Alex may be very very extremely rated by those that know him, however nonetheless within the broader scheme of issues considerably underrated as a Bay Space tech and finance thinker. Right here is Alex on SPACs:
If one of the best fundraise (IPO included) aggregates as many potential patrons as attainable to lift cash on the highest value with the least dilution and lowest charges, it’s arduous to know how a SPAC represents an enchancment towards these constraints. When a SPAC merges with a goal (“de-SPACs”), it’s tantamount to an IPO. The SPAC (already publicly traded, with lots of money on its steadiness sheet) and the goal firm agree on a pre-money valuation for the goal; the cash sitting within the SPAC turns into the “cash raised” (IPO equal) with usually a PIPE (Personal Funding in Public Fairness, an additional institutional fundraise / massive block sale) finished on the identical time. For instance, a $500M SPAC may merge with a personal firm, ascribing a $4.5B valuation to the non-public firm, which means a $5B post-money valuation of the mixed entity. How do we all know *this* is the truthful value? Ought to an organization meet with one SPAC? Two SPACs? Three SPACs or 4? The place is the value discovery?
And whereas the price construction of SPACs will possible change, proper now it’s indisputably a costlier choice with much less value discovery. Bankers are paid 5%+ for taking the SPAC public; SPAC traders usually get warrants with their funding; the SPAC sponsor usually will get 20% (of the pre-merger worth of the SPAC) for locating a goal, so 2% within the above instance; a banker is generally employed and paid to deal with the merger; a mini-roadshow occurs to get approval from the SPAC shareholders AND to probably safe additional cash within the type of a PIPE, for which a banker can be paid.
Most of the post is on why IPOs are much less inefficient than you may suppose, informative and attention-grabbing all through.