Inception Growth Acquisition Corp. (NYSE:IGTA) has entered into a definitive agreement to combine with AI firm AgileAlgo at a pre-money equity value of $160 million.

Singapore-based AgileAlgo provides AI tools to enterprise clients to optimize business process and teach their systems to continually improve themselves.

The combined company is expected to change its name to Prodigy and trade on the Nasdaq under the symbol “PRGY” once the deal is completed in the first quarter of 2024.

Transaction Overview

Inception Growth has about $31.2 million in its current trust having seen about 71.5% of shares redeemed in a September 8 extension vote, which pushed its transaction deadline to June 13, 2024.

AgileAlgo shareholders are to receive $160 million in shares as compensation in the deal with 12.5% of these placed in escrow and subject to forfeiture if the combined company’s gross revenues fall short of expectations.

All are to be forfeit if the company has less than $7.5 million in revenue during the three fiscal quarters beginning October 1, 2024 and a proportionate amount will be forfeited if revenues during this period fall between $7.5 million and $15 million.

Inception Growth has not yet released its merger documents or an investor presentation, but its profile page will be updated once additional terms are made available.

Quick Takes: AgileAlgo now becomes the third generative AI company to announce a combination with a SPAC this month, but talks with Inception Growth go back to at least June, when two sides disclosed they had reached an LOI.

All three of these companies are quite different in their relationships with clients and how they approach problems with AI. Ben, which announced a deal with DHC (NASDAQ:DHCA) uses its technology to power AI-enhanced chatbots for customer engagement.

Meanwhile, Zapata, which came to terms with Andretti (NYSE:WNNR) two days earlier, uses quantum computing and numerical data from within company processes to find efficiencies and automatically optimize a client’s actions.

AgileAlgo is more like Zapata in its business model – teaching a company’s existing systems how to utilize AI functions – but more like Ben in its approach as it uses written language as the basis of most systems.

One of the advantages AgileAlgo believes it has found in having programs that can continually run processes that will trace the necessity of a client to generate new code. After enough steps with AgileAlgo integration, its systems can then learn how to code those tasks and perform the system expansion autonomously.

This all sounds very promising, but the company has released scant information on how developed its operations are at this stage. AgilePro was founded in December 2019 and now has five employees listed on LinkedIn, and it has not listed any clients or shared use cases on how its technology has operated in real-world settings.

The fact that a significant portion of its share compensation in this deal is contingent on it generating revenues just over the double-digit millions across three quarters also indicates some doubt as to how much money it is raking in and how quickly it can get up and running.

The two sides are also setting the clock for that contingent compensation to begin more than a year from now in October 2024. But, of the three AI deals announced this month, AgileAlgo is also the smallest in terms of initial valuation and none of the others have tipped their financials either.

Other AI-driven software companies trade at wide ranges like fellow SPAC target BigBear.AI (NYSE:BBAI), which is currently valued by the market at 2.7x revenue, while bigger animals like DataDog (NASDAQ:DDOG) and Palantir (NYSE:PLTR) trade at 16x and 15x, respectively.

In that sense, the public markets have clearly valued scale. But, they also have arguably not seen pureplay generative AI companies like this month’s three prospective de-SPACs list just yet.

Inception Growth shareholders in a sense got a chance to vote with their money having already seen the LOI, but still turned in 71.5% of their shares for cash in last week’s extension vote. But, this should not necessarily be a surprising result in the current climate.

Overall, SPACs that have faced a vote that are either still searching for a target or have announced a deal that’s not complete yet have seen 83.5% of shares redeemed. Those that have an announced deal and held their last vote at some point during the third quarter of this year have fared slightly worse with 84.9% of shares redeemed.

Either way, the deal has been popular with at least some investors as Inception Growth is up about +0.8% on the news, trading just above its $10.63 estimated pro rata cash in trust.

ADVISORS

• Company
  • Ellenoff Grossman & Schole LLP is serving as legal.
  • Porche Capital Ltd is acting as a business advisor.
• SPAC
  • Loeb & Loeb LLP is serving as legal advisor.