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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 publi
by 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 agoUnderwriting (the 7% rate) isn't the only cost of an IPO. It also requires a large staff and a huge time investment.
- JumpCrisscross 9y agoI guarantee you it doesn't approach the costs of this SPAC.
- jedberg 9y agoREmber 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 agoInteresting thought, You should email Matt, I'm sure he would have a response that he would put in his column.
- jedberg 9y agoOk, done!
- kamakazizuru 9y agoThis! 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.