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This reminds me so much of the ICO bubble. It just seems like fancy ways of dancing around SEC regulations. At least the ICO folks were honest about avoiding re

This reminds me so much of the ICO bubble. It just seems like fancy ways of dancing around SEC regulations. At least the ICO folks were honest about avoiding regulations, a SPAC seems like it is very transparently saying "we want to have a public company for the sole purpose of acquiring a private company that can't pass SEC scrutiny". It's a "saying the quiet part out loud" thing.

mschuster91 4y ago
The concept is nothing new, at least for Germany - we have long established two different variants of "shelf corporations" for the purpose of taking a short circuit to usual regulations: one that is explicitly created as a blank slate for a buyer to buy, usurp and use to be traded publicly ("Vorratsgesellschaft"), and the other one being a company that has been wound down but not formally dissolved ("Mantelgesellschaft"). The former is (or was, until Brexit) especially popular with British Ltd.-style companies because these were easier to set up than a German GmbH/AG. Something like a SPAC is new as a concept, but in the same legal vein - the only difference is which side brings the capital. In the classic cases, the "acquired" company brings the capital, in a SPAC the acquiring company - but (at least here) it is of no matter legally.
yreg 4y ago
Doing a traditional IPO is a slow process that can preoccupy the company and set it back for a year or more. For some growth companies it is a rational and legitimate choice to go public through a SPAC.
- jjeaff 4y ago
  Ya, and paying your taxes can be a long and arduous process too. That doesn't mean it's ok to just skip all the hard work. Going public is not difficult "just because". It's difficult because there are a lot of reporting and due diligence and research and compliance required before your company is opened up to the public market for investment. It's there to keep garbage companies like Truth Social from going public and bilking unsophisticated investors of their money. It seems to me that a spac is just a technically legal way to get around the spirit of the law.
  - yreg 4y ago
    I didn't say it's ok to do _because_ traditional IPO is troublesome. It is ok to do because it is ok to do according to the regulators. What I said is that there are legitimate reasons to use a SPAC vehicle, reasons other than pulling a scam on the investors.
    - hef19898 4y ago
      It seems, so, that a lot of those legitimate reasons come down, in practical terms, to actually pulling a scam on retail investors.
    - leereeves 4y ago
      The reasons why a company might want to skip the IPO process are obvious. But what's the advantage to the other side of the deal, the new investors?
      - aetherson 4y ago
        The advantage that your parent poster is suggesting is that the company that they've invested in spends more time and energy providing returns in their investment, and less time and energy jumping through arbitrary hoops. This increases the odds of good return.
        leereeves 4y ago
        > This increases the odds of good return. Does it? The linked article says otherwise: "the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC".
        aetherson 4y ago
        I'm personally agnostic, but you seemed to not understand what the other poster was saying, so I'm helping you. It seems to be not particularly hard to imagine having a principled belief that SPACs can be used legitimately for shareholder return, but that they also have recently been used indiscriminately, and that the right thing to do is be more careful about when you use this tool, not to forswear using the tool.
- kryptiskt 4y ago
  I don't understand the mindset of the people who are the investors in the SPAC IPO though. They are buying a loot box which could turn out to contain anything.
  - pavlov 4y ago
    It’s not as bad as that. SPAC investors can get their money back after the deal is announced and before the merger is consummated. Some SPACs had over 90% of such redemptions, which makes it complicated for the private company being acquired: the SPAC may appear to have, say, $300 million in cash, but when the merger is through you only have less than $30 million. Bad news for loss-making growth businesses.
  - doktorhladnjak 4y ago
    Sounds to me like you understand the mindset perfectly!
  - smabie 4y ago
    I mean, it's pretty similar to investors in VC or PE or mutual / hedge funds: you are investing in the managers skill / talent to generate you a return.
- hef19898 4y ago
  There is a very troubling trend to ignore regulations and comoliance. Either out of convenience or because the whole business model is build on it. Those regulations are there for reason, and lot of comoanies adhere to them. If a "growth company" is unable or unwilling to do so, it should simply not be a public company (unable) or no business at all (unwilling).
- raiyu 4y ago
  Having gone through an IPO (cofounder DigitalOcean), it honestly wasn't a set back internally. The majority of the burden is on the finance team, having your finances in order and audited is a huge benefit to the business, the rest of it is around internal process control, some are perfunctory, others are good investment of time. The rest of the work is done with the bankers as they draft the S-1 along with information provided by the management team. In terms of pitching the bankers, ours was during Covid so there was no travel, it was all done remotely, and given the large financing event that the IPO was, the amount of time invested vs the capital raised was certainly worth it. IPOs open up liquidity for shareholders, early employees, also provides new avenues for the business to create financing for various activities as you are now seen as a premier partner with all of the major banks. Honestly worth the effort, so long as you continue to run the business with a long term mindset and don't give in too much to the quarterly pressure it's a huge plus. Besides the obvious benefits to shareholders and early employees it also does open up a significant amount of opportunities when it comes to M&A, if are strategic with that, it can dramatically change the outcomes for your business.
  - nachteilig 4y ago
    Could you say a few words about internal process control and how you guys approached that? Thank you!
    - raiyu 4y ago
      I would be the wrong person to ask about that, as I tried to stay as far away from the details of that along with the low level details around finance. But basically as a public company there a bunch of regulations around a bunch of internal processes, think of it like having a process for how to create emails, or get rid of emails, or have communications, or do various number of internal things, or how you treat customer data. It is a bit annoying, but ultimately reviewing how those systems are operated in the business and documenting them, while tedious, is a good idea because it allows you to review your security measures and you can use it as a catalyst to make changes and invest in areas that often get neglected in the product market fit/growth phase of a business. So instead of looking at it as a burden, it becomes an opportunity to just improve internal controls.
- adrr 4y ago
  We did an IPO last year took us 6 months and wasn't a huge amount of effort. SOX part of being public is much more challenging from an effort standpoint and requires effort from all departments. IPO process was handled by our finance dept. From the tech standpoint for the IPO, I just had to sit on a few conference calls from the bankers going over risks to the business. S1 was easy, wrote bullet points and the consultants did the rest. I'd pick IPO over doing a vc funded round any day of the week. Effort is way less. I never had to give up full days during the IPO process. Never had people on site doing interviews with my team and going over my architecture and scrutinizing every decision I made.
isitmadeofglass 4y ago
I see it more as a balance of market pressures thing. An IPO is a private company saying it would like public money, a SPAC is public money saying it would like a private company. And naturally there is less scrutiny on the SPAC because it’s in the driving seat on the acquisition and can cary out due diligence, where as the IPO you have to vet that the company is ok to go out to a market of a wide range of individuals who cannot do a due diligence individually.

mschuster91 4y ago

The concept is nothing new, at least for Germany - we have long established two different variants of "shelf corporations" for the purpose of taking a short circuit to usual regulations: one that is explicitly created as a blank slate for a buyer to buy, usurp and use to be traded publicly ("Vorratsgesellschaft"), and the other one being a company that has been wound down but not formally dissolved ("Mantelgesellschaft"). The former is (or was, until Brexit) especially popular with British Ltd.-style companies because these were easier to set up than a German GmbH/AG. Something like a SPAC is new as a concept, but in the same legal vein - the only difference is which side brings the capital. In the classic cases, the "acquired" company brings the capital, in a SPAC the acquiring company - but (at least here) it is of no matter legally.

yreg 4y ago

Doing a traditional IPO is a slow process that can preoccupy the company and set it back for a year or more. For some growth companies it is a rational and legitimate choice to go public through a SPAC.

jjeaff 4y ago
Ya, and paying your taxes can be a long and arduous process too. That doesn't mean it's ok to just skip all the hard work. Going public is not difficult "just because". It's difficult because there are a lot of reporting and due diligence and research and compliance required before your company is opened up to the public market for investment. It's there to keep garbage companies like Truth Social from going public and bilking unsophisticated investors of their money. It seems to me that a spac is just a technically legal way to get around the spirit of the law.
- yreg 4y ago
  I didn't say it's ok to do _because_ traditional IPO is troublesome. It is ok to do because it is ok to do according to the regulators. What I said is that there are legitimate reasons to use a SPAC vehicle, reasons other than pulling a scam on the investors.
  - hef19898 4y ago
    It seems, so, that a lot of those legitimate reasons come down, in practical terms, to actually pulling a scam on retail investors.
  - leereeves 4y ago
    The reasons why a company might want to skip the IPO process are obvious. But what's the advantage to the other side of the deal, the new investors?
    - aetherson 4y ago
      The advantage that your parent poster is suggesting is that the company that they've invested in spends more time and energy providing returns in their investment, and less time and energy jumping through arbitrary hoops. This increases the odds of good return.
      - leereeves 4y ago
        > This increases the odds of good return. Does it? The linked article says otherwise: "the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC".
        aetherson 4y ago
        I'm personally agnostic, but you seemed to not understand what the other poster was saying, so I'm helping you. It seems to be not particularly hard to imagine having a principled belief that SPACs can be used legitimately for shareholder return, but that they also have recently been used indiscriminately, and that the right thing to do is be more careful about when you use this tool, not to forswear using the tool.
kryptiskt 4y ago
I don't understand the mindset of the people who are the investors in the SPAC IPO though. They are buying a loot box which could turn out to contain anything.
- pavlov 4y ago
  It’s not as bad as that. SPAC investors can get their money back after the deal is announced and before the merger is consummated. Some SPACs had over 90% of such redemptions, which makes it complicated for the private company being acquired: the SPAC may appear to have, say, $300 million in cash, but when the merger is through you only have less than $30 million. Bad news for loss-making growth businesses.
- doktorhladnjak 4y ago
  Sounds to me like you understand the mindset perfectly!
- smabie 4y ago
  I mean, it's pretty similar to investors in VC or PE or mutual / hedge funds: you are investing in the managers skill / talent to generate you a return.
hef19898 4y ago
There is a very troubling trend to ignore regulations and comoliance. Either out of convenience or because the whole business model is build on it. Those regulations are there for reason, and lot of comoanies adhere to them. If a "growth company" is unable or unwilling to do so, it should simply not be a public company (unable) or no business at all (unwilling).
raiyu 4y ago
Having gone through an IPO (cofounder DigitalOcean), it honestly wasn't a set back internally. The majority of the burden is on the finance team, having your finances in order and audited is a huge benefit to the business, the rest of it is around internal process control, some are perfunctory, others are good investment of time. The rest of the work is done with the bankers as they draft the S-1 along with information provided by the management team. In terms of pitching the bankers, ours was during Covid so there was no travel, it was all done remotely, and given the large financing event that the IPO was, the amount of time invested vs the capital raised was certainly worth it. IPOs open up liquidity for shareholders, early employees, also provides new avenues for the business to create financing for various activities as you are now seen as a premier partner with all of the major banks. Honestly worth the effort, so long as you continue to run the business with a long term mindset and don't give in too much to the quarterly pressure it's a huge plus. Besides the obvious benefits to shareholders and early employees it also does open up a significant amount of opportunities when it comes to M&A, if are strategic with that, it can dramatically change the outcomes for your business.
- nachteilig 4y ago
  Could you say a few words about internal process control and how you guys approached that? Thank you!
  - raiyu 4y ago
    I would be the wrong person to ask about that, as I tried to stay as far away from the details of that along with the low level details around finance. But basically as a public company there a bunch of regulations around a bunch of internal processes, think of it like having a process for how to create emails, or get rid of emails, or have communications, or do various number of internal things, or how you treat customer data. It is a bit annoying, but ultimately reviewing how those systems are operated in the business and documenting them, while tedious, is a good idea because it allows you to review your security measures and you can use it as a catalyst to make changes and invest in areas that often get neglected in the product market fit/growth phase of a business. So instead of looking at it as a burden, it becomes an opportunity to just improve internal controls.
adrr 4y ago
We did an IPO last year took us 6 months and wasn't a huge amount of effort. SOX part of being public is much more challenging from an effort standpoint and requires effort from all departments. IPO process was handled by our finance dept. From the tech standpoint for the IPO, I just had to sit on a few conference calls from the bankers going over risks to the business. S1 was easy, wrote bullet points and the consultants did the rest. I'd pick IPO over doing a vc funded round any day of the week. Effort is way less. I never had to give up full days during the IPO process. Never had people on site doing interviews with my team and going over my architecture and scrutinizing every decision I made.

isitmadeofglass 4y ago

I see it more as a balance of market pressures thing. An IPO is a private company saying it would like public money, a SPAC is public money saying it would like a private company. And naturally there is less scrutiny on the SPAC because it’s in the driving seat on the acquisition and can cary out due diligence, where as the IPO you have to vet that the company is ok to go out to a market of a wide range of individuals who cannot do a due diligence individually.