Yeah, you all can sit here and make jokes on HN, but you’re not the man in the arena.
I assume this is a tongue-in-cheek reference to Chamath’s latest drama: https://twitter.com/chamath/status/1693992134796603477
The median return of 2022's SPAC mergers: -82%
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Re: The median return of 2022's SPAC mergers: -82%
#22SPAC Boom was coincident with money supply and one the most inflationary times.
Median return of 2022 SPAC mergers was -82%, but so was pretty much all high P/E ratio companies.
Cloudflare is down -72% from ATH in 2022.
Defending against the inevitable strawman: I am not saying anything about whether SPACs are good/bad investments. But, in order to show the full strength of their "badness", the author needs to tell us more about the overall market and contrast that with SPACs.
Re: The median return of 2022's SPAC mergers: -82%
#23SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they're tools that can be wielded wisely or poorly. the high failure rate suggests a misalignment of incentives: founders and sponsors capture immediate liquidity, while long-term outcomes get obfuscated by the structure. I once had a chat with a founder…
The funny thing is that this was actually the third SPAC boom. I cut my teeth on Wall Street in 2008 and they were all the rage then too:
"SPACs have a distasteful reputation due to a number of scandals associated with them in the 1980s. But like Frankenstein arisen from the dead, they are back. Initially, when they first reappeared on the scene the major banks and M&A law firms refused to represent them. Morgan Joseph and Ladenburg Thalmann did the hard work of establishing a market." [1]
Also, I don't think anyone launching a SPAC believes they are about democratizing access to certain deals. They're just another structure for raising funds for acquisitions. If the status quo is doing it through private equity firms, an alternative structure is search funds for the small deals and SPACs for the large deals.
[1] https://archive.nytimes.com/dealbook.nytimes.com/2008/01/06/...
Re: The median return of 2022's SPAC mergers: -82%
#24I'm always somewhat amazed that Chamath Palihapitiya doesn't have a much worse reputation:
1. My understanding is that he was the primary initial architect of "A/B testing for engagement" at Facebook that turned social media into a tribalistic, outrage generating machine (nothing engages like hate), and that the rest of SV essentially copied. I think this trajectory would have happened regardless, but he was first, so to speak.
2. He was the primary booster of selling the shit sandwiches known as SPACs as filet mignon. I'm sure he made out, any downstream investors not so much.
Re: The median return of 2022's SPAC mergers: -82%
#25SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they're tools that can be wielded wisely or poorly. the high failure rate suggests a misalignment of incentives: founders and sponsors capture immediate liquidity, while long-term outcomes get obfuscated by the structure. I once had a chat with a founder…
> SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they're tools that can be wielded wisely or poorly. This is highly misleading IMO. The democratization narrative is a complete marketing ploy — anyone that understands how the SPAC structure works would not call it “democratic” in any sense of the term…
I think you’re conflating the SPAC sponsors and the owners of the public equity. The owners of the equity get their money back (plus interest) if the SPAC doesn’t find a target. The sponsors are out whatever money they put up to form the SPAC, take it public and search unsuccessfully for a target. The sponsors do typically have very rich upside if they find a deal - like, 20% of the post-merger company - but it’s not a risk-free thing for them.
Don’t get me wrong, I think SPACs are fucking stupid and bad for retail investors and I would never want to be involved in one, but the pre-deal owners of shares of the SPAC are actually fairly decently protected (opt-out rights, money held in trust, not liable for SPAC expenses).
Re: The median return of 2022's SPAC mergers: -82%
#26I don't understand that why only 1% publicly available stock is allowed in the market. Scam. https://news.ycombinator.com/item?id=37148125
Re: The median return of 2022's SPAC mergers: -82%
#27Earlier quoted context omitted.
> SPACs, in theory, democratized access to late-stage private markets Working in finance made me extremely cynical about anything that claims to “democratize” finance. It’s a great idea, as you say, in theory; but in practice what gets branded as “democratization” is really selling retail investors on the table scraps that professionals have already picked over.
One of the things I've learned watching the cryptocurrency saga is this: It's hard to get money to be productive. It's hard to get a financial system to do anything other than gamble, pump and dump, scam, and make bubbles.
"Money" is as productive as the underlying system of production it sits on. You and I can invent foo and bar, with some creative financing sell it to each other for a million dollars, and have a million dollar net worth starting from zero while not producing anything of value. A lot of modern day financial "inventions" seem to be of this kind of "money productivity" with zero net value added to the world.
Re: The median return of 2022's SPAC mergers: -82%
#28Earlier quoted context omitted.
Misalignment of incentives is such an understatement. > But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they'd later face. This is such a politically correct way of saying “we didn’t want to be scrutinized so we took the quick cash and ran instead.”
I think there’s a pretty good chance that’s not a very fair statement. OP’s friend was management, not the SPAC sponsor. He would have been subject to a lock-up on his stock following the de-SPAC transaction. There’s a very good chance that the stock price would have declined substantially during that period, so I’m not sure what cash there was for him to grab in the context of the de-SPAC transaction. To briefly be…
There also may be some timing bias. The SPAC craze coincided with the apex of late stage money losing “startups”. Anecdotal evidence indicates that the private markets have done a major repricing of private firms in the last 2 years.
It’s intrinsically difficult to value money losing firms. Apple was famously 90 days from bankruptcy, and Uber is now suddenly profitable. Sears is bankrupt, and GE is on the same path.
There was certainly exuberance in 2021, and that likely lead to a number of bad deals.
Re: The median return of 2022's SPAC mergers: -82%
#29For some context, looking at traditional IPOs during the same year[1], the median return was 3.3%, the mean -22%. Like SPACs there were a couple outlier that gave high returns. Around 45% of IPOs gave small positive returns, while only 4% of SPACs did. Around 35% of IPOs lost half their value or more, while 80% of SPACs did.
Re: The median return of 2022's SPAC mergers: -82%
#30I'm always somewhat amazed that Chamath Palihapitiya doesn't have a much worse reputation: 1. My understanding is that he was the primary initial architect of "A/B testing for engagement" at Facebook that turned social media into a tribalistic, outrage generating machine (nothing engages like hate), and that the rest of SV essentially copied. I think this trajectory would have happened regardless, but he was first, s…
He was also a huge bully at Facebook —- it’s well known that everyone strongly disliked him personally —- and his behavior at SocialCapital was so bizarre that every other partner in the firm quit.