S.ILICON VALLEY has found new ways, from finding information to contacting friends. No wonder, then, that the valley eagerly accepts another type of disruption: acquisition companies for special purposes (SPACs) as an alternative to the conventional IPO (initial public offering) for startups. “So many things have become cheaper and more efficient. Why are initial public offeringis as expensive and inefficient as ever? “asks Roelof Botha, partner at Sequoia Capital, a venture capital firm. He describes them initial public offering Trial as “harassment and grand theft”.
With Wall Street banks giving stocks to top customers and encouraging companies to rate their offerings low to ensure a surge on day one, many in Silicon Valley are feeling it initial public offering “Tax” is too big. Last year, America’s underpricing resulted in unrealized gains of $ 30 billion for newly listed companies (and their employees). With SPACWith direct listings, another route to going public, there is no pressure to burst a price.
sign of SPAC Madness is as common today as seeing unicorns in the valley. Some venture capital firms, including Khosla Ventures, have announced SPACs, as well as technology hedge funds and individual venture capitalists. Prominent tech firms, including 23andMe, a genetic testing company, and SoFi, a personal finance platform, go public SPACs.
Though its effects will be felt across America, SPACs will have a profound effect on the valley. For one, they could help fund youth tech companies that are struggling to attract more private investment but are too small to do so initial public offering. Some point to Opendoor, a real estate tech company, as an example of a company that struggled to raise another round of funding but has been successful since a company went public SPAC. The company was valued at $ 4.8 billion prior to its merger in September and is now worth $ 18.1 billion.
Blank check companies can also fund technologies that require long-term investments. “Deep tech” such as autonomous vehicles, biotech and quantum computers could benefit from this. (Software companies that make easy and quick margins are less likely to be targets.) “A. SPAC enables you to estimate tomorrow’s hopes and dreams versus today’s results, ”said Nirav Tolia, founder of Nextdoor, a social network and independent director of IPOD, on SPAC.
SPACs also open tech investments to retail investors. The fact that tech firms tended to lag behind listing meant that the lion’s share of returns had been captured by venture capitalists even before startups hit the public markets. SPACs that partner with early-stage companies could give more investors the opportunity to get exposure. They are “the closest thing a private investor can get to venture,” says Tolia. This lucrative but speculative way of investing brings players both risk and return.
This article appeared in the Finance & Economics section of the print edition under the heading “Rain for the Rainmakers”.