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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

#11

Post by wyc »

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-...

> I have argued that the rise of founder-friendliness in startup funding is not just an idiosyncratic matter of philosophy, but a structural matter of negotiating power: If good ideas are rare and valuable, and capital is cheap and plentiful, then people with ideas will be able to extract whatever terms they want from people with capital.

That really gets at a deeper trend. Ben Thompson observed that Benchmark Capital took a huge gamble by suing Uber's CEO, as founder-friendliness is currently a large denominator in how promising companies choose funding sources. This acquisition company wants to leverage these same forces to put the companies first at the expense of IPO middlemen, which may be pointless if it ends up actually costing more.

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

#12

Post by danielahn »

For asset managers, the reason you form a SPAC is because you will get upside in the form of convertible warrants that will net you ~20% ownership, essentially for free (cost of your time to find and close a deal, and minimal upfront cost), assuming the stock price outperforms the original issue price.

You should ask yourself why an existing owner who believes in the future of their company would be willing to give up 20% upside to avoid the cost of an IPO. I would suggest that the very act of giving up this 20% promote for a 'hot' unicorn tells you something about the valuation that the SPAC eventually does a deal at.

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

#13

Post by probe »

danielahn wrote: post #12

For asset managers, the reason you form a SPAC is because you will get upside in the form of convertible warrants that will net you ~20% ownership, essentially for free (cost of your time to find and close a deal, and minimal upfront cost), assuming the stock price outperforms the original issue price. You should ask yourself why an existing owner who believes in the future of their company would be willing to give u…

Or a company is raising a normal round of funding and this is suddenly a much better option - 1) funding, 2) liquidity in public markets, 3) backing of SC and whatever help they may offer. If I was raising 600M anyways, these added benefits seem like a good deal to me.

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

#15

Post by thisisit »

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-...

He does make a good point about the rate differences but my understanding is that this might come in handy once the economy starts to tank.

There are a lot of companies whose valuation are not worth their price. Sooner or later they will need to raise money. They wont be able to approach debt markets as that means fixed repayments.

Sure 7% for IPO will be always better but if they don't want to answer all kinds of questions about their business in SEC filings, this might be the deal for them. Or cases where in the startup founders are not that versed in IPO filings and fees.

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

#16

Post by nkohari »

econner wrote: post #6
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 ex…

Underwriting (the 7% rate) isn't the only cost of an IPO. It also requires a large staff and a huge time investment.

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

#17

Post by tryckbarpingvin »

chollida1 wrote: post #9

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 mon…

Thank you for the detail and experience based insight

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

#18

Post by tryckbarpingvin »

heisenbit wrote: post #8

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. Expe…

It sounds like you're thinking of ICO, but this article is about IPO

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

#19

Post by JumpCrisscross »

nkohari wrote: post #16
econner wrote: post #6

Earlier quoted context omitted.

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 ex…

Underwriting (the 7% rate) isn't the only cost of an IPO. It also requires a large staff and a huge time investment.

I guarantee you it doesn't approach the costs of this SPAC.

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

#20

Post by JumpCrisscross »

thisisit wrote: post #15
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-...

He does make a good point about the rate differences but my understanding is that this might come in handy once the economy starts to tank. There are a lot of companies whose valuation are not worth their price. Sooner or later they will need to raise money. They wont be able to approach debt markets as that means fixed repayments. Sure 7% for IPO will be always better but if they don't want to answer all kinds of qu…

Private equity can close faster than this SPAC will be able to. This entity will be left with the deals VC and PE passed on.
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