SPAC Gold Rush: Blank Checks for Startups
Last week, we reported on the news from Reuters that Joby Aviation was contemplating an IPO using a SPAC. Most people who read the article had never heard of a SPAC.
A Special Purpose Acquisition Company (“SPAC”) is also known as a “Blank Check” company. Essentially it is a Shell company that previously went public and seeks to acquire a hot startup. Investors are eager to back the SPAC, putting their money in months before an acquisition target is identified. In doing so, the SPAC and its investors typically get a faster return on their investment vs. going the longer road to success on their own. The hot startup gets a jump start on getting to IPO without all of the conventional SEC scrutiny.
SPAC growth has multiplied faster than the COVID-19 virus contagion. In fact, the pandemic frightened many companies who were contemplating an IPO in 2020. A SPAC is a safer way to get to an IPO during market and economic hardships. Think of it as a merger behind closed doors rather than under the magnifying glass of the SEC, investors, creditors, etc. 70% of all money raised through public offerings in January 2021 were SPACs. Per the graph, 2020 saw $82B poured into SPACs. The single month of January 2021 saw more than 96 SPACs raise $20B. The US is now seeing 5 new SPACs a day!
“Many of the 287 SPACs currently hunting for targets are looking for deals in hot sectors such as technology or electric vehicles, according to figures from data provider SPAC Research. Last week, six new SPACs launched: Queen’s Gambit Growth Capital —a company led entirely by women that shares a name with an opening sequence in chess and a popular show on Netflix —Legato Merger, Gores Metropoulos II, Oyster Enterprises Acquisition, TZP Strategies Acquisition and FoxWayne Enterprises Acquisition. Eight more went public on Friday”. Amirth Ramkuma / Wall Street Journal
Is a SPAC a way to hack Wall Street? We saw how Reddit users gamed GameStop to turn hedge fund managers upside down. Is this a true hack, or another dot-bomb bubble? If you watch the 2019 documentary China Hussle, you know that SPACs delivered riches to startups with no revenue streams, no viable business model. In the US, we see DraftKings now with a valuation of $40B, and Virgin Galactic at $8B, even though they are not making money. Or is This is the way to be cool.
“If you don’t have your own SPAC, you’re nobody,” Peter Atwater, founder of research firm Financial Insights.
We asked Toby Corey how a Zentrepreneur thinks of SPACs.
"I love anything that gives (z)entrepreneurs more options to: 1. raise necessary capital, 2. retain more ownership, and 3. provide faster liquidity to investors and employees. More power and opportunity to (z)entrepreneurs and folks creating the value the better!" --toby corey, Zentrepreneur
Learn more about SPACs and much more in our upcoming webinar with Thomas Wynn “Dear Prudence: Gamestop, Hedge Funds and Thanos” on February 10, 2021. And, we would love to know your thoughts about SPACs, Beatle songs, Gamestop, hedge funds, and Thanos. Comment below.
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Make Me Smart SPACs are turning Wall Street into Silicon Valley