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Fair value of financial assets and liabilities

9 Months Ended

Sep. 30, 2021

Fair value of financial assets and liabilities

Fair value of financial assets and liabilities

3. Fair value of financial assets and liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):


		Fair value measurements as of September 30, 2021
		Level 1			Level 2			Level 3			Total
Assets
Cash equivalents		$	212,833		$	—		$	—		$	212,833
		$	212,833		$	—		$	—		$	212,833


		Fair value measurements at December 31, 2020
		Level 1			Level 2			Level 3			Total
Assets
Cash equivalents		$	23,456		$	—		$	—		$	23,456
Short-term investments			14,998			—			—			14,998
		$	38,454		$	—		$	—		$	38,454
Liabilities
Preferred stock warrant liability		$	—		$	—		$	4,117		$	4,117
		$	—		$	—		$	4,117		$	4,117

During the three and nine months ended September 30, 2021 and 2020, respectively, there were no transfers between Level 1, Level 2 and Level 3.

Valuation of short-term investments

Short-term investments, which consisted of U.S. Treasury bonds were valued by the Company using quoted prices in active markets for similar securities, which represents a Level 1 measurement within the fair value hierarchy.

Valuation of preferred stock warrant liability

The warrant liability was related to the warrants (the “Warrants”) to purchase shares of the Company’s Series A1, B1, and C1 redeemable convertible preferred stock (see Note 11). The fair value of the warrant liability was determined based on inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The Company used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant liability. Key estimates and assumptions impacting the fair value measurement include (i) the fair value per share of the underlying shares of applicable series of redeemable convertible preferred stock issuable upon exercise of the Warrants, (ii) the remaining contractual term of the Warrants, (iii) the risk-free interest rate, (iv) the expected dividend yield and (iv) expected volatility of the price of the underlying applicable series of redeemable convertible preferred stock. The Company estimated the fair value per share of the underlying applicable series of redeemable convertible preferred stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the Warrant. The Company estimated a zero expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future. As the Company has historically been a private company and lacks company-specific historical and implied volatility information of its stock, the expected stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the Warrant.

In connection with the IPO, all of the Company’s outstanding preferred stock warrants were automatically converted to Class A common stock warrants. The Company performed a final fair value assessment of these warrants as of the date of its IPO which resulted in a charge of $8.2 million that was recorded within other income (expense) in the Company’s condensed consolidated statement of operations. The Company determined the conversion to Class A common stock warrants resulted in equity classification of the Class A common stock warrants and reclassified the fair value of the preferred stock warrant liability as of the IPO date into stockholders’ equity (see Note 12).

The table below quantifies the weighted average of the unobservable inputs used to fair value the preferred stock warrant liability prior to their conversion into common stock warrants:


		Three Months Ended September 30,							Nine Months Ended September 30,
		2021			2020				2021			2020
Fair value of Series A1 preferred stock		$	4.00		$	0.39			$	3.01		$	0.45
Fair value of Series B1 preferred stock		$	4.00		$	1.17			$	3.26		$	1.13
Fair value of Series C1 preferred stock		$	4.00		$	1.15			$	3.30		$	1.15
Remaining contractual term (in years)			6.6			7.4				6.8			7.7
Risk-free interest rate			1.0	%		0.6	%			1.2	%		0.6	%
Expected dividend yield			—	%		—	%			—	%		—	%
Expected volatility			42.2	%		40.3	%			42.0	%		39.3	%

The following table provides a rollforward of the aggregate fair values of the Company’s preferred stock warrant liability, for which fair values are determined using Level 3 inputs (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020
Balance, beginning of period		$	15,600		$	3,499		$	4,117		$	3,396
Initial fair value of Series C1 preferred stock warrants			—			—			—			652
Change in fair value of preferred stock warrants			8,160			—			19,643			(549)
Conversion of preferred stock warrants to common stock warrants			(23,760)			—			(23,760)			—
Balance, end of period		$	—		$	3,499		$	—		$	3,499

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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