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SPAC Wipeout Is Punishing Followers of Chamath Palihapitiya

88 points by CPLX 6y ago

adamcstephens 6y ago
SPACs should be banned. They’re a vehicle for perpetuation of the market as a gambling platform, while undermining the transparency requirements of the market.
- deleted 6y ago
  [deleted]
- lordnacho 6y ago
  > SPACs should be banned That's just treating the symptoms, though?
  - adamcstephens 6y ago
    Sure, but this didn’t seem like the place to discuss replacing the market economy with one which exists in equilibrium with the planet.
- ethanolburner 6y ago
  "while undermining the transparency requirements of the market" Then why don't you propose to just ban forward-looking projections and including more transparency? SPACs have their distinct use cases and have unique advantages and disadvantages compared with IPOs & DPOs. A blanket-ban on these vehicles is, in my opinion, limiting optionality, which wouldn't be a problem if the IPO & DPO processes were perfect, however, they are not.
  - deleted 6y ago
    [deleted]
- dehrmann 6y ago
  I don't think they should be banned, but I seriously don't understand how someone could invest in one. You don't know what it's going to acquire, so it's a bet that the leadership finds a good company at a good price that you'd be interested in owning. SPACs have nothing else going for them. That said, it sounds a lot like VCs who invest in the founder, not the company.
  - cstejerean 6y ago
    As I understand it, if you don’t like what the SPAC acquires you can demand your money back.
    - nikanj 6y ago
      Minus fees, obviously. They make money no matter what drivel they buy.
      - ivalm 6y ago
        I don’t believe minus fees. The fees are generally the extra shares when it de-spacs. In fact for spacs that trade below nav they are like variable cash instruments.
  - ethanolburner 6y ago
    I would break SPACs currently in the market down into 2 categories; pre-DA and post-DA. In other words, there are a number of SPACs which have already posted their target company, their financials, future projections, as well as other things like PIPE investors, % SPAC ownership etc. Most of these, due to the current climate, are trading at or slightly above NAV, therefore, they are akin to buying stock in any other company with a small downside if the deal does not materalise [1]. What you would be referring to in your example are pre-DA SPACs, in which you are correct as it relies on the sponsors prior performance and praying they will find a good target at an appetizing valuation. However, even here there is a small downside, since of the 430 SPACs searching for a target [1], the majority are trading at or below NAV with very few breaking this rule, which is why it is so lucrative for investors and arbitrage HFs. For instance, if you do proper due diligence on a particular SPAC sponsor and have mild conviction on their ability to obtain a good target, chances are their SPAC is trading at or below NAV, therefore, it opens an opportunity to invest in something near risk-free. If a deal does not materalize, then you get $10 (or NAV) back, and if it is a good target you reap relatively good rewards. If it is a bad deal or you do not like the company, you have the ability to sell at or near the same price you bought (provided it was close to NAV), since very rarely in the window of post-DA to de-SPAC will the SPAC price fall below NAV. The only significant downside is opportunity cost since the core idea revolves around parking money and not utilizing until the sponsor announces a deal, and other investments even in index funds may have provided higher returns in that timeframe, which could be a good or a bad thing, especially in volatile markets. [1] - https://spactrack.net/activespacs/ https://spactrack.net/activespacs/
- deleted 6y ago
  [deleted]
- geuis 6y ago
  I agree. When I first started hearing about them a few months ago (oddly enough because I was listening to one of Jason Calacanis’s shows with Chamath) they sounded off. Had also just recently rewatched The Big Short. Back in 2006-ish an old boss at the time was doing some hinky shit with penny stocks. First time I had ever heard about them back then. After doing some research to learn about SPACs, the whole concept is incredibly scammy. It’s all just a weird mutated combo of penny stocks and the crap being pulled in 2007. I know, that’s not an exact true definition. I’m trying to make a generalization.
- ianai 6y ago
  I wonder whether the same laws that legalized stock buybacks had anything to do with SPACs. (Buybacks were long considered insider trading.) Though I suspect spacs may just be too new.
aparsons 6y ago
Chamath is one of the most self-serving-pretending-to-be-altruistic salesmen to ever set foot in SV. If you were still a “follower” after doing even the slightest bit of due diligence into the man, you deserve to lose money.
- jpgvm 6y ago
  Definition of a snake oil salesman. Even great companies like SoFi that went public via one of his SPACs still end up screwing investors because of disadvantageous promote and PIPE. When the ticker change happens watch it drop and then wait for PIPE dump and it will drive it below IPO of the SPAC itself.
- dralley 6y ago
  Strongly agree. I listened to Chamath's talks for a couple hours. The impression one gets is a smart, charismatic and driven guy... Who uses every dishonest fake-populist rhetorical trick in the book. I still think he's an interesting listen, but you've got to be thoughtful about it. Slippery dude.
  - briefcomment 6y ago
    It usually sounds like he believes what he's saying himself, instead of being consciously deceptive.
  - FooBarBizBazz 6y ago
    I was put off by the way he attacked Vlad Tenev. Tenev became a scapegoat for the GME fiasco, and, as the facts came out, it seemed he really didn't deserve to. I get that Tenev's "we don't have liquidity problems" answer was a little disingenuous, but it also wasn't totally wrong if you include a bunch of fine print, and I get how it was necessary. In the end, it turned out that the whole T+2 system was stupid, and leaked through the abstractions built on top. He didn't have enough capital to handle a crazy outlier, and he went back to get more money for next time. What else was the guy supposed to do? So attacking Vlad for "ethics" was low. Remember that, before Robinhood, we all paid a bunch of trading fees. The dude has done some good. Chamath just piled on to an easy target. I don't like people who cast stones so they can look good. I don't know why I'm here doing Robinhood's PR for them. I guess Chamath's grandstanding just left a really bad taste.
brandnewlow 6y ago
“To be fair, all of his SPACS are up since IPO”
- edoceo 6y ago
  IPOC which became CLOV isn't
  - nrmitchi 6y ago
    > To be fair, all of his SPACS are up since IPO, except for the ones that aren't
- jb775 6y ago
  That isn't a realistic representation. SPACs usually start at $10 when formed, then shoot up at least 4x on announcements and hype, the early investors (i.e. people like Chamath) cash out at the peak, then the stock price tanks to $15. Technically the stock is "up" from the original listing price, but it's really just a big scam.
  - ethanolburner 6y ago
    You grossly misunderstand SPACs if you think they shoot up at least 4x on announcement & hype. This is a very rare phenomenon, and even with the most prominent SPAC sponsor (Chamath), of his current 4 SPAC deals that are post-DA, only 1 has exemplified what you characterize (Virgin Galactic's $55 ATH). The others have never broke $40 or above. This includes every SPAC he has been in the PIPE (5) with exception of 1 (NYSE: MP) which has broke $40. Therefore, of the 9 post-DA SPACs that have had some form of association with the one of the most popular SPAC sponsors (Chamath), only 2 exemplify what you describe. However, I do agree with the general premise of your comment. SPACs without founder and PIPE lockups are most likely destined to perform poor in the long term. Is this a big scam? Considering the fact that most of the 130~ SPACs that have a DA do not fit into your characterization (most do not shoot up even 2x after LOI/DA announcement & hype, most sponsors have not cashed out - whether that be peak or not, most do not trade at $15 but rather way closer to NAV), I would be inclined to say they are not scams in that regard. I would say they are unfair rather than scams (most SPACs have a high % of founder shares, no lockup etc).
blinding-streak 6y ago
"it’s been Palihapitiya’s SPACs that have been among the worst bets. His three open SPACs are all in the bottom 20th percentile for returns since the market top."
paulpauper 6y ago
Scammers have also made millions of dollars in Bitcoin with the twitter giveaway scam impersonating Chamath. The people who follow Chamath and other gurus tend to be 'professional morons'---people in professional lines of work who have a lot of disposable income and wealth but are also somewhat dim and easily swindled and persuaded by jargon. Think the pointy-hired boss from Dilbert. See also Putt's Law.
- ianai 6y ago
  Everyone is “dim” about many, many things. It’s not a great thing to validate someone’s victimhood for simply being used by a scammer.
tomc1985 6y ago
Yet another reason not to listen to "thought leaders"
seattle_spring 6y ago
Chamath was on the board of Premise Data for 6 years, one of the scummiest companies I've ever had the misfortune of associating with. That alone brings his trustworthiness into question.
nceqs3 6y ago
Everybody hated him at Facebook. Nobody was willing to work on his team because he was so rude. [0] 0 = Steven Levy's Facebook: The inside story
- Melting_Harps 6y ago
  > Nobody was willing to work on his team because he was so rude. I don't doubt this, but how much of this is the same exact thing we see of his current persona, which tends to have no tolerance for the BS Silicon Valley 'wokeness' and general softness with the Ivy league/Stanford CS types that generally are the rank and file and lower tier devs in most FAANGs? I ask, because as a Californian that remembers the SV of the late 80s and 90s I felt utter disgusted by what it had become in the min 2010s when I moved there for a Summer wlaunching my startup and realized in the first week that what it had become was a massively distorted perversion of it's former self. Money served as much as an insulator to keep their norms fixed and provided as a (compromised?) barrier of entry, as much as anything else, but somehow it was effective enough to negate the obscene amount of human misery due to massive homelessness and wealth inequality you see on every corner.
imtheantinoob 6y ago
I like to view SPACS as synthetic bonds. Bonds are boring so let’s instead describe them a different way. SPACS are loot boxes. You have a chance at some point in the next 2 years that it may open. If you don’t like the opened stock, you can get a refund of 10$ plus interest. If it doesn’t open the same thing occurs. As long as you are buying spacs (not companies that have completed the spac merger) at or below NAV you won’t get burned. You just pay in opportunity cost. If you pay for a pre LOI spac above NAV u are taking on risk and it is expected that you will get burned. Lots of Chamath’s followers over paid for his spacs which ultimately burned them.
kbos87 6y ago
I know very little about him but was initially intrigued because he’s often referred to as a “good guy” with altruistic motives who also isn’t afraid to call others out. Then I saw him on CNBC in the midst of the GameStop fiasco, railing against Robinhood on the premise that people should be outraged because Robinhood almost ran out of money and had to restrict trades. Whether or not that’s something to be outraged about is one question. What turned me off is that he seemed to be completely ignoring parts of the story, instead finding new angles to throw on the fire to keep people riled up. The whole thing was a major red flag for me.
- nrmitchi 6y ago
  What you're describing here is, unfortunately, very similar to the Trump playbook. And is something to be very wary of in the future.
- ffggvv 6y ago
  he also invests in a company called SoFi which does the same thing as robinhood and makes their money the same way that robinhood does (payment for order flow) which he was railing against.
- 0xy 6y ago
  If Robinhood was up-front with users there would be no issue, but they lied. They never mentioned liquidity issues when blocking trades. Several brokerages were capitalised well enough to allow GameStop trades, Robinhood wasn't because of incompetence and/or malice. This isn't their first blunder, remember when they tried to create bank accounts with zero insurance because their legal and/or executive team is incompetent?
throwastrike 6y ago
What’s up with Canadians and financial scams?
dwshorowitz 6y ago
Let’s not forget, this is the same guy who pitched Box at the Ira Sohn investment conference (Hear him explain his “best idea”, 2018: https://youtu.be/PBjDyFKgDzg https://youtu.be/PBjDyFKgDzg). He is a great talker, great hype man, possibly a great growth marketer, but he is certainly not a great investor.

88 points by CPLX 6y ago

SPACs should be banned. They’re a vehicle for perpetuation of the market as a gambling platform, while undermining the transparency requirements of the market.

deleted 6y ago
[deleted]
lordnacho 6y ago
> SPACs should be banned That's just treating the symptoms, though?
- adamcstephens 6y ago
  Sure, but this didn’t seem like the place to discuss replacing the market economy with one which exists in equilibrium with the planet.
ethanolburner 6y ago
"while undermining the transparency requirements of the market" Then why don't you propose to just ban forward-looking projections and including more transparency? SPACs have their distinct use cases and have unique advantages and disadvantages compared with IPOs & DPOs. A blanket-ban on these vehicles is, in my opinion, limiting optionality, which wouldn't be a problem if the IPO & DPO processes were perfect, however, they are not.
- deleted 6y ago
  [deleted]
dehrmann 6y ago
I don't think they should be banned, but I seriously don't understand how someone could invest in one. You don't know what it's going to acquire, so it's a bet that the leadership finds a good company at a good price that you'd be interested in owning. SPACs have nothing else going for them. That said, it sounds a lot like VCs who invest in the founder, not the company.
- cstejerean 6y ago
  As I understand it, if you don’t like what the SPAC acquires you can demand your money back.
  - nikanj 6y ago
    Minus fees, obviously. They make money no matter what drivel they buy.
    - ivalm 6y ago
      I don’t believe minus fees. The fees are generally the extra shares when it de-spacs. In fact for spacs that trade below nav they are like variable cash instruments.
- ethanolburner 6y ago
  I would break SPACs currently in the market down into 2 categories; pre-DA and post-DA. In other words, there are a number of SPACs which have already posted their target company, their financials, future projections, as well as other things like PIPE investors, % SPAC ownership etc. Most of these, due to the current climate, are trading at or slightly above NAV, therefore, they are akin to buying stock in any other company with a small downside if the deal does not materalise [1]. What you would be referring to in your example are pre-DA SPACs, in which you are correct as it relies on the sponsors prior performance and praying they will find a good target at an appetizing valuation. However, even here there is a small downside, since of the 430 SPACs searching for a target [1], the majority are trading at or below NAV with very few breaking this rule, which is why it is so lucrative for investors and arbitrage HFs. For instance, if you do proper due diligence on a particular SPAC sponsor and have mild conviction on their ability to obtain a good target, chances are their SPAC is trading at or below NAV, therefore, it opens an opportunity to invest in something near risk-free. If a deal does not materalize, then you get $10 (or NAV) back, and if it is a good target you reap relatively good rewards. If it is a bad deal or you do not like the company, you have the ability to sell at or near the same price you bought (provided it was close to NAV), since very rarely in the window of post-DA to de-SPAC will the SPAC price fall below NAV. The only significant downside is opportunity cost since the core idea revolves around parking money and not utilizing until the sponsor announces a deal, and other investments even in index funds may have provided higher returns in that timeframe, which could be a good or a bad thing, especially in volatile markets. [1] - https://spactrack.net/activespacs/ https://spactrack.net/activespacs/
deleted 6y ago
[deleted]
geuis 6y ago
I agree. When I first started hearing about them a few months ago (oddly enough because I was listening to one of Jason Calacanis’s shows with Chamath) they sounded off. Had also just recently rewatched The Big Short. Back in 2006-ish an old boss at the time was doing some hinky shit with penny stocks. First time I had ever heard about them back then. After doing some research to learn about SPACs, the whole concept is incredibly scammy. It’s all just a weird mutated combo of penny stocks and the crap being pulled in 2007. I know, that’s not an exact true definition. I’m trying to make a generalization.
ianai 6y ago
I wonder whether the same laws that legalized stock buybacks had anything to do with SPACs. (Buybacks were long considered insider trading.) Though I suspect spacs may just be too new.

aparsons 6y ago

Chamath is one of the most self-serving-pretending-to-be-altruistic salesmen to ever set foot in SV. If you were still a “follower” after doing even the slightest bit of due diligence into the man, you deserve to lose money.

jpgvm 6y ago
Definition of a snake oil salesman. Even great companies like SoFi that went public via one of his SPACs still end up screwing investors because of disadvantageous promote and PIPE. When the ticker change happens watch it drop and then wait for PIPE dump and it will drive it below IPO of the SPAC itself.
dralley 6y ago
Strongly agree. I listened to Chamath's talks for a couple hours. The impression one gets is a smart, charismatic and driven guy... Who uses every dishonest fake-populist rhetorical trick in the book. I still think he's an interesting listen, but you've got to be thoughtful about it. Slippery dude.
- briefcomment 6y ago
  It usually sounds like he believes what he's saying himself, instead of being consciously deceptive.
- FooBarBizBazz 6y ago
  I was put off by the way he attacked Vlad Tenev. Tenev became a scapegoat for the GME fiasco, and, as the facts came out, it seemed he really didn't deserve to. I get that Tenev's "we don't have liquidity problems" answer was a little disingenuous, but it also wasn't totally wrong if you include a bunch of fine print, and I get how it was necessary. In the end, it turned out that the whole T+2 system was stupid, and leaked through the abstractions built on top. He didn't have enough capital to handle a crazy outlier, and he went back to get more money for next time. What else was the guy supposed to do? So attacking Vlad for "ethics" was low. Remember that, before Robinhood, we all paid a bunch of trading fees. The dude has done some good. Chamath just piled on to an easy target. I don't like people who cast stones so they can look good. I don't know why I'm here doing Robinhood's PR for them. I guess Chamath's grandstanding just left a really bad taste.

brandnewlow 6y ago

“To be fair, all of his SPACS are up since IPO”

edoceo 6y ago
IPOC which became CLOV isn't
- nrmitchi 6y ago
  > To be fair, all of his SPACS are up since IPO, except for the ones that aren't
jb775 6y ago
That isn't a realistic representation. SPACs usually start at $10 when formed, then shoot up at least 4x on announcements and hype, the early investors (i.e. people like Chamath) cash out at the peak, then the stock price tanks to $15. Technically the stock is "up" from the original listing price, but it's really just a big scam.
- ethanolburner 6y ago
  You grossly misunderstand SPACs if you think they shoot up at least 4x on announcement & hype. This is a very rare phenomenon, and even with the most prominent SPAC sponsor (Chamath), of his current 4 SPAC deals that are post-DA, only 1 has exemplified what you characterize (Virgin Galactic's $55 ATH). The others have never broke $40 or above. This includes every SPAC he has been in the PIPE (5) with exception of 1 (NYSE: MP) which has broke $40. Therefore, of the 9 post-DA SPACs that have had some form of association with the one of the most popular SPAC sponsors (Chamath), only 2 exemplify what you describe. However, I do agree with the general premise of your comment. SPACs without founder and PIPE lockups are most likely destined to perform poor in the long term. Is this a big scam? Considering the fact that most of the 130~ SPACs that have a DA do not fit into your characterization (most do not shoot up even 2x after LOI/DA announcement & hype, most sponsors have not cashed out - whether that be peak or not, most do not trade at $15 but rather way closer to NAV), I would be inclined to say they are not scams in that regard. I would say they are unfair rather than scams (most SPACs have a high % of founder shares, no lockup etc).

blinding-streak 6y ago

"it’s been Palihapitiya’s SPACs that have been among the worst bets. His three open SPACs are all in the bottom 20th percentile for returns since the market top."

paulpauper 6y ago

Scammers have also made millions of dollars in Bitcoin with the twitter giveaway scam impersonating Chamath. The people who follow Chamath and other gurus tend to be 'professional morons'---people in professional lines of work who have a lot of disposable income and wealth but are also somewhat dim and easily swindled and persuaded by jargon. Think the pointy-hired boss from Dilbert. See also Putt's Law.

ianai 6y ago
Everyone is “dim” about many, many things. It’s not a great thing to validate someone’s victimhood for simply being used by a scammer.

tomc1985 6y ago

Yet another reason not to listen to "thought leaders"

seattle_spring 6y ago

Chamath was on the board of Premise Data for 6 years, one of the scummiest companies I've ever had the misfortune of associating with. That alone brings his trustworthiness into question.

nceqs3 6y ago

Everybody hated him at Facebook. Nobody was willing to work on his team because he was so rude. [0] 0 = Steven Levy's Facebook: The inside story

Melting_Harps 6y ago
> Nobody was willing to work on his team because he was so rude. I don't doubt this, but how much of this is the same exact thing we see of his current persona, which tends to have no tolerance for the BS Silicon Valley 'wokeness' and general softness with the Ivy league/Stanford CS types that generally are the rank and file and lower tier devs in most FAANGs? I ask, because as a Californian that remembers the SV of the late 80s and 90s I felt utter disgusted by what it had become in the min 2010s when I moved there for a Summer wlaunching my startup and realized in the first week that what it had become was a massively distorted perversion of it's former self. Money served as much as an insulator to keep their norms fixed and provided as a (compromised?) barrier of entry, as much as anything else, but somehow it was effective enough to negate the obscene amount of human misery due to massive homelessness and wealth inequality you see on every corner.

imtheantinoob 6y ago

I like to view SPACS as synthetic bonds. Bonds are boring so let’s instead describe them a different way. SPACS are loot boxes. You have a chance at some point in the next 2 years that it may open. If you don’t like the opened stock, you can get a refund of 10$ plus interest. If it doesn’t open the same thing occurs. As long as you are buying spacs (not companies that have completed the spac merger) at or below NAV you won’t get burned. You just pay in opportunity cost. If you pay for a pre LOI spac above NAV u are taking on risk and it is expected that you will get burned. Lots of Chamath’s followers over paid for his spacs which ultimately burned them.

kbos87 6y ago

I know very little about him but was initially intrigued because he’s often referred to as a “good guy” with altruistic motives who also isn’t afraid to call others out. Then I saw him on CNBC in the midst of the GameStop fiasco, railing against Robinhood on the premise that people should be outraged because Robinhood almost ran out of money and had to restrict trades. Whether or not that’s something to be outraged about is one question. What turned me off is that he seemed to be completely ignoring parts of the story, instead finding new angles to throw on the fire to keep people riled up. The whole thing was a major red flag for me.

nrmitchi 6y ago
What you're describing here is, unfortunately, very similar to the Trump playbook. And is something to be very wary of in the future.
ffggvv 6y ago
he also invests in a company called SoFi which does the same thing as robinhood and makes their money the same way that robinhood does (payment for order flow) which he was railing against.
0xy 6y ago
If Robinhood was up-front with users there would be no issue, but they lied. They never mentioned liquidity issues when blocking trades. Several brokerages were capitalised well enough to allow GameStop trades, Robinhood wasn't because of incompetence and/or malice. This isn't their first blunder, remember when they tried to create bank accounts with zero insurance because their legal and/or executive team is incompetent?

throwastrike 6y ago

What’s up with Canadians and financial scams?

dwshorowitz 6y ago

Let’s not forget, this is the same guy who pitched Box at the Ira Sohn investment conference (Hear him explain his “best idea”, 2018: https://youtu.be/PBjDyFKgDzg https://youtu.be/PBjDyFKgDzg). He is a great talker, great hype man, possibly a great growth marketer, but he is certainly not a great investor.