ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis—Financial assets held by the Company measured at fair value on a recurring basis include money market funds which are classified as Level 1 within the fair value hierarchy as the inputs used to measure fair value are quoted prices in active markets for identical assets. Derivative liabilities, contingent considerations liability and redeemable convertible preferred stock warrant liabilities are remeasured at fair value as of each reporting period (see Note 10).

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following tables summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	5,640	$	—	$	—	$	5,640
Total financial assets	$	5,640	$	—	$	—	$	5,640
Liability:
Derivative liabilities	$	—	$	—	$	22,764	$	22,764
Contingent consideration liability		—		—		24,447		24,447
Redeemable convertible preferred stock warrant liability		—		—		577		577
Total financial liabilities	$	—	$	—	$	47,788	$	47,788


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	14,638	$	—	$	—	$	14,638
Total financial assets	$	14,638	$	—	$	—	$	14,638
Liability:
Derivative liabilities	$	—	$	—	$	38,007	$	38,007
Contingent consideration liability		—		—		23,667		23,667
Redeemable convertible preferred stock warrant liability		—		—		42		42
Total financial liabilities	$	—	$	—	$	61,716	$	61,716

The redeemable convertible preferred stock warrant liability is classified within Level 3 of the fair value hierarchy because it is valued using the Black-Scholes pricing model, which requires subjective unobservable inputs (See Note 10).

Contingent consideration related to the BSC development and revenue milestones is recorded at fair value as measured on the date of acquisition. The value recorded is based on estimates of future financial projections under various potential scenarios using a Monte Carlo simulation, and is subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in general and administrative expense, in the statements of operations.

The fair value of the mandatory prepayment derivative liability, as a result of a change in control, was calculated using the “with and without” methodology at loan issuance. The “with and without” methodology involves valuing the term loan on an as-is basis and then valuing the term loan without the embedded derivatives. The difference between the value of the term loan with the embedded derivatives and the value without each individual embedded derivative equals the fair value of the embedded derivative. On the subsequent dates, the Company used an income approach to value the term loan derivative liabilities, where the proceeds to the lenders were estimated, adjusted by the opportunity cost of the lenders for foregoing the debt portion of the instrument. As of September 30, 2021, the mandatory prepayment derivative liability was valued using estimated time to exit of 0.1 years and a discount rate of 18.5%. Changes in the estimated fair value of the bifurcated embedded derivative are reported as gains or losses in the statements of operations.

The Company valued the convertible notes derivative liabilities using the income approach, where the proceeds to the convertible noteholders were estimated under different future scenarios, adjusted by the opportunity cost of the convertible noteholders for foregoing the debt portion of the instrument. Each outcome was probability-weighted based on future estimates.

The change in fair value of the redeemable convertible preferred stock warrant liability, derivative liabilities and contingent consideration liability are summarized below (in thousands)


		Redeemable convertible preferred stock warrant liability				Derivative liabilities				Contingent consideration liability
Beginning fair value, January 1, 2020	$		75		$		39,499		$		—
Recognition			—				6,848				23,842
Change in fair value			(33	)			(8,340	)			(175	)
Ending fair value, December 31, 2020	$		42		$		38,007		$		23,667

		Redeemable convertible preferred stock warrant liability				Derivative liabilities				Contingent consideration liability
Beginning fair value, January 1, 2021	$		42		$		38,007		$		23,667
Change in fair value			582				6,121				(204	)
Ending fair value, March 31, 2021			624				44,128				23,463
Change in fair value			(50	)			2,019				1,121
Ending fair value, June 30, 2021			574				46,147				24,584
Change in fair value			3				(23,383	)			(137	)
Ending fair value, September 30, 2021	$		577		$		22,764		$		24,447