The Boring Company raises $3bn and moves the work abroad

When a state-backed investor leads a round, the interesting term is rarely the valuation. It is what the company has agreed to build, and where.

The Boring Company has raised a $3 billion Series D that values it at $23 billion, in a round led by the United Arab Emirates. TechCrunch reported that the company said on Thursday it now plans to dig more than 150 kilometres of tunnels in the country.

Andreessen Horowitz, Sequoia Capital, Human Capital, Vy Capital and Valor Equity Partners also participated, which is a conventional venture syndicate sitting alongside a sovereign lead. The two types of capital are buying different things in the same round.

The sum raised came in below the ambition reported earlier. The Wall Street Journal reported in July that the company was looking to raise as much as $4 billion, and a round that closes at $3 billion is a repricing of scope rather than a failure of process.

The operating record to date is narrower than the valuation implies. Most of the digging has been in Las Vegas, where the company runs a handful of tunnels connecting hotel casinos and the convention centre, with work recently started on a project in Nashville.

A convention centre loop is a demonstration. A 150-kilometre commitment is an infrastructure programme, and the distance between those two things is measured in geology, permitting, labour and decades of maintenance obligation rather than in engineering ambition.

Tunnelling economics are unforgiving in a specific way: cost per kilometre is dominated by ground conditions, and ground conditions are discovered rather than negotiated. A machine that performs well in Nevada is not thereby validated for the Gulf.

What the UAE is buying is plausible on its own terms. Dense coastal cities with extreme summer heat and limited surface corridors are a genuine case for underground transit, and a sovereign investor can take a twenty-year view that a pension fund cannot.

What the company is buying is more consequential for it. Sovereign capital with a build commitment attached converts a venture-funded engineering firm into a contractor with an anchor client, and anchor clients shape roadmaps.

The risk in that structure is concentration. A company whose principal programme, principal customer and principal investor are the same counterparty has few places to go if the relationship cools, and the tunnels are not portable.

The number worth watching is not the valuation but the first ten kilometres. Tunnelling programmes are judged on rate of advance, and the gap between announced kilometres and completed ones is where this sector has historically disappointed.