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In leaked memo, Aurora CEO weighs spinouts, layoffs and acquisitions against sale to big tech

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2 years ago

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The chief executive of autonomous vehicle developer Aurora Innovation presented a swath of cost-cutting and cash-generating options to its board, ranging from a hiring freeze and spinning out assets to a small capital raise, going private and even selling itself to high-profile tech companies Apple and Microsoft.

The ideas, all aimed at shoring up its cash position and extending its runway in tough market conditions, were laid out in an internal memo first reported by Bloomberg and also viewed by TechCrunch. The internal memo, which was intended for the board ahead of its August 3 meeting, was mistakenly sent to all Aurora employees, which today numbers around 1,600 people.

Following the Bloomberg report, Aurora shares jumped as much as 27%. Shares closed up 15.17% to $2.43.

Aurora has a “cash runway” that will allow it to continue operations through mid-2024, according to its second-quarter letter to shareholders and noted in the memo. However, Aurora is still a pre-revenue company. And the memo written by co-founder and CEO Chris Urmson acknowledged a two-fold problem: a challenging financial market that makes it difficult to raise additional capital and shifting timelines by its OEM partners that delays revenue.

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 during the meeting. The company did provide an emailed statement stating,“Given the current macro conditions, every company should be going through the exercise of evaluating its options and long-term strategy. We think that thinking through things like this is a positive sign and a mark of good governance.”

Urmson noted that market conditions make it unlikely that the company could raise $1 billion. Instead, he laid out a long list of options — each one noting pros and cons as well as his biggest concern of maintaining employee morale — and said there was value in finding a “path to raise $300 million in the next year to add around 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, which was sent ahead of its August 3 board meeting, lays out virtually every option the company could take to extend its cash position.

The memo’s more eye-catching ideas include selling itself to Big Tech companies like Apple or Microsoft or a Tier 1 supplier. However, the memo provides zero hint that discussions with any company have even begun.

There are a number of other options, which fall under cash-savings and cash-generating measures, laid out in the memo. The cash savings methods run the gamut, including a hiring freeze and even job cuts, although Urmson cautioned against the latter.

“I believe that a RIF (reduction in force) will be damaging to morale,” Urmson wrote, noting that teams are feeling understaffed. “Though the board (and I) might believe that the team will be more efficient if smaller, we expect that the negative morale impact and follow-on increase in attrition of valuable talent would be challenging. Unless the layoffs are substantial, we should think of this primarily as an improving efficiency tactic, rather than a substantial increase in runway, once we consider the severance costs.”

On the workforce front, Urmson recommended two options: “aggressive performance management of poor performers” and “more intensive de-duplication and prioritization.” Cutting through the jargon this could mean laying off poor performers and eliminating duplicated positions or simply not filling those positions once vacated.

Those measures, Urmson wrote, may not have the operational simplicity of a RIF or hiring freeze, but would result in meaningful efficiency improvements and cost savings. He estimated a savings of $7.5 million.

Other cash-cutting measures such as eliminating the CEO equity grant, reducing software licenses by 20%, suspending annual bonuses and stopping food service were also included in the memo.

Urmson also threw out a variety of cash-generating options that ranged from the sale of its test track and building to bigger moves such as spinning out or selling its lidar or simulation assets, acquiring other AV companies that are trading at or near the cash on their balance sheet “in the neighborhood of $150 million to $300 million,” taking Aurora private or selling itself to a bigger tech company or Tier 1 supplier.

Acquiring another AV company would eliminate another competitor, reduce the dilution of funding in the marketplace and allow Aurora to “aggressively reduce redundancies,” according to the memo. Aurora doesn’t name any potential companies on that acquisition list. However, there are a few such as Embark, which has a market cap of $204 million, that might qualify.

Aurora hired Allen & Co to analyze the acquisition path, according to the memo. 

Of all the options, Urmson seemed most interested in exploring whether there was a viable path to spinning out tech, pursuing an acquisition and investigating a small capital raise.

Urmson said in the memo he was disinclined to sell the company at this time, unless there was a strong offer from a “very compelling strategic purchaser.”

Buzzy startup to SPAC

Aurora went from buzzy startup to publicly traded company-via-SPAC in a span of four years. The company was founded in 2017 by Sterling Anderson, Drew Bagnell and Urmson, all whom have a history of working on automated vehicle technology.

The three co-founders, who hailed from Google’s self-driving project, Uber ATG and Tesla, helped attract high-profile investors and a stack of capital.

Aurora’s co-founders doubled down in December 2020 when they reached an agreement with Uber to buy the ride-hailing firm’s self-driving unit. The complex deal that at the time valued the combined company at $10 billion helped Aurora double the size of its workforce.

Under the terms of that acquisition, Aurora did not pay cash for Uber ATG. Instead, Uber handed over its equity in ATG and invested $400 million into Aurora. Uber received a 26% stake in the combined company, according to a filing with the U.S. Securities and Exchange Commission.

Aurora made at least one other acquisition following 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 backdrop, dozens of startups across industries that were keen to unlock more capital turned to mergers with special purpose acquisition companies. These SPAC mergers offered a quicker, yet often more costly, path to the public marketplace.

Aurora jumped on the SPAC train, announcing in July 2021 that it would go public via 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 has come back down to earth, forcing frontier tech companies like Aurora to find ways to extend their capital runways long enough to reach commercialization.

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