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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/article

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.

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.