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With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

bloomberg.com

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Re: With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

#2

Post by mrleiter »

I recently stumbled upon a "project" called Own Austria, which promises you to own a part of Austria's products. Essentially you buy partial ownership of a fund that only invests in Austrian companies. The selection criteria? A)They must be Austrian and b)"be important in regards to jobs and revenue". There is no clear investment strategy. I chuckled and moved on.

This somehow looks a bit the same, although the people behind this are quite promising.

Re: With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

#5

Post by [deleted] »

mrleiter wrote: post #2

I recently stumbled upon a "project" called Own Austria, which promises you to own a part of Austria's products. Essentially you buy partial ownership of a fund that only invests in Austrian companies. The selection criteria? A)They must be Austrian and b)"be important in regards to jobs and revenue". There is no clear investment strategy. I chuckled and moved on. This somehow looks a bit the same, although the peopl…

[deleted]

Re: With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

#6

Post by econner »

schintan wrote: post #3

Matt Levine doesn't think this is a good idea: https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-...

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.

Re: With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

#8

Post by heisenbit »

Distributed ledgers may be a better way to manage ownership. But that innovation is best suited for standardized stakes subject to audits, regulation and oversight. Startups is where everything is non standard and no track record has been established. Innovation in contract mechanics adds little value and the way it is done at the moment it takes away a lot of the already limited transparency and accountability.

Expect to get hurt once the bubble dynamic fades.

Re: With $600M 'Blank Check' IPO, VCs Experiment on Startup Listings

#9

Post by chollida1 »

So SPACs or blank cheque companies aren't new. They've been around for many years.

http://www.investopedia.com/terms/s/spac.asp

Essentially people collect money upfront and then go deal hunting, after a period of time, usually 2years or less, they then go back to the people who put their money in the deal and give them the choice of pulling their money out and taking a nominal interest rate gain, or putting their money into the deal and collecting warrants along with the deal as a sweetener.

This is very common in the minerals and mining space where serial entrepreneurs found an oil company, go drilling and then sell the company once its got a well up to a big producer. It's a way for these deal makers who know everyone in their industry to help smaller companies get liquidity, while of course helping themselves and the unit holders to make money.

They benefit the unit holders because its a place for them to park alot of money risk free with a decent call option on the upside.

Asa hedge fund in today's market the problem is often too much capital and too few places to invest it. SPACS offer a way to park say $100 million in a vehicle that has alot of upside with not alto of downside. It has a very similar payoff to Venture Capital in that most SPAC's end up not working out but the few that do make it worth while.

As a side note, if you ever work for a hedge fund or any investment company, you'll get the idea of asymmetric risk drilled into your head. Meaning you want your deals to have the potential for 10x upside with say 1x downside.

The key to running a successful SPAC is almost always:

- who is running it, do they have deep industry connections and the ability to get deals that no one else can

- the company being acquired needs to be in need of capital and not in a position to raise it. or put another way, it needs to be win/win for both investors and the company owners.

This particular SPAC seems to solve neither of these needs as typically silicon valley tech companies have no problems raising money nor do they have any issues going public, so this SPAC fails the second test.

It also seems to fail the first test as I can't see why the founders are in any better position to be deal rain makers than say Sequoia, KPCB, or A16Z.

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