaluate its options and long-term strategy. We think thinking through these things is a positive sign and a sign of good governance.”
Urmson noted that market conditions make it unlikely the company could raise $1 billion. Instead, he imposed a long list of options — each with pros and cons, and his main concern about preserving employee morale — and said it was valuable to find a “way to spend $ 300 million to take about six months to our runway.”
Extending the runway
Urmson’s internal memo reads more like a financial and strategic exercise than a plan of action. The lengthy memo, sent ahead of the Aug. 3 board meeting, details virtually every option the company could take to expand its cash position.
The memo’s more glaring ideas include selling itself to Big Tech companies like Apple or Microsoft or a Tier 1 supplier. However, the memo gives no indication that talks have even started with any company.
There are a number of other options, which fall under cash-saving and cash-generating measures, which are set out in the memorandum. The methods of saving cash have varied, including a workforce freeze and even job cuts, though Urmson warned of the latter.
“I believe a RIF (reduction in force) will be detrimental to morale,” Urmson wrote, noting that teams feel understaffed. “While the board (and I) may think the team will be more efficient if it is smaller, we expect the negative moral impact and consequent increase in the turnover of valuable talent would be challenging. Unless the layoffs are substantial, we should see this primarily as a tactic to improve efficiency, rather than a substantial runway increase, considering the cost of layoffs.”
In terms of human resources, Urmson recommended two options: “aggressive performance management of underperformers” and “intensified deduplication and prioritization”. Breaking through the jargon could mean firing underperformers and eliminating duplicate positions or simply not filling those positions again once they are vacant.
Those measures, Urmson wrote, may not have the operational simplicity of an RIF or a workforce shutdown, but would lead to significant efficiencies and cost savings. He estimated a saving of $7.5 million.
Other cash flow reduction measures, such as abolishing the CEO stock grant, reducing software licenses by 20%, suspending annual bonuses and discontinuing food service, were also included in the memo.
Urmson also ditched a variety of money-generating options, ranging from selling his test track and building to bigger moves like rolling out or selling his lidar or simulation assets, acquiring other AV companies that are against or near the money. trading on their balance sheet “close to $150 million to $300 million,” making Aurora private or selling itself to a larger technology company or Tier 1 vendor.
The acquisition of another AV company would eliminate another competitor, reduce the dilution of funding in the market and allow Aurora to “aggressively reduce layoffs,” the memo said. Aurora does not name any potential companies on that acquisition list. However, there are a few, such as Embark, with a market cap of $204 million, that may qualify.
Aurora hired Allen & Co to analyze the acquisition path, according to the memo.
Of all the options, Urmson seemed most interested in exploring a viable path to roll out technology, pursue an acquisition, and explore a small capital increase.
Urmson said in the memo that he was not inclined to sell the company at this time unless there was a strong offer from a “very compelling strategic buyer.”
Buzzy startup to SPAC
Aurora went from a thriving startup to a publicly traded company through SPAC in the space of four years. The company was founded in 2017 by Sterling Anderson, Drew Bagnell and Urmson, all of whom have a history of working on automated vehicle technology.
The three co-founders, from Google’s self-driving project, Uber ATG and Tesla, helped raise high-profile investors and a pile of capital.
Aurora’s co-founders doubled down in December 2020 when they reached an agreement with Uber to buy the ride-hailing company’s self-driving unit. The complex deal that valued the combined company at $10 billion at the time helped Aurora double the size of its workforce.
Under the terms of that acquisition, Aurora did not pay any cash for Uber ATG. Instead, Uber transferred its shares in ATG and invested $400 million in Aurora. Uber acquired a 26% stake in the combined company, according to a filing with the U.S. Securities and Exchange Commission.
Aurora has made at least one other acquisition after the Uber deal. In February 2021, Aurora bought OURS Technology, the second lidar startup it had acquired in less than two years. Aurora acquired Blackmore, a Montana-based lidar startup, in May 2019.
Against that background, dozens of startups in various sectors eager to free up more capital switched to mergers with special-purpose acquisition companies. These SPAC mergers provided a faster, but often more expensive, path to the public market.
Jumping on the SPAC train, Aurora announced in July 2021 that it would go public through a merger with Reinvent Technology Partners Y, a special-purpose acquisition company launched by LinkedIn co-founder and investor Reid Hoffman, Zynga founder Mark Pincus and managing partner Michael Thompson.
A year later, the promises of what a high-flying public marketplace could offer have come back to earth, forcing frontier tech companies like Aurora to find ways to extend their runways long enough to reach commercialization.