> An acquisition by a blank check company with a management team that is well-known to, and respected by, technology company founders, their current third-party investors and their management teams, we believe, can provide a more transparent and efficient mechanism to bring a private technology company to the public markets
This is similar to a reverse takeover [1]. (Replace "blank cheque company" with "public shell".)
Why do reverse takeover candidates merge into their public shells instead of getting acquired by a pre-capitalised blank cheque company? Because with the latter, the acquirer needs the capital up front. You can do some financial engineering whereby the acquirer "buys" some of the target's shares with the shell's shares, but at that point a reverse takeover is simpler, cheaper and less risky.
You'll notice a scaling problem with this method. If you need the capital up front, you need to convince investors to come in up front. Doing that replicates IPO bankers' jobs with extra steps and less transparency.
Society also pays the Realtor 6% and the sports betting website 10%. Just because a transaction has historically occurred at a given price doesn't mean it should continue to be worth that much in the modern services market.
Accounting and law firms shouldn't be worried about automation just yet when frat stars are still being paid $140k/yr out of college to make powerpoint presentations.
Of course you do - you can recognise that (for instance) carers add a lot of value to society, making little money while each making a huge impact on a small number of people.
And you can recognise that a lot of people make a lot of money from doing things so abstracted from every day life, nobody would be the wiser if they just popped out of existence one day.
Carers add a lot of value as a group, and are compensated heavily as a group, but any individual carer does not add very much value because they can only care for so many people.
Sure, I agree. However the people who make a ton of money juggling arcane financial instruments... societal value and financial recompense are somewhat removed from each other is all I'm saying.
An off topic nitpick: In the UK strictly speaking carers by definition are not paid. People often say "carer" when they mean "care worker". This is important because care workers have legal rights which are often ignored, and because carers are often not identified (and thus don't receive the statutory help they're entitled to) because people think "carer" means "paid employee".
This works nicely, in theory, in the absence of market distortions and coercive forces. In practice, both of those things do exist, and so markets don't work entirely like theory predicts. Classical economics doesn't adjust itself for things like regulatory capture, corruption, bundling of services, and a host of other factors that are likely at play in investment banking.
It shows far too much faith in the workings of the system to claim that society is deeming investment banking of high social value because it pays a lot.
On the docks in 1776: You don't get to decide how much "societal value" King George adds. Society decides, by paying for it. If he wasn't adding so much value, why would we be sending him so much money?
I swear, I didn't consider myself that far left, but it's unreal how religious the concept of the market has become.
If we all had the same purchazing power, then you would be right. But how much you get paid is not determined by how much societal value you add, but how much value you add to existing pools of capital. The money is in making the rich get richer.
GSV Capital pursues a similar thesis (top holdings are Palantir and Spotify http://gsvcap.com/top-10-investments/) but looking at their 5-year performance, the public interest has been rather tepid.
I really like the idea of doing share buybacks of this public security, and does offer a different path to liquidity for a company and founder/employee (sell a part of your company for a publicly traded security, which you can sell at market prices for immediate cash)
For a retail investor the proposition entails all of the risks of a private investment with none of the instruments available on publicly traded stocks - access to financials, flat common stock structure with no preferential stack, analyst coverage, quarterly calls with the management to discuss strategy.
The instrument is useful for speculative bets, so I guess the supply of it highly depends on the availability of speculative capital.
Matt Levine comments on that today, his conclusion: "I don't understand the problem this is solving. IPOs are annoying, but then they end, and you have price discovery and an investor base and a relationship with the capital markets. The problem of going public is not so much going public -- writing a prospectus, doing a roadshow -- as it is being public -- filing quarterly financials, dealing with investors, forever. The SPAC doesn't solve that. It's just an interesting technological gimmick to deal with some of the superficial difficulties of the process. I guess that's what tech companies are into these days."
If I had to guess, it's intended to solve a problem in founders' minds -- that of the potential for an IPO process to go poorly. What if investors don't get our culture? What if they're more skeptical of our growth and future plans to improve margins than our VC investors have been?
As such I'd disagree with Levine's suggestion that IPOs are merely annoying drudgery; I think they're a genuine point of concern for founders from a strategic perspective, and that in a lot of cases, the founders are much more worried about successfully executing the IPO than they are about the long-term hassles of running a compliant publicly traded company.
The interesting question in my mind is whether the SPAC organizers are doing this with a specific target already in mind, or whether they are actually going to run a real process to determine which company to buy into. I guess they would have to be transparent with investors with regards to their intentions, right?
> It's just an interesting technological gimmick to deal with some of the superficial difficulties of the process. I guess that's what tech companies are into these days.
This applies incredibly well to current ICO craze.
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[ 2.7 ms ] story [ 76.9 ms ] threadThis is similar to a reverse takeover [1]. (Replace "blank cheque company" with "public shell".)
Why do reverse takeover candidates merge into their public shells instead of getting acquired by a pre-capitalised blank cheque company? Because with the latter, the acquirer needs the capital up front. You can do some financial engineering whereby the acquirer "buys" some of the target's shares with the shell's shares, but at that point a reverse takeover is simpler, cheaper and less risky.
You'll notice a scaling problem with this method. If you need the capital up front, you need to convince investors to come in up front. Doing that replicates IPO bankers' jobs with extra steps and less transparency.
[1] https://en.m.wikipedia.org/wiki/Reverse_takeover
Too many Harvard grads being paid too much money to work too many hours to add too little societal value.
It's likely that the investment banking industry adds a lot more value than you think it does, else where does the money come from?
Accounting and law firms shouldn't be worried about automation just yet when frat stars are still being paid $140k/yr out of college to make powerpoint presentations.
Glass houses, stones and all that...
And you can recognise that a lot of people make a lot of money from doing things so abstracted from every day life, nobody would be the wiser if they just popped out of existence one day.
An imperfect fit.
This works nicely, in theory, in the absence of market distortions and coercive forces. In practice, both of those things do exist, and so markets don't work entirely like theory predicts. Classical economics doesn't adjust itself for things like regulatory capture, corruption, bundling of services, and a host of other factors that are likely at play in investment banking.
It shows far too much faith in the workings of the system to claim that society is deeming investment banking of high social value because it pays a lot.
The same place Mobutu and Ferdinand Marcos's billions come from. The logical leap you're attempting here is profoundly unsound.
I swear, I didn't consider myself that far left, but it's unreal how religious the concept of the market has become.
We are arguing that these people can, and should be replaced with something much cheaper and better.
^ SPACs have been a thing for a long time. Chamath is trying to hype something that he has no experience doing as the new new thing.
https://www.recode.net/2016/2/9/11587720/social-capitals-cha...
Here's a harsh, but interesting, counterargument to why GSVC isn't performing well - https://seekingalpha.com/article/1692862-use-the-twitter-ipo...
I really like the idea of doing share buybacks of this public security, and does offer a different path to liquidity for a company and founder/employee (sell a part of your company for a publicly traded security, which you can sell at market prices for immediate cash)
The instrument is useful for speculative bets, so I guess the supply of it highly depends on the availability of speculative capital.
https://www.bloomberg.com/view/articles/2017-08-24/unicorn-s...
As such I'd disagree with Levine's suggestion that IPOs are merely annoying drudgery; I think they're a genuine point of concern for founders from a strategic perspective, and that in a lot of cases, the founders are much more worried about successfully executing the IPO than they are about the long-term hassles of running a compliant publicly traded company.
The interesting question in my mind is whether the SPAC organizers are doing this with a specific target already in mind, or whether they are actually going to run a real process to determine which company to buy into. I guess they would have to be transparent with investors with regards to their intentions, right?
This applies incredibly well to current ICO craze.