Fair Value Measurements

12 Months Ended

Dec. 31, 2021

The following table presents the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):


	Level 1				Level 2				Level 3
	December 31,				December 31,				December 31,
	2021		2020		2021		2020		2021		2020
Assets
Cash equivalents:
Money market funds	$	—	$	2,651	$	—	$	—	$	—	$	—
Total	$	—	$	2,651	$	—	$	—	$	—	$	—

Fair values determined by Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets.

The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of December 31, 2021 including cumulative realized gains and losses recognized during the year months ended December 31, 2021 (in thousands):


	Year Ended December 31, 2021

Beginning balance as of December 31, 2020	$	—
Sale of SAFE notes		10,000
Total realized loss		1,436
Conversion of SAFE notes		(11,436)
Ending balance as of December 31, 2021	$	—

Level 3 instruments are characterized by unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The fair value of the SAFE notes was determined in interim periods during 2021 using unobservable inputs. In valuing the SAFE notes, the Company used a Monte Carlo simulation to forecast a range of probability-weighted settlement paths in combination with income, market, and cost-based valuation approaches. The settlement paths used probabilities ranging from 5% to 65%. The Company used a discount rate of approximately 30% to adjust the probability-weighted settlement paths to their present value. An increase in the discount rate would decrease the fair value of the instrument, and an increase in probabilities of certain settlement paths would increase the fair value of the instrument.

The fair value of the SAFE notes, upon conversion, was determined using the Company’s Class A common stock valuation of $16.00 as of the settlement date of November 10, 2021, which is also the Company’s IPO date. See Note 11 for further details on the SAFE Notes.

- 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.

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