8 ms·

With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

125 points by schintan 9y ago

mrleiter 9y ago
I recently stumbled upon a "project" called Own Austria, which promises you to own a part of Austria's products. Essentially you buy partial ownership of a fund that only invests in Austrian companies. The selection criteria? A)They must be Austrian and b)"be important in regards to jobs and revenue". There is no clear investment strategy. I chuckled and moved on. This somehow looks a bit the same, although the people behind this are quite promising.
- deleted 9y ago
  [deleted]
- icebraining 9y ago
  Is that essentially different from buying in to the S&P 500?
schintan 9y ago
Matt Levine doesn't think this is a good idea: https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-ipos-and-spacs https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-...
- econner 9y ago
  Wow, yea, doesn't seem like a good idea: A final thing about SPACs is that they are so expensive. Banks charge a rack rate of about 7 percent for initial public offerings, though big sexy tech IPOs tend to be done more cheaply. SPAC sponsors compensate themselves rather more lavishly. Hedosophia's sponsor -- a Cayman Islands company owned by Palihapitiya and his co-founder -- invested $25,000 to found the SPAC. In exchange for that nominal payment, and their work on finding a company to take public, they get 20 percent of the SPAC's stock. (They are also are putting in another $12 million or so to buy warrants in connection with its IPO.) A 20 percent fee for taking a company public is just ... more ... than a 7 percent fee. And that's not even counting the 5.5 percent fee that Credit Suisse charged for taking Hedosophia public! Something like a quarter of every dollar that investors are putting into Hedosophia is going to compensate financiers for doing the work of (ultimately) taking a unicorn public, which is a funny way to make that process more efficient.
  - nkohari 9y ago
    Underwriting (the 7% rate) isn't the only cost of an IPO. It also requires a large staff and a huge time investment.
    - JumpCrisscross 9y ago
      I guarantee you it doesn't approach the costs of this SPAC.
  - jedberg 9y ago
    REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO. To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock. The 18% difference is your fee for deal access basically. I'm not saying it's right, but it explains why it makes sense.
    - pgwhalen 9y ago
      Interesting thought, You should email Matt, I'm sure he would have a response that he would put in his column.
      - jedberg 9y ago
        Ok, done!
    - kamakazizuru 9y ago
      This! It's almost like a safer ICO -- following the line of thougth that ICOs are ways for non accredited common people to get in on something with big potential upside - but unsafe because of the large pump and dump and scam potential - whereas here you know that S+C & Palihipitiya are for real.
- stevenj 9y ago
  As a side note Matt Levine's column is my favorite thing to read each day. It's often funny and quite informative.
  - pgwhalen 9y ago
    Agreed. He may not be a software engineer or IT professional like many of us are on Hacker News, but he is a true hacker in the way he explores ideas and thinks about the world. It's a pleasure to read him every day.
    - abakker 9y ago
      Truly one of the greatest writers in journalism today, too. Excellent wordplay. One from last week with the pun about ether killed me. https://www.bloomberg.com/view/articles/2017-09-06/the-fall-of-juicero-and-ico-fever https://www.bloomberg.com/view/articles/2017-09-06/the-fall-... "but here I want to stress what an old and dull idea this is. "People should be able to sell equity in themselves" is a perennial Finance 101 dorm-room musing -- as I've mentioned before, I wrote a paper about it in law school -- that has been tried repeatedly and never really gone anywhere, because (1) no one wants to sell equity in themselves and (2) no one wants to buy it. The obstacles are not technological but human, but people are going to keep trying to solve them with new technologies until human nature finally changes. You won't sell equity in yourself for dollars, but for ether, sure, knock yourself out. Cryptocurrency will give every dubious financial idea a second act: It didn't work before, but what if we tokenized it?"
      - beambot 9y ago
        Then again... Many great, new ideas are slight variations on old tropes. To quote pg's latest essay: It's not true that there's nothing new under the sun. There are some domains where there's almost nothing new. But there's a big difference between nothing and almost nothing, when it's multiplied by the area under the sun. http://paulgraham.com/sun.html http://paulgraham.com/sun.html
- sharemywin 9y ago
  it's not an ICO. it's a public company blank check company.
  - ubernostrum 9y ago
    Based on your comment I'm guessing you only read the URL, or perhaps the title, and not the actual column. Matt Levine does a daily "roundup" style column where he links to and comments on multiple finance-related stories. He did not claim this was an ICO; he simply mentioned this in a daily roundup which included a story about Hedosophia and also a story about ICOs (and in context he was discussing them as two different alternatives to traditional IPOs). Thus, 'ICO' appears in the URL, because the URL is autogenerated from the title, and the title gives a rundown of what he's covering.
    - sharemywin 9y ago
      At the top of the article he wrote: "If you are a technology startup, there are two hot ways to fund yourself:" I just thought SPAC was some VC term or something. Didn't realize he was laying out a third way. I admit by that point in the article, I had assumed I got the gist of the article. Why fund yourself with an VC when you can ICO and give away basically nothing. FYI, I just laying out where the mis-understanding came from.
- wyc 9y ago
  > I have argued that the rise of founder-friendliness in startup funding is not just an idiosyncratic matter of philosophy, but a structural matter of negotiating power: If good ideas are rare and valuable, and capital is cheap and plentiful, then people with ideas will be able to extract whatever terms they want from people with capital. That really gets at a deeper trend. Ben Thompson observed that Benchmark Capital took a huge gamble by suing Uber's CEO, as founder-friendliness is currently a large denominator in how promising companies choose funding sources. This acquisition company wants to leverage these same forces to put the companies first at the expense of IPO middlemen, which may be pointless if it ends up actually costing more.
- thisisit 9y ago
  He does make a good point about the rate differences but my understanding is that this might come in handy once the economy starts to tank. There are a lot of companies whose valuation are not worth their price. Sooner or later they will need to raise money. They wont be able to approach debt markets as that means fixed repayments. Sure 7% for IPO will be always better but if they don't want to answer all kinds of questions about their business in SEC filings, this might be the deal for them. Or cases where in the startup founders are not that versed in IPO filings and fees.
  - JumpCrisscross 9y ago
    Private equity can close faster than this SPAC will be able to. This entity will be left with the deals VC and PE passed on.
- sjg007 9y ago
  ICOs are Kickstarter 2.0.
deleted 9y ago
[deleted]
heisenbit 9y ago
Distributed ledgers may be a better way to manage ownership. But that innovation is best suited for standardized stakes subject to audits, regulation and oversight. Startups is where everything is non standard and no track record has been established. Innovation in contract mechanics adds little value and the way it is done at the moment it takes away a lot of the already limited transparency and accountability. Expect to get hurt once the bubble dynamic fades.
- tryckbarpingvin 9y ago
  It sounds like you're thinking of ICO, but this article is about IPO
- SippinLean 9y ago
  The HN anti-crypto trigger finger is a little too itchy it seems
chollida1 9y ago
So SPACs or blank cheque companies aren't new. They've been around for many years. http://www.investopedia.com/terms/s/spac.asp http://www.investopedia.com/terms/s/spac.asp Essentially people collect money upfront and then go deal hunting, after a period of time, usually 2years or less, they then go back to the people who put their money in the deal and give them the choice of pulling their money out and taking a nominal interest rate gain, or putting their money into the deal and collecting warrants along with the deal as a sweetener. This is very common in the minerals and mining space where serial entrepreneurs found an oil company, go drilling and then sell the company once its got a well up to a big producer. It's a way for these deal makers who know everyone in their industry to help smaller companies get liquidity, while of course helping themselves and the unit holders to make money. They benefit the unit holders because its a place for them to park alot of money risk free with a decent call option on the upside. Asa hedge fund in today's market the problem is often too much capital and too few places to invest it. SPACS offer a way to park say $100 million in a vehicle that has alot of upside with not alto of downside. It has a very similar payoff to Venture Capital in that most SPAC's end up not working out but the few that do make it worth while. As a side note, if you ever work for a hedge fund or any investment company, you'll get the idea of asymmetric risk drilled into your head. Meaning you want your deals to have the potential for 10x upside with say 1x downside. The key to running a successful SPAC is almost always: - who is running it, do they have deep industry connections and the ability to get deals that no one else can - the company being acquired needs to be in need of capital and not in a position to raise it. or put another way, it needs to be win/win for both investors and the company owners. This particular SPAC seems to solve neither of these needs as typically silicon valley tech companies have no problems raising money nor do they have any issues going public, so this SPAC fails the second test. It also seems to fail the first test as I can't see why the founders are in any better position to be deal rain makers than say Sequoia, KPCB, or A16Z.
- tryckbarpingvin 9y ago
  Thank you for the detail and experience based insight
- kamakazizuru 9y ago
  Very interesting insight! As for the sniff test - while I agree with your assessment, I wonder if the aspect of providing employees easier liquidity will make them more attractive than traditional VC deals? Essentially by "investing" in companies with a mix of SPAC stock and capital, making the SPAC stock available to employees to sell in order to liquidate some of their options / equity. Essentially giving them better access to deals than others (a variation of test 1) As for test 2 - I think this is true of many tech startups outside of the valley, maybe they will look outside the echo chamber.
danielahn 9y ago
For asset managers, the reason you form a SPAC is because you will get upside in the form of convertible warrants that will net you ~20% ownership, essentially for free (cost of your time to find and close a deal, and minimal upfront cost), assuming the stock price outperforms the original issue price. You should ask yourself why an existing owner who believes in the future of their company would be willing to give up 20% upside to avoid the cost of an IPO. I would suggest that the very act of giving up this 20% promote for a 'hot' unicorn tells you something about the valuation that the SPAC eventually does a deal at.
- probe 9y ago
  Or a company is raising a normal round of funding and this is suddenly a much better option - 1) funding, 2) liquidity in public markets, 3) backing of SC and whatever help they may offer. If I was raising 600M anyways, these added benefits seem like a good deal to me.
  - danielahn 9y ago
    Why not just ask Social Capital to invest out of their VC fund? The only difference is liquidity in public markets, and if that's all you want, why are you giving up 20% of the upside from your current valuation when it would cost you less than 1% of your current to IPO yourself?
    - probe 9y ago
      I'm not sure where you're getting the 20% number...? The ownership stake is dependent on how the negotiations go and how much the company is looking to raise at what valuation/terms. Social Capital will argue a liquidity premium should be applied, and I'm sure the company will say what you're saying (they can IPO <1%). However, they could both stand to benefit, so I see a deal happening with this SPAC
      - danielahn 9y ago
        SPACs issue units to their founders that will convert into approximately 20% ownership upon the successful completion of a deal
bandrami 9y ago
Ah crap, it's 1999 again.
- SkyMarshal 9y ago
  No, this is the exact opposite, it's the anti-1999. He's offering late stage companies this deal - don't IPO, stay private, avoid the IPO and the making a bunch of connected Wall Streeters rich on your IPO pop (money that should have gone to the startup instead), and sell a large portion of your equity to us instead. We'll not only make a large enough investment that it's a viable alternative to what you would take in an IPO, but we'll also act as active advisor that helps scale your business (and we're the team that scaled Facebook so we know what we're doing). It's a compelling offer for any founding team still in control of their unicorn startup and who is still in it to build a great business.
raiyu 9y ago
It's not a new concept that's for sure, but this just seems like another VC fund with not much of a difference. When you get past the fees discussion and everything else what you end up with is $600MM in capital to invest. That isn't enough to buy a single unicorn, regardless of valuation, so you are buying a secondary stake, but then the shares you purchased still don't have liquidity until the company itself decides to IPO. So this doesn't really do anything to improve the IPO landscape, and it's just a fancy shell for buying secondary shares. Unless, through their purchase of secondary shares they are also going to receive updated financials which they will be reporting under their umbrella company. But without those other companies being public, the data doesn't undergo as many controls and scrutiny, and without a controlling stake of the company they invested in, they can't force much change or anything else, so ultimately you still end up with little transparency into the financials of the underlying companies. If anything, this just delays the IPO landscape further as now there is another secondary market to sell shares, which means founders and other key people can cash out, and wait on the eventual IPO.
zallarak 9y ago
I think that if a VC is using the public markets to raise capital, then we're in a stock market bubble.
Geekette 9y ago
The special purpose vehicle described doesn't add up. By definition, "unicorn" references a $1billion valuation minimum and a 600M fund isn't sufficient to acquire it. Unless they mean the principals will identify and acquire startups with unicorn possibilities before the companies reach that stage. ...Which is what regular VC does anyway. Also confusing that they tout ability to help build product market fit as an advantage for targets when in almost all cases, a unicorn startup would have achieved that: “We, i.e. the team that helped build Facebook, will help you build a bottom up understanding of product market fit”
dkhenry 9y ago
Here is what I don't get. If a company can IPO just for the sake of having a publicly tradable security, what is the big overhead for a large company. I am really starting to believe the only reason companies aren't IPO'ing isn't because its hard or expensive, but because they are getting stupid good deals from private investors to burn through cash.
- adventured 9y ago
  > isn't because its hard or expensive, but because they are getting stupid good deals from private investors to burn through cash. It's actually both reasons combined. It is more challenging to be a public company today vs 20 years ago, in terms of regulatory compliance and investor pressure. And the private capital markets have massively expanded in that time, effectively enabling any sum of capital required by a private company (as demonstrated so well by Uber). If you're a successful private company, you do not need the public capital markets except as the final liquidation exit. The public market has become the last stop on the exit train, because that capital has the greatest annoyances / friction / pressure / activism with it. Let's say you're a successful, Yelp-like company. You're not Uber or Facebook. You IPO. You're growing solidly. But uh oh, you miss your quarterly number, you deliver respectable 22% growth instead of 27% growth that was pegged by analysts. And forbid you dare to lower guidance so much as a penny. Your stock is gonna tank. Follow that up with a few quarters of good growth that doesn't hit the expectations, and you're going to find a pile of big activist types pushing for a sale of the company (that is still growing nicely). If you're a private company, and you barely miss growth expectations, your valuation is not going to get cut in half.
martinshen 9y ago
For startups... the biggest disadvantage to a SPAC is fee structure. The biggest advantage for a SPAC is timing. In tech startup-landia I believe timing greatly outweighs ~13% fee difference. Many startups start the IPO process which takes 6-12 months from start to finish only to find that their IPO will be delayed due to unfavorable market timing. In tech IPOs, this can mean upwards of 20% pricing differences. I'm surprised at how well this SPAC is trading at given how generally unsuccessful SPACs have been historically. I believe there's a lot of opportunity in SPAC's little brother, the RTO on TSX-V, for startups. There are plenty of good startups that are no longer in a venture-fundable state (going after markets of sub $500M with less than 20% YoY growth) where liquidity and investment could help all stakeholders. If you know companies that fit this profile: $3M-$10M revenue, breakeven and 7-25% YoY growth... let me know.

125 points by schintan 9y ago

I recently stumbled upon a "project" called Own Austria, which promises you to own a part of Austria's products. Essentially you buy partial ownership of a fund that only invests in Austrian companies. The selection criteria? A)They must be Austrian and b)"be important in regards to jobs and revenue". There is no clear investment strategy. I chuckled and moved on. This somehow looks a bit the same, although the people behind this are quite promising.

deleted 9y ago
[deleted]
icebraining 9y ago
Is that essentially different from buying in to the S&P 500?

schintan 9y ago

Matt Levine doesn't think this is a good idea: https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-ipos-and-spacs https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-...

econner 9y ago
Wow, yea, doesn't seem like a good idea: A final thing about SPACs is that they are so expensive. Banks charge a rack rate of about 7 percent for initial public offerings, though big sexy tech IPOs tend to be done more cheaply. SPAC sponsors compensate themselves rather more lavishly. Hedosophia's sponsor -- a Cayman Islands company owned by Palihapitiya and his co-founder -- invested $25,000 to found the SPAC. In exchange for that nominal payment, and their work on finding a company to take public, they get 20 percent of the SPAC's stock. (They are also are putting in another $12 million or so to buy warrants in connection with its IPO.) A 20 percent fee for taking a company public is just ... more ... than a 7 percent fee. And that's not even counting the 5.5 percent fee that Credit Suisse charged for taking Hedosophia public! Something like a quarter of every dollar that investors are putting into Hedosophia is going to compensate financiers for doing the work of (ultimately) taking a unicorn public, which is a funny way to make that process more efficient.
- nkohari 9y ago
  Underwriting (the 7% rate) isn't the only cost of an IPO. It also requires a large staff and a huge time investment.
  - JumpCrisscross 9y ago
    I guarantee you it doesn't approach the costs of this SPAC.
- jedberg 9y ago
  REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO. To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock. The 18% difference is your fee for deal access basically. I'm not saying it's right, but it explains why it makes sense.
  - pgwhalen 9y ago
    Interesting thought, You should email Matt, I'm sure he would have a response that he would put in his column.
    - jedberg 9y ago
      Ok, done!
  - kamakazizuru 9y ago
    This! It's almost like a safer ICO -- following the line of thougth that ICOs are ways for non accredited common people to get in on something with big potential upside - but unsafe because of the large pump and dump and scam potential - whereas here you know that S+C & Palihipitiya are for real.
stevenj 9y ago
As a side note Matt Levine's column is my favorite thing to read each day. It's often funny and quite informative.
- pgwhalen 9y ago
  Agreed. He may not be a software engineer or IT professional like many of us are on Hacker News, but he is a true hacker in the way he explores ideas and thinks about the world. It's a pleasure to read him every day.
  - abakker 9y ago
    Truly one of the greatest writers in journalism today, too. Excellent wordplay. One from last week with the pun about ether killed me. https://www.bloomberg.com/view/articles/2017-09-06/the-fall-of-juicero-and-ico-fever https://www.bloomberg.com/view/articles/2017-09-06/the-fall-... "but here I want to stress what an old and dull idea this is. "People should be able to sell equity in themselves" is a perennial Finance 101 dorm-room musing -- as I've mentioned before, I wrote a paper about it in law school -- that has been tried repeatedly and never really gone anywhere, because (1) no one wants to sell equity in themselves and (2) no one wants to buy it. The obstacles are not technological but human, but people are going to keep trying to solve them with new technologies until human nature finally changes. You won't sell equity in yourself for dollars, but for ether, sure, knock yourself out. Cryptocurrency will give every dubious financial idea a second act: It didn't work before, but what if we tokenized it?"
    - beambot 9y ago
      Then again... Many great, new ideas are slight variations on old tropes. To quote pg's latest essay: It's not true that there's nothing new under the sun. There are some domains where there's almost nothing new. But there's a big difference between nothing and almost nothing, when it's multiplied by the area under the sun. http://paulgraham.com/sun.html http://paulgraham.com/sun.html
sharemywin 9y ago
it's not an ICO. it's a public company blank check company.
- ubernostrum 9y ago
  Based on your comment I'm guessing you only read the URL, or perhaps the title, and not the actual column. Matt Levine does a daily "roundup" style column where he links to and comments on multiple finance-related stories. He did not claim this was an ICO; he simply mentioned this in a daily roundup which included a story about Hedosophia and also a story about ICOs (and in context he was discussing them as two different alternatives to traditional IPOs). Thus, 'ICO' appears in the URL, because the URL is autogenerated from the title, and the title gives a rundown of what he's covering.
  - sharemywin 9y ago
    At the top of the article he wrote: "If you are a technology startup, there are two hot ways to fund yourself:" I just thought SPAC was some VC term or something. Didn't realize he was laying out a third way. I admit by that point in the article, I had assumed I got the gist of the article. Why fund yourself with an VC when you can ICO and give away basically nothing. FYI, I just laying out where the mis-understanding came from.
wyc 9y ago
> I have argued that the rise of founder-friendliness in startup funding is not just an idiosyncratic matter of philosophy, but a structural matter of negotiating power: If good ideas are rare and valuable, and capital is cheap and plentiful, then people with ideas will be able to extract whatever terms they want from people with capital. That really gets at a deeper trend. Ben Thompson observed that Benchmark Capital took a huge gamble by suing Uber's CEO, as founder-friendliness is currently a large denominator in how promising companies choose funding sources. This acquisition company wants to leverage these same forces to put the companies first at the expense of IPO middlemen, which may be pointless if it ends up actually costing more.
thisisit 9y ago
He does make a good point about the rate differences but my understanding is that this might come in handy once the economy starts to tank. There are a lot of companies whose valuation are not worth their price. Sooner or later they will need to raise money. They wont be able to approach debt markets as that means fixed repayments. Sure 7% for IPO will be always better but if they don't want to answer all kinds of questions about their business in SEC filings, this might be the deal for them. Or cases where in the startup founders are not that versed in IPO filings and fees.
- JumpCrisscross 9y ago
  Private equity can close faster than this SPAC will be able to. This entity will be left with the deals VC and PE passed on.
sjg007 9y ago
ICOs are Kickstarter 2.0.

deleted 9y ago

[deleted]

heisenbit 9y ago

Distributed ledgers may be a better way to manage ownership. But that innovation is best suited for standardized stakes subject to audits, regulation and oversight. Startups is where everything is non standard and no track record has been established. Innovation in contract mechanics adds little value and the way it is done at the moment it takes away a lot of the already limited transparency and accountability. Expect to get hurt once the bubble dynamic fades.

tryckbarpingvin 9y ago
It sounds like you're thinking of ICO, but this article is about IPO
SippinLean 9y ago
The HN anti-crypto trigger finger is a little too itchy it seems

chollida1 9y ago

So SPACs or blank cheque companies aren't new. They've been around for many years. http://www.investopedia.com/terms/s/spac.asp http://www.investopedia.com/terms/s/spac.asp Essentially people collect money upfront and then go deal hunting, after a period of time, usually 2years or less, they then go back to the people who put their money in the deal and give them the choice of pulling their money out and taking a nominal interest rate gain, or putting their money into the deal and collecting warrants along with the deal as a sweetener. This is very common in the minerals and mining space where serial entrepreneurs found an oil company, go drilling and then sell the company once its got a well up to a big producer. It's a way for these deal makers who know everyone in their industry to help smaller companies get liquidity, while of course helping themselves and the unit holders to make money. They benefit the unit holders because its a place for them to park alot of money risk free with a decent call option on the upside. Asa hedge fund in today's market the problem is often too much capital and too few places to invest it. SPACS offer a way to park say $100 million in a vehicle that has alot of upside with not alto of downside. It has a very similar payoff to Venture Capital in that most SPAC's end up not working out but the few that do make it worth while. As a side note, if you ever work for a hedge fund or any investment company, you'll get the idea of asymmetric risk drilled into your head. Meaning you want your deals to have the potential for 10x upside with say 1x downside. The key to running a successful SPAC is almost always: - who is running it, do they have deep industry connections and the ability to get deals that no one else can - the company being acquired needs to be in need of capital and not in a position to raise it. or put another way, it needs to be win/win for both investors and the company owners. This particular SPAC seems to solve neither of these needs as typically silicon valley tech companies have no problems raising money nor do they have any issues going public, so this SPAC fails the second test. It also seems to fail the first test as I can't see why the founders are in any better position to be deal rain makers than say Sequoia, KPCB, or A16Z.

tryckbarpingvin 9y ago
Thank you for the detail and experience based insight
kamakazizuru 9y ago
Very interesting insight! As for the sniff test - while I agree with your assessment, I wonder if the aspect of providing employees easier liquidity will make them more attractive than traditional VC deals? Essentially by "investing" in companies with a mix of SPAC stock and capital, making the SPAC stock available to employees to sell in order to liquidate some of their options / equity. Essentially giving them better access to deals than others (a variation of test 1) As for test 2 - I think this is true of many tech startups outside of the valley, maybe they will look outside the echo chamber.

danielahn 9y ago

For asset managers, the reason you form a SPAC is because you will get upside in the form of convertible warrants that will net you ~20% ownership, essentially for free (cost of your time to find and close a deal, and minimal upfront cost), assuming the stock price outperforms the original issue price. You should ask yourself why an existing owner who believes in the future of their company would be willing to give up 20% upside to avoid the cost of an IPO. I would suggest that the very act of giving up this 20% promote for a 'hot' unicorn tells you something about the valuation that the SPAC eventually does a deal at.

probe 9y ago
Or a company is raising a normal round of funding and this is suddenly a much better option - 1) funding, 2) liquidity in public markets, 3) backing of SC and whatever help they may offer. If I was raising 600M anyways, these added benefits seem like a good deal to me.
- danielahn 9y ago
  Why not just ask Social Capital to invest out of their VC fund? The only difference is liquidity in public markets, and if that's all you want, why are you giving up 20% of the upside from your current valuation when it would cost you less than 1% of your current to IPO yourself?
  - probe 9y ago
    I'm not sure where you're getting the 20% number...? The ownership stake is dependent on how the negotiations go and how much the company is looking to raise at what valuation/terms. Social Capital will argue a liquidity premium should be applied, and I'm sure the company will say what you're saying (they can IPO <1%). However, they could both stand to benefit, so I see a deal happening with this SPAC
    - danielahn 9y ago
      SPACs issue units to their founders that will convert into approximately 20% ownership upon the successful completion of a deal

bandrami 9y ago

Ah crap, it's 1999 again.

SkyMarshal 9y ago
No, this is the exact opposite, it's the anti-1999. He's offering late stage companies this deal - don't IPO, stay private, avoid the IPO and the making a bunch of connected Wall Streeters rich on your IPO pop (money that should have gone to the startup instead), and sell a large portion of your equity to us instead. We'll not only make a large enough investment that it's a viable alternative to what you would take in an IPO, but we'll also act as active advisor that helps scale your business (and we're the team that scaled Facebook so we know what we're doing). It's a compelling offer for any founding team still in control of their unicorn startup and who is still in it to build a great business.

raiyu 9y ago

It's not a new concept that's for sure, but this just seems like another VC fund with not much of a difference. When you get past the fees discussion and everything else what you end up with is $600MM in capital to invest. That isn't enough to buy a single unicorn, regardless of valuation, so you are buying a secondary stake, but then the shares you purchased still don't have liquidity until the company itself decides to IPO. So this doesn't really do anything to improve the IPO landscape, and it's just a fancy shell for buying secondary shares. Unless, through their purchase of secondary shares they are also going to receive updated financials which they will be reporting under their umbrella company. But without those other companies being public, the data doesn't undergo as many controls and scrutiny, and without a controlling stake of the company they invested in, they can't force much change or anything else, so ultimately you still end up with little transparency into the financials of the underlying companies. If anything, this just delays the IPO landscape further as now there is another secondary market to sell shares, which means founders and other key people can cash out, and wait on the eventual IPO.

zallarak 9y ago

I think that if a VC is using the public markets to raise capital, then we're in a stock market bubble.

Geekette 9y ago

The special purpose vehicle described doesn't add up. By definition, "unicorn" references a $1billion valuation minimum and a 600M fund isn't sufficient to acquire it. Unless they mean the principals will identify and acquire startups with unicorn possibilities before the companies reach that stage. ...Which is what regular VC does anyway. Also confusing that they tout ability to help build product market fit as an advantage for targets when in almost all cases, a unicorn startup would have achieved that: “We, i.e. the team that helped build Facebook, will help you build a bottom up understanding of product market fit”

dkhenry 9y ago

Here is what I don't get. If a company can IPO just for the sake of having a publicly tradable security, what is the big overhead for a large company. I am really starting to believe the only reason companies aren't IPO'ing isn't because its hard or expensive, but because they are getting stupid good deals from private investors to burn through cash.

adventured 9y ago
> isn't because its hard or expensive, but because they are getting stupid good deals from private investors to burn through cash. It's actually both reasons combined. It is more challenging to be a public company today vs 20 years ago, in terms of regulatory compliance and investor pressure. And the private capital markets have massively expanded in that time, effectively enabling any sum of capital required by a private company (as demonstrated so well by Uber). If you're a successful private company, you do not need the public capital markets except as the final liquidation exit. The public market has become the last stop on the exit train, because that capital has the greatest annoyances / friction / pressure / activism with it. Let's say you're a successful, Yelp-like company. You're not Uber or Facebook. You IPO. You're growing solidly. But uh oh, you miss your quarterly number, you deliver respectable 22% growth instead of 27% growth that was pegged by analysts. And forbid you dare to lower guidance so much as a penny. Your stock is gonna tank. Follow that up with a few quarters of good growth that doesn't hit the expectations, and you're going to find a pile of big activist types pushing for a sale of the company (that is still growing nicely). If you're a private company, and you barely miss growth expectations, your valuation is not going to get cut in half.

martinshen 9y ago

For startups... the biggest disadvantage to a SPAC is fee structure. The biggest advantage for a SPAC is timing. In tech startup-landia I believe timing greatly outweighs ~13% fee difference. Many startups start the IPO process which takes 6-12 months from start to finish only to find that their IPO will be delayed due to unfavorable market timing. In tech IPOs, this can mean upwards of 20% pricing differences. I'm surprised at how well this SPAC is trading at given how generally unsuccessful SPACs have been historically. I believe there's a lot of opportunity in SPAC's little brother, the RTO on TSX-V, for startups. There are plenty of good startups that are no longer in a venture-fundable state (going after markets of sub $500M with less than 20% YoY growth) where liquidity and investment could help all stakeholders. If you know companies that fit this profile: $3M-$10M revenue, breakeven and 7-25% YoY growth... let me know.