David Hall and Brad Culkin are inventors, old colleagues and brother-in-law.
But after the Spac deal and the bankruptcy of the board of their company Velodyne Lidar, in Hall’s words, they are now in a “life-and-death struggle.”
Hall founded the 3D sensor business, was removed from the chairmanship earlier this year, but is still the largest shareholder, and is now determined to fight back against Culkin, who took over as chairman, and anyone else on the board who helped remove him.
Last week, Hall exercised a majority vote to appoint activist investor Eric Singer (Eric Singer) to the board of directors. “He wants to drive those cockroaches out,” Hall said in an interview with the Financial Times. “I hope they will leave and never hear from them for the rest of my life and the lives of my children.”
Velodyne’s development is another example of the trap of special purpose acquisition companies. Compared with traditional listings, these companies provide a faster way to enter the public market, but are also adopted by high-risk, founder-controlled companies. Since the beginning of this year, the company’s share price has fallen by more than 50% in public controversy.
A spokesperson stated that the company will continue to implement “strategies aimed at driving the company’s long-term growth.” [ . . . ] The highest standard of corporate governance”.
Velodyne is a leading manufacturer of lidar systems in the United States. The lidar system is a rotating laser device used by autonomous vehicles to “see” roads and obstacles. Before it entered the public market, through a $1.6 billion deal with a Spac called Graf, regulatory documents described it as a “fast-growing business with strong momentum.”
But according to regulatory documents and people familiar with the company, the company’s troubles can be traced back many years.
Hall founded Velodyne in 2016, initially raising US$150 million from Ford and Baidu in China. Investors have also become important customers, buying products worth millions of dollars.
The submitted documents show that Velodyne’s 2017 revenue exceeded US$180 million, mainly from one-time sales to the research team of Uber and other companies that are developing self-driving cars. That year, the weighted average price of Velodyne’s lidar sensors was close to $18,000.
But as competitors flooded the market, the price of lidar sensors fell sharply. Velodyne stated that it has taken the initiative to lower prices to increase the adoption rate of the technology, but by 2019, its revenue has fallen by more than 40%.
In 2018, the company accused Chinese competitor Hesai of reverse-engineering its rotating lidar sensor, and the company also received funding from Baidu. Last year, it resolved a dispute with Hesai and another Chinese company in exchange for licenses and royalties.
But Hall said that the alleged theft of Velodyne’s design has “destroyed” the lidar market.
At the same time, several people familiar with the company accused Hall of operating it as a family business, sometimes hiring his relatives and friends to hold senior positions.
Regulatory documents show that Hall and his wife Marta (still on Velodyne’s board of directors) borrowed money from the company to purchase a building in San Jose, California, as its headquarters for $23.4 million. A company owned by the couple subsequently charged Velodyne millions of dollars in annual rent to use the building.
Last month, the lobby Sold the property US$51.4 million, with an initial return on investment of more than 200%. Hall said the deal was “stupid luck” and he charged the company a lower rent than the market.
In response to a question about the work his family did, Hall said: “This is fringe nepotism, and it’s a bit out of control. One day I will control it.”
The road to the public market
In January 2020, as the company began to consider an IPO, Hall retired from day-to-day management and promoted Anand Gopalan to CEO. Hall stated at the time that Gopalan was “the right executive to lead Velodyne into the next phase of growth.”
Two people familiar with the matter said that Velodyne had preliminary discussions on the IPO, but after several years of revenue decline, it was difficult for investors to value the company.
With the outbreak of the pandemic, another option emerged: a blank check or blank check tool that was raised in order to merge with the company and bring it to the open market.
Graf Industries has abandoned negotiations with a polypropylene recycling company and began negotiations with Velodyne in May. By June, with the help of Bank of America and Oppenheimer consultants, these companies had begun to solicit additional support from investors to increase Spac’s cash contribution.
An investor report predicts that Velodyne’s revenue will start to grow again and reach more than $680 million in 2024, with more than half of its business coming from new multi-year agreements, software sales and subscriptions. In 2020, the company’s revenue was US$94 million.
The deal was announced in July, and within a few weeks before Velodyne went public in September, the car’s stock price reached $32. Culkin and Hall co-founded an audio company from which Velodyne was spun off. At the time, he owned millions of shares and a board seat.
At the same time, Ford negotiated exemptions from lock-up agreements, which usually restricted insiders from participating in early trading, and sold all of its shares in Velodyne in the fourth quarter. Ford, which is still using Velodyne technology, Say Sales “consistent with our efforts to make full use of capital.”
The battle for control
According to Velodyne, in the months after going public, Hall promoted changes to the board of directors, which would allow him to appoint six of the eight directors and fire the CEO.
The Audit Committee of the Board of Directors began investigating Hall and his wife, and in February claimed that they had “improper behavior in the board and company processes”. Velodyne removed Hall from office without publicly providing details of the investigation results.
In a statement to the Financial Times, Velodyne said that after Hall’s board proposal was rejected, the alleged misconduct of David and Marta Hall “increased dramatically.” Velodyne said that all members of the board except Marta Hall rejected Hall’s statement, saying it contained “baseless allegations.”
After being removed from office, Hall accused Culkin of “taking some freedom to the truth” and acting as a “rubber stamp.” Culkin did not respond to a request for comment.
One day after the annual general meeting of shareholders last week, Velodyne announced that it had begun arbitration proceedings against Hall, accusing it of breach of contract and stealing trade secrets.
The company said in a separate statement that Hall had copied “hundreds of thousands” of Velodyne files to at least one external hard drive before returning the company’s laptop. Through a spokesperson, Hall declined to comment on the arbitration.
Hall said he was misled by lawyers and Spac executives during the merger process, which he believed would allow him to retain control of the company. Graf and Gunderson Dettmer, the law firm representing Velodyne during the Spac discussion, declined to comment.
Investor care loss
At the same time, investors posted a complaint on the Reddit message board, and Call in recent weeks Hols gave up the fight with the company. The stock price was about $11 on Wednesday.
External observers predict that several companies that have been struggling since the merger with Spacs may become the main targets of activist shareholders. Many companies have not yet achieved commercial success in future technologies and are still led by relatively inexperienced teams.
“This is all the elements required for volatility and aggressive intervention,” said Ethan Klingsberg, a partner at Freshfields law firm, who advises the board on corporate governance matters.
Additional reporting by Sujeet Indap in New York