Business Context and Reporting Period
This Form 10-Q covers Khosla Ventures Acquisition Co. II, the SPAC that later combined with Nextdoor, Inc., for the quarter ended June 30, 2021. The company was incorporated on January 29, 2021 and had not commenced operating activities other than formation, its initial public offering, and pursuing a business combination. It did not generate operating revenue.
On July 6, 2021, after the reporting date, the company entered into a merger agreement with Nextdoor, Inc. and announced a concurrent $270 million PIPE investment for 27 million shares.
Financial Metrics
| Metric | Three months ended June 30, 2021 | Inception through June 30, 2021 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Loss from operations | $317,856 | $408,967 |
| Net loss | $3.3 million | $16.9 million |
| Net loss per share | $0.06 to $0.12, depending on share class | $0.51 to $0.60, depending on share class |
| Interest and investment income | $6,327 | $6,327 |
| Cash and cash equivalents outside the Trust Account | $978,280 at June 30 | Not applicable |
| Marketable securities in Trust Account | $416.4 million at June 30 | Not applicable |
| Working capital | $1.5 million at June 30 | Not applicable |
The inception-to-date net loss included $36.5 million of financing expense related to the Class K Founder Shares derivative instrument, partially offset by a $20.0 million gain from changes in the derivative liability’s fair value. The company had no long-term debt, capital leases, operating leases, or Working Capital Loan borrowings at June 30, 2021.
Cash used in operating activities was $1.4 million for the inception-to-date period. Cash used in investing activities was $416.3 million, primarily reflecting funding of the Trust Account. Cash provided by financing activities was $418.7 million, primarily from the IPO, private placement, sponsor contribution, and related-party advances.
Material Changes and Unusual Items
- The company completed its IPO of 41,634,412 Class A shares at $10.00 per share, generating approximately $416.3 million of gross proceeds, including the partial over-allotment exercise.
- The sponsor purchased 1,132,688 private-placement shares for $11.3 million.
- Approximately $416.3 million was placed in the Trust Account, and public shares were classified as temporary equity at a $10.00 redemption value.
- The Class K Founder Shares were reclassified from permanent equity to a derivative liability. The liability was $16.6 million at June 30, 2021, compared with $36.6 million at inception.
- The company recorded $23.6 million of accretion of Class A shares to redemption value, of which $12.2 million was charged to accumulated deficit.
- Management identified material weaknesses in internal control over financial reporting related to the accounting for redeemable Class A shares and Class K Founder Shares. Disclosure controls and procedures were therefore considered ineffective as of June 30, 2021.
Outlook, Risks, and Contingencies
The company expected to generate operating revenue only after completing a business combination. Its public shares were subject to redemption if a transaction was completed or if the company failed to complete a transaction within the combination period. The company generally had until March 23, 2023, or June 23, 2023 if an agreement or similar arrangement was in place by March 23, 2023, to complete a business combination.
The company’s auditors and management reported substantial doubt about its ability to continue as a going concern because cash outside the Trust Account was limited and the company would require additional capital to fund operations and transaction expenses. Management stated that it could seek additional financing or suspend pursuit of a business combination if necessary.
The company had $14.6 million of deferred underwriting fees payable, generally forfeitable if no business combination was completed. It also had a forward purchase agreement under which the sponsor could purchase up to $10 million of Class A shares at the closing of a business combination.
COVID-19 was identified as a risk that could negatively affect the company’s financial position, operations, or ability to identify and complete a transaction, although the specific impact was not determinable. If no business combination were completed within the permitted period, the company would cease operations, redeem public shares using available Trust Account funds, and liquidate.
Key Facts for Investors to Verify
- Verify the subsequent July 6, 2021 merger agreement with Nextdoor and the final terms, closing status, and consideration issued.
- Verify completion, terms, and funding of the $270 million PIPE investment.
- Assess the effect of public-share redemptions, sponsor shares, private-placement shares, forward purchase shares, and Class K conversion provisions on post-merger ownership and dilution.
- Review the going-concern uncertainty and the amount of cash available outside the Trust Account to fund transaction and corporate expenses.
- Review remediation of the material weaknesses in internal control over financial reporting.
- Confirm the treatment and ultimate payment or forfeiture of the $14.6 million deferred underwriting fee.
- Distinguish this SPAC filing from Nextdoor’s standalone operating results; this filing does not provide Nextdoor revenue, margins, operating cash flow, or debt metrics.