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

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

#21

Post by jedberg »

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…

REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO.

To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock.

The 18% difference is your fee for deal access basically.

I'm not saying it's right, but it explains why it makes sense.

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

#22

Post by pgwhalen »

stevenj wrote: post #7
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-...

As a side note Matt Levine's column is my favorite thing to read each day. It's often funny and quite informative.

Agreed. He may not be a software engineer or IT professional like many of us are on Hacker News, but he is a true hacker in the way he explores ideas and thinks about the world. It's a pleasure to read him every day.

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

#23

Post by SippinLean »

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…

The HN anti-crypto trigger finger is a little too itchy it seems

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

#24

Post by pgwhalen »

jedberg wrote: post #21
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…

REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO. To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock. The 18% difference is your fee for deal access basically. I'm not saying it's right, but it explains why it makes sense.

Interesting thought, You should email Matt, I'm sure he would have a response that he would put in his column.

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

#25

Post by raiyu »

It's not a new concept that's for sure, but this just seems like another VC fund with not much of a difference.

When you get past the fees discussion and everything else what you end up with is $600MM in capital to invest.

That isn't enough to buy a single unicorn, regardless of valuation, so you are buying a secondary stake, but then the shares you purchased still don't have liquidity until the company itself decides to IPO.

So this doesn't really do anything to improve the IPO landscape, and it's just a fancy shell for buying secondary shares.

Unless, through their purchase of secondary shares they are also going to receive updated financials which they will be reporting under their umbrella company. But without those other companies being public, the data doesn't undergo as many controls and scrutiny, and without a controlling stake of the company they invested in, they can't force much change or anything else, so ultimately you still end up with little transparency into the financials of the underlying companies.

If anything, this just delays the IPO landscape further as now there is another secondary market to sell shares, which means founders and other key people can cash out, and wait on the eventual IPO.

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

#27

Post by kamakazizuru »

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…

Very interesting insight!

As for the sniff test - while I agree with your assessment, I wonder if the aspect of providing employees easier liquidity will make them more attractive than traditional VC deals? Essentially by "investing" in companies with a mix of SPAC stock and capital, making the SPAC stock available to employees to sell in order to liquidate some of their options / equity. Essentially giving them better access to deals than others (a variation of test 1)

As for test 2 - I think this is true of many tech startups outside of the valley, maybe they will look outside the echo chamber.

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

#28

Post by kamakazizuru »

jedberg wrote: post #21
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…

REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO. To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock. The 18% difference is your fee for deal access basically. I'm not saying it's right, but it explains why it makes sense.

This! It's almost like a safer ICO -- following the line of thougth that ICOs are ways for non accredited common people to get in on something with big potential upside - but unsafe because of the large pump and dump and scam potential - whereas here you know that S+C & Palihipitiya are for real.

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

#29

Post by jedberg »

pgwhalen wrote: post #24
jedberg wrote: post #21

Earlier quoted context omitted.

REmber though that a retail investor can buy this stock, and pay 25% to get in on a unicorn IPO. To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock. The 18% difference is your fee for deal access basically. I'm not saying it's right, but it explains why it makes sense.

Interesting thought, You should email Matt, I'm sure he would have a response that he would put in his column.

Ok, done!

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

#30

Post by Geekette »

The special purpose vehicle described doesn't add up. By definition, "unicorn" references a $1billion valuation minimum and a 600M fund isn't sufficient to acquire it. Unless they mean the principals will identify and acquire startups with unicorn possibilities before the companies reach that stage. ...Which is what regular VC does anyway.

Also confusing that they tout ability to help build product market fit as an advantage for targets when in almost all cases, a unicorn startup would have achieved that: “We, i.e. the team that helped build Facebook, will help you build a bottom up understanding of product market fit”

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