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A meta-point: I see this as the single best outcome of the SPAC craze. By taking private companies public sooner, rather than later, we provide an incentive for
by bhupy 6y ago
A meta-point: I see this as the single best outcome of the SPAC craze. By taking private companies public sooner, rather than later, we provide an incentive for short sellers to find mal-practice which is otherwise difficult to surmise among privately held companies (see: Theranos, WeWork, etc)
- itsoktocry 6y agoLet's see what happens. Some of the richest, most powerful people (who conveniently benefit greatly from inflated share prices) are coming out hard against short-selling lately. The narrative is strong.
- bhupy 6y agoYeah I think the angst against short-selling is misguided. It serves a very important function in market price discovery.
- thesausageking 6y agoIf Theranos had done a SPAC, retail investors would've lost a lot of money when it was discovered as a fraud and shorted. Betsy DeVos and Rupert Murdoch can afford to take the loss and should be sophisticated enough to do their own diligence. If normal people who watched Chamath on CNBC and put their money into an interesting company lose their shirts, that's much worse.
- bhupy 6y ago> If Theranos had done a SPAC, retail investors would've lost a lot of money when it was discovered as a fraud and shorted. You don't know that for sure. Betsy DeVos and Rupert Murdoch lost their millions precisely because there was no mechanism to discover the "counterargument" against Theranos. They were sold on a vision by the founder, and they bought the pitch. It was impossible for anybody else to do any research on whether the pitch was actually accurate, and therefore that research never happened until many years later. Hype continued to grow in a positive feedback, and there was no mechanism to provide any negative feedback. In the counterfactual, Theranos would have gone public, some retail investors would have bought in, but right at the outset there would be a mechanism (and an incentive!) to provide negative feedback and kill the hype before it gets too big. This is exactly what happened to Nikola. The net harm caused by Nikola to all parties involved is much lower than that caused by Theranos. Also, retail investors shouldn't be investing in SPACs, which are obviously risky. They have every right to, but I have little sympathy for people that lose money on risky bets. Ultimately, having a risky company go public allows institutional investors to have their say and contribute to the price discovery. It's sort of like peer-reviewed research.
- thesausageking 6y ago> Betsy DeVos and Rupert Murdoch lost their millions precisely because there was no mechanism to discover the "counterargument" against Theranos. They lost money because they didn't do any diligence. Theranos pitched every major VC firm and all of them passed because when they researched the team and technology they realized it wasn't what they were claiming it was.
- bhupy 6y agoCorrect, you're not actually refuting anything I said. It's much more difficult to do diligence on a private firm than it is a public firm (due to SEC requirements). That's my entire point. In the "what if Theranos was a SPAC" counter-factual, it's just as equally likely that dumb money never makes its way to Theranos in the first place because institutional short sellers have a vested interest in turning the logs over and kicking the tires long before Fortune magazine runs cult-of-personality profiles on the founder.