The implosion of the SPAC Boom has proven a multi-quarter process. We may be in the last throes of experimentation, at least from a startup perspective.
SPACs, or special acquisition companies, gained popularity during the final years of the last economic bonanza, when capital was cheap and public markets were hot. Essentially, SPACs are synthetic companies that have been made public with no real business of their own. Later they merge with a private company, making their new partner public without much fuss.
Blank check combinations are a hack to bypass the traditional IPO process, allowing less mature companies to raise capital and go public. It also seemed like a great shortcut for SPAC promoters to make money. Private investors, not so much. The results of recent SPAC deals have generally proved lackluster at best and disastrous at worst.
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Some companies that had considered SPAC combinations withdrew from their proposed trades. Consumer fintech startup Acorns withdrew its blank check deal in January of this year, leading this column to call the overall SPAC experiment a failure because it failed to clear any meaningful portion of unicorn’s growing backlog. to work. The pace at which traditional IPOs have been able to launch multibillion-dollar startups publicly is well below the rate at which more unicorns are minted, and SPACs have been unable to change that market reality.
But many companies pursued SPAC combinations. Electric vehicle SPACs were particularly messy, as Marketingwithanoy reported here. The traditional view that SPACs are best used for floating, less spectacular businesses has persisted. And as a result, the post-combination performance of many SPAC deals has left retail investors in control.
The damage continues to mount, with a SPAC’d EV company recently declared bankrupt. It turns out those rosy projections were just that.
This morning, we’re holding a brief look at the performance of venture capital-backed companies that have gone public through blank check combinations. Then we’ll talk about imminent regulatory changes, the growing trend of SPAC deals being shut down, and then we’ll look to the future. Some companies are sticking to their plans to go public through SPAC. Are they daring, misguided or something else?
The damage done
BuzzFeed, a media company, was once a darling of the investment class. Crunchbase data shows that a16z led its $50 million Series E, while NBCUniversal led consecutive $200 million rounds. Other venture capitalists were New Enterprise Associates and RRE Ventures. BuzzFeed saw its private market value rise to about $1.7 billion.
Then time passed and BuzzFeed finally took the SPAC route to the public markets. Now it is worth about $240 million, or about $1.78 per share. (SPACs generally sell for $10 a share, which is the price at which they usually execute their combination.)
Latch, which sells hardware and software to apartment buildings, raised money from Techstars, Lux Capital and RRE, among others. PitchBook data indicates it hit a valuation of $411.76 million before the SPAC combination, pushing the valuation well above $1 billion. Today it is worth $194 million, or $1.35 per share.
AppHarvest, an agtech company that grows crops indoors, raised more than $100 million before going public on a blank check, data from Crunchbase shows. The value also hit $1 billion on its public debut, PitchBook reports. Now it is worth $270 million, or $2.65 per share.
The list goes on. Fintech consumer loan service, Dave reached a valuation of $1 billion in 2019. Then the value multiplied in his SPAC deal. Today, the valuation is down more than 90%, with an 89-cent share price pushing the company’s value below $350 million.
It is not correct to say that a SPAC combo is an appreciation kiss of death. But it’s fair to note that the two are paired more often than is comfortable.