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SPACs are warning they may go bust
- quantified 4y agoToo much money chasing bad investments... maybe there are more useful things to lose money on.
- Animats 4y ago
- bingohbangoh 4y agoIs there a list of the SPACs that may go bust? I don't have a WSJ subscription so I'm unsure if its in the article itself.
- c_o_n_v_e_x 4y agohttps://spactrack.io/spacs/ https://spactrack.io/spacs/
- bragr 4y agoNo, but the article mentions "Audit Analytics" as a source, and after bumping around their site [1] a bit, my assumption is this is essentially a marketing piece to get people to buy their research product [1] https://blog.auditanalytics.com/ https://blog.auditanalytics.com/
- zinekeller 4y agoThe article stated that View Inc. (VIEW), Helbiz Inc. (HLBZ), and Lilium NV (LILM) are some of those, but there isn't a full list.
- trustfundbaby 4y agoBird is another big one, they've been trading below the $1 watermark for a week or two now, after 30 days of consecutively trading under $1 companies get delisted from the exchange.
- bartvk 4y agoThere's a link somewhere here in the comments to the full version.
- giantg2 4y agoPaywall. My, probably wrong, understanding is that the funds are mostly protected in escrow until a deal is made. What's the threat here?
- bingohbangoh 4y agoThese are not the vehicles going under but the company itself. They've "de-SPAC'd" so to speak.
- barbecue_sauce 4y agoI feel like the title is a bit inaccurate. Once the acquisition has been completed, the company is no longer a SPAC. The title implies existing SPACs (companies that have not yet completed an acquisition) are somehow going bust.
- grumpitron 4y agoI believe the issue is not with SPACs that haven't merged with another company (as the money would be safe in escrow as you point out), but with SPACs which have already done the merger and taken another company public. They mention Helbiz (a scooter company) that was taken public last year, but may not survive another 12 months.
- giantg2 4y ago
- bragr 4y agohttps://archive.ph/g7XeN https://archive.ph/g7XeN
- ok_dad 4y agoThe company I used to work for went public in a SPAC. Initially, the shares were worth about $35 or so. I sold immediately after my lockout period at about $26. The shares are worth below $9 now. I read in the documents for the SPAC "merger" the executives got a big bonus when the deal closed. I hope for my former associates' sake that the company doesn't go under.
- pram 4y agoA bunch of my coworkers from a previous company went to a startup that did a SPAC IPO in October. Went from $12 to $1 since then. Seems like these all went down at literally the worst time possible lol
- formerkrogemp 4y agoThey "went down" at the correct and absolute best time to cash out before interest rates rise and these companies go belly up. It's about grift not about making the company work well.
- deleted 4y ago[deleted]
- dedoussis 4y agoWas this Babylon?
- pram 4y agoYes
- arolihas 4y agoThis makes me feel better about my $10 shares now being worth $4. Although I would never have joined this company in the first place if I knew they were going to IPO via SPAC last October.
- deleted 4y ago[deleted]
- chandlerroth 4y ago
- rossdavidh 4y agoSo, it appears that companies which wish to avoid the regulatory requirements accompanying a conventional IPO, may have "good" reasons for doing so. Also, that those requirements for a conventional IPO, may actually do something to reduce the rate of the such companies being non-starters.
- BobbyJo 4y agoWatching a regulation do what it was meant to do in real time.
- sour-taste 4y agoWeak companies that didn't want the public scrutiny of a traditional IPO but wanted big investor bucks used SPACs and are now failing because they're weak. Totally unsurprising. SPACs should require the same public disclosure that is required in an IPO.
- bradleyjg 4y agoWhy? It’s not like these are pink sheet companies being sold out of boiler rooms to retirees. The people losing their shirts on these SPACs are greedy gamblers. I don’t think we need to waste regulation resources protecting them from themselves. There are polluters and things to spend time on instead.
- cyanydeez 4y agoGamblers always have leverage and your attitude ignores the systemic risk when these gamblers leverage themselves 30x chasing capital for billionaires?
- eftychis 4y agoGiven the terms -- funds are retained contingent on a deal and confirmation of the deal -- I wouldn't call that a gamble. Gamble would be keeping the stock after the fact or buying it post formation -- if it was a "less valuable company." Also I think at some point we need to reconsider the bail out approach of lending companies because they are too big to fail. Also separating institutions and trimming through their lending money practices makes better sense than bailing them out, because "too big too fail." When I borrow money I am assigned an interest plus collateral rate based on the inflation/cost of money at the time+projected and my risk of defaulting. On average the "bank" has zero risk (and I have liquidity). If the bank gets greedy and like some institutions that we are all well aware of in the recent years, forgets to do basic risk planning and hedge appropriately flounders that, then if most people default it is their fault -- people paid them for that event. Start bankruptcy proceedings, liquidate/fire the executive team, absorb valuable teams/assets, renegotiate with company's lenders and move on. This happens constantly B2B. Business bankruptcy is different than individual one (at least in the U.S. and some other E.U. countries I am familiar with) -- due to liability plus other measures. Somehow politicians came into the story of systemic risk and allowed certain parts of the economy to become immune to such issues... (Which lead to the Wall Street/Big Bank cockiness.)
- gsibble 4y agoMy former employer granted me 0.1% of the company, which was 26,000 shares. 3 years later they went public via a SPAC at $10 a share, with 371,000,000 shares floated. Apparently, fundraising rounds significantly diluted common stock and the founders owned a separate type of convertible super preferred stock that was not diluted (the CEO himself still owns over 60% of equivalent common shares). Now they are trading below $2. So my entire equity grant for a Software Architect role over 4 years would have been worth $50,000 had I stayed. What a horrible company and emblematic of the types of scams you saw going public via SPACs.
- tintor 4y agoHow can one protect himself from this scenario? Job offers will not even mention total number of shares outstanding.
- adam_arthur 4y agoBe important enough to get explicit protections against dilution in your job offer. Startups were barely worth it financially in the mid 2010's, anyone joining one the past few years has gotten majorly scammed. Still chuckle when I think about Postman reaching out for a job at a 5B valuation with something like 100 employees and less than 50m revenue. Good life lessons for many though
- deleted 4y ago[deleted]
- chii 4y ago> Be important enough if you do not contribute capital, i dont think you can realistically become _this_ "important".
- hobbyjogger 4y agoAgreed 100%. Essentially no employees (and nearly no founders outside of your unicorns) have anti-dilution protections against future investment.
- et-al 4y agoAnyone got a list of SPACs to short?
- rvz 4y agoIt's a bit too late for that don't you think? The time to do that was 10 months ago. [0] Example Nikola Motors (NKLA). [0] https://news.ycombinator.com/item?id=27996773 https://news.ycombinator.com/item?id=27996773
- typon 4y agoWhy? I fully expect $NKLA to go to 0 in the next five years. There's just nothing there.
- georgeecollins 4y agoShorting usually isn't as good an investment strategy as just avoiding bad investments. It's very boring, but it works in the long run.
- bee_rider 4y agoOften these 'novel investment opportunities' at least have some pretense for what their purpose is (like my gut doesn't believe high frequency trading is good for society, but folks more educated in economics seem to think it adds liquidity and is actually useful, so whatever I'll defer to them). I'd be curious to know what the good-faith reason for SPACs is (even if it is a lampshading reason). They seem to be a straightforward attempt to circumvent regulations. The justification I see from basic googling is that the IPO process is biased in favor of big players somehow, and that SPACs are more open to retail investors... but if that is the case -- Why are IPOs apparently so hard for the little guy to get in on? Is it possible that IPOs are actually high risk investments and regulators are trying to shield retail investors from them? Or something else? It is possible I'm missing the point completely, I'm admittedly not sophisticated on this front.
- tsunamifury 4y agoSPACs bring new management and/or bundle together multiple existing companies into one large IPO, allowing you to sort of merge/index/change-manage/IPO all at the same time. This theoretically could allow three dying manufacturing firms to become one functioning public firm. Yea that’s the best I can come up with. Not super believable.
- jfengel 4y agoIPOs are hard for the little guy to get in on because they don't have the full market apparatus behind them, so there's too much overhead. They would rather deal with a handful of larger players, who then turn around and play the market. They often get a discount because they're not playing in the IPO frenzy. It's not fair, but it's more about the systemic bias for the wealthy rather than a decision to exclude people.
- nfriedly 4y agoA SPAC (especially when combined with a PIPE [Private Investment in Public Equity], as they usually are), offers the business more certainty about the amount of money they're going to get. The business can negotiate ahead of time and then either accept or reject the deal. (The amount of money is more or less fixed, but the business can negotiate how much of itself it sells for that fixed amount of money.) In a traditional IPO, there is a set number of shares to sell. The bank suggests a price range, then gets orders from investors for how many shares they'll buy at different prices, adjusting the range as they go, if necessary. Then the bank picks a price that will sell all of the shares. The business doesn't really have a lot of say in the amount of money they end up raising. Additionally, there is some theory that a SPAC merger can offer projections of future business without opening themselves to liability if the projections don't come true. Whereas that's very clearly not the case with an IPO. Pre-revenue business in particular like that about SPACs. The SEC seems to be against that interpretation of the law, though. The other thing about a SPAC is that it brings in additional management that, presumably, have more experience with public markets. Some businesses see that as a benefit. The major downside of a SPAC, from the busines's perspective, is that the SPAC sponsor takes a huge cut of the proceeds. That is, of course, a big upside for the sponsor, and probably the main reason we've seen so many SPACs crop up recently.
- deleted 4y ago[deleted]
- r00fus 4y agoCan anyone say anything good about companies using SPAC as a method of going public? All I hear is that it's a way for executives and VCs to exit faster without regulations and outcomes are generally bad.
- coderintherye 4y agoI'm no expert, but two of the key advantages noted for SPACs has been: * Lower fees * Less regulatory filings It seems that one reason big investment banks (e.g. Goldman Sachs) are exiting the SPAC market is due to increased regulatory pressure, which may erase that advantage [1] [1] https://seekingalpha.com/news/3844055-sen-warren-plans-to-bill-to-crack-down-on-spac-deals https://seekingalpha.com/news/3844055-sen-warren-plans-to-bi...
- hef19898 4y agoI agree that your number 2 is an advantage for the SPAC and the company using it. Being quite a fan of, reasonable, regulation I see it as a potential red flag. Ultimately, the numbers have to be public. When they are, it is too late for early investors to do proper due diligence so.
- rufius 4y agoI think a more interesting question is whether anyone can point to a company that used a SPAC that has been a clear success. Maybe not on the scale of Meta/Facebook, but even moderately successful. That is an honest question - I can’t think of any but I’m also no expert.
- scottyah 4y agoI think Lucid motors is still worth watching, but I wouldn't call them a clear success at this point.
- signatoremo 4y agoRocket Lab went public as a SPAC QuantumScape is another that has potential
- eloff 4y agoWarren Buffett used to famously say that when the tide goes out, you can't see who's been swimming naked. People have been warning that SPACs have been swimming naked, and now we see they are indeed.
- hahaxdxd123 4y agomfw the tide was so shallow all it took was 50 basis point increase to see some pantless companies
- guerrilla 4y ago> can't see who's been swimming naked. *can
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- bloodyplonker22 4y agoCathie Wood is definitely swimming naked, and she thinks it's a good thing.
- formerkrogemp 4y agoRecent accounting and liability rule changes have made banks more jointly liable and responsible for due diligence of scams, I mean, SPACs. Admittedly, not every SPAC has been an outright scam, but it appears the majority of them turn out to be so with their very optimistic forward projections and statements. Of course, these changes occur after billions upon billions of dollars have been poured into these companies. It doesn't help that the PCAOB and SEC don't have much in the way of fines that they can issue, historically and recently speaking. The supreme court being inclined to challenge or basically to legislate against the authority of federal agencies to do anything not explicitly spelled out by the constitution when it suits the philosophies of the supreme court justices. In addition to a partisan supreme court and SEC and PCAOB being unable or unwilling to curb market excesses, many of my peers in accounting have done time at accounting firms and the SEC. These same firms are paid by the very same companies where these people end up working that the SEC oversees. I wonder where the conflict of interest is in this revolving door policy.
- faangiq 4y agoHarsh jail sentences and asset seizures are needed here.
- anm89 4y agoGiving someone a bad deal isn't fraud if they willingly sign up for it and it doesn't violate securities laws. I wouldn't defend SPAC runners as good people but they aren't criminals (at least as it pertains directly to their SPACs)
- faangiq 4y agoIt gets cloudy when you’re dumping on “retail” investor’s 401k’s and every scumbag along the way is getting a cut. Actually, not so cloudy.
- droidist2 4y agoYou think "SPAC King" Chamath Palihapitiya should be in prison?
- faangiq 4y agoYep.
- zucker42 4y agoHere's a great video by Patrick Boyle on SPACs[1]. TL;DW SPACs favor promoters and early (usual institutional investors) at the cost of later investors. [1] https://youtu.be/aXWCSQUvnKI https://youtu.be/aXWCSQUvnKI
- FollowingTheDao 4y agoSounds like Bitcoin.
- benreesman 4y agoNah, losing money on BitCoin has almost always been a straight-up asset bubble situation, like housing in 2007 or something. A much better example would be tech startups where founders sell equity in subsequent rounds and get rich while employees are locked up. Adam Neumann is a billionaire, even though Jared Leto is playing him in a biopic about how it all went so terribly wrong.
- aabhay 4y agoIt’s even worse that this. A SPAC is basically like an inverse bullshit detector. If a company can raise private capital then it would, given the lower scrutiny. If it was mature and low-risk, it would IPO to lock in major institutional capital. So SPACs are in a Goldilocks situation for scams. The companies that all seemed to be trying to SPAC were companies that quacked and waddled like real companies, hoping to profit off of the speculative fervor that was gripping real but overhyped companies. In other words, it actively incentivized a ponzi system where the public markets were a cushion for speculators.
- ramesh31 4y agoThe entire point of SPACs was speculative gambling that you could offload your bags above NAV to some sucker that just read the merger news on Reddit before they realized the company was junk. And the company was always junk. Doesn't matter though, they are just vehicles for the gambling. The scam goes like this: Smart money gets in privately at NAV ($10) -> Managers search for something plausible to merge with ("financials" and "profits" don't matter here at all) -> Merger rumors get "leaked" -> SPAC pops 20-30% above NAV -> Smart money gets out -> Merger happens -> Price falls below NAV as smart retail heads for the doors -> Dumb retail is left holding the bag
- chii 4y agoor the SPAC'ed company uses their money wisely, and the company becomes more successful. it's all a speculative bet.
- deleted 4y ago[deleted]
- Guthur 4y agoThe actions of the elites is going to cause the largest boom and bust we have ever seen and impact is going to very wide ranging in its impact. The huge liquidity injection carried out to bribe us all to accept being locked in our homes caused a rally and boom that was never justified economically, at all levels, from VC to my brother in law's benefits funded wide screen TV purchase. This, as always, always brought inflation. But to add the real kicker, that will doom a large portion of the world population, was the Economic Social Governance elites who have through their actions ensured we do not have an adequate energy supply to grow our way out of this problem the only way is down now. But don't worry next time they wont need to bribe you to keep you locked up, the WHO will give it to them for free.
- Adraghast 4y agoEgregious amounts of cash were being pumped into the economy long before 2020.
- s1artibartfast 4y agoNot as much. I still don't understand why the fed pumped the market when companies literally couldn't expand because workers were locked up.
- mrguyorama 4y agoIt's very easy to understand. The administration was a well known grifter and backroom dealer and he made sure friends in high places got free money. Simple as that.
- hef19898 4y agoEver since 2008 our only answer to the problem of too much money seems to have been even more money. If that changes a lot things will be different, from companies to housing values, I believe this cleansing will be a net positive. it will be pretty ugly and do a lot of short term harm to people that cannot necessarily afford it.
- 4y ago