Grove Collaborative, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Note 6 — Fair Value Measurements

The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments in the Mutual Fund.


	March 31, 2022		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Mutual Fund held in Trust Account	$	402,566,409	$	402,566,409	$	—	$	—
Liabilities:
Derivative warrant liability – Public Warrants	$	3,048,919	$	3,048,919	$	—	$	—
Derivative warrant liability – Private Warrants		2,636,811		—		—		2,636,811
Backstop derivative liability		30,234,314		—		—		30,234,314

Derivative liabilities	$	35,920,044	$	3,048,919	$	—	$	32,871,125


	December 31, 2021		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Mutual Fund held in Trust Account	$	402,530,526	$	402,530,526	$	—	$	—
Liabilities:
Derivative warrant liability – Public Warrants	$	6,731,959	$	6,731,959	$	—	$	—
Derivative warrant liability – Private Warrants		6,608,051		—		—		6,608,051

Derivative warrant liabilities	$	13,340,010	$	6,731,959	$	—	$	6,608,051

The change in fair value of the derivative warrant liabilities is summarized as follows:


	Private Placement Warrants		Public Warrants		Warrant Liabilities
Derivative warrant liability – initial measurement on March 25, 2021	$	9,020,019	$	8,776,387	$	17,796,406
Change in fair value of derivative warrant liabilities		133,454		55,320		188,774

Derivative warrant liabilities at March 31, 2021	$	9,153,473	$	8,831,707	$	17,985,180


	Private Placement Warrants			Public Warrants		Warrant Liabilities
Derivative warrant liabilities at December 31, 2021	$	6,608,051		$	—	$	6,608,051
Change in fair value of derivative warrant liabilities		(3,971,240	)		—		(3,971,240	)

Derivative warrant liabilities at March 31, 2022	$	2,636,811		$	—	$	2,636,811

The estimated fair value of the warrant liability for the private warrants at March 31, 2022 and December 31, 2021 was determined using Level 3 inputs. Inherent in a Monte Carlo options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on projected volatility of comparable public companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S.

Treasury zero-coupon

yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is based on management assumptions regarding the timing and likelihood of completing a business combination. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement in May 2021 when the Public Warrants were listed separately.

The following table provides quantitative information regarding Level 3 fair value measurements of derivative warrant liabilities as of March 31, 2022 and December 31, 2021:


	March 31, 2022			December 31, 2021
Strike price	$	11.50		$	11.50
Share price	$	5.95		$	9.59
Volatility		25	%		40	%
Risk-free rate		2.40	%		1.28	%
Expected term (years)		5			5

The Company accounts for the Backstop Subscription Agreement in accordance with the guidance in ASC 815-40 and accounts for the Tranche 2 Shares as a derivative asset and Penny Warrants and Additional Shares as derivative liabilities at its fair value determined by a Monte Carlo simulation of redemptions and share price using the same calibrated price from the warrant valuation analysis. These assets and liabilities are subject to re-measurement at each balance sheet date. With each such re-measurement, the derivate asset or liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statements of operations. On March 31, 2022, the Company recorded net backstop derivative liability in the unaudited condensed balance sheets amounting to $30,234,314.

The following table provides quantitative information regarding Level 3 fair value measurement of backstop derivative liability as of March 31, 2022:


Share price	$	5.95
Volatility		25	%
Risk-free rate		2.40	%
Minimum Redemption Percentage		92	%
Maximum Redemption Percentage		100	%

- Definition

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.

+ References + Details