SPAC my Ass
The story of a shell company and man boy
After I graduated college, I moved to Salt Lake City, Utah. I had always wanted to live near the mountains (and mountain men), so when I got a job at Goldman Snacks I finally had a reason to. During my first few months, I became obsessed with the idea of dating a pro skier. They were all so cute, so athletic, and in VERY high demand.
Since I didn’t have any Olympic friends, I thought my best shot at landing a pro would be Bumble. After a few weeks of frivolous swiping, I finally matched with HIM (we’ll call him ‘Alpine Andy’). He was on the olympic downhill team, curly brown hair, 6’3, owned a dog, and wanted to take me on a date. I had also heard from some friends that he was super hot and insanely talented. To say I was excited was an understatement.
After weeks of texting, we finally made plans to meet up in a park near my house and have a picnic. I brought some of my favorite cheese, got dressed in my cutest outfit and waited for him to meet me.
When he finally arrived 30 minutes late, he sat 6 feet apart from me (before it was a thing), would not look me in the eyes and did not ask me a single question. I asked him about skiing, his dog, how long he had lived in SLC, everything I could think of but he wouldn’t throw me a single bone. He also forgot to bring the drinks we had talked about. Finally after about 45 minutes, he said “I just don’t think this is going to work, so I’m gonna head out.” So there I was, in the park, with my $40 worth of cheese, wondering WTF had just happened.
So what does this all have to do with SPACs? Well, think of Bumble like the stock market and Alpine Andy as a SPAC. I found him on a marketplace, invested in him, and he turned out to be a bust even though he was perfect on the outside.
WTF is a SPAC?
A SPAC is a special purpose acquisition company. Essentially, it is a shell company with no commercial operations that is formed to raise money through an initial public offering (IPO) for the purpose of acquiring an existing company. I’m literally tired writing this, I can’t imagine reading it.
How do they work?
Formation - They are formed by investors, or sponsors, that are normally well known venture capitalists or private equity firms. Chamath Palihapitiya is pretty much the king of SPACs. An investor like Chamath will say, “I’m gonna buy a company - I’m not gonna tell you which one, but trust me it’s gonna be incredible. Want to give me money to do it?”
IPO - Once the SPAC is formed, they raise money from institutional investors (big boys like Goldman Snacks and hedge funds) then IPO - aka they get listed on the stock exchange, for around $10/share, so anyone can buy them. Typically, when you buy a stock like TSLA or AAPL, you know what you’re buying. But in this case, you’re buying an Easter egg doused in glitter in hopes that it’s filled with chocolate and not empty. Think of Chamath as the Easter bunny and his SPAC as a glittery egg.
The Hunt - While people are buying the SPAC, it’s Chamath’s job to find a private company to acquire or merge with. While the investor may have known what the company was the whole time, they don’t have to.
The Acquisition - The final step to the SPAC process is the acquisition. Let’s say Chamath finds an incredible company and has enough money from all his investors to buy it. He first has to let all the investors vote if they want that company to be bought. If the majority of investors say, “yes!!”, the deal goes through. If they don’t agree, or Chamath can’t find the right company in a reasonable timeframe (~2 years), everyone gets their money back.
** The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds can’t be touched by the sponsor except to complete an acquisition or to return the money to investors if the SPAC is liquidated.
WTF do SPACs and Alpine Andy have in common?
They are investments - Before I went out with the skier, I spent hours messaging him and even bailed on a concert to meet him in the park. SPACs are oddly familiar. You gotta spend money on them, take a little risk and hope something magical happens. But be wary of the investment you make. I’m still upset I missed Galantis.
What’s on the outside might not be what’s on the inside - Before I met the skier, he seemed perfect. However, I could only judge him by his photos. I didn’t get a glimpse into who he actually was. With SPACs, you take a similar risk. You invest in something you don’t really know based on outer appearance.
They are shells - SPACs are shell companies - that means they literally have no operations, no offices, no structure. Their purpose is to literally buy an existing company. If you spoke to my date for 45 minutes like me, you would also agree Alpine Andy was a shell of a human.
Why do they exist?
A traditional IPO is costly and can take a lot of time (2-3 years). SPACs typically take 2-3 months to form and require fewer costs and financial disclosures. So yeah, they are faster and cheaper. IPOs are also typically pretty exclusive - investment banks will give first access to top hedge funds or ultra high net worth clients. With SPACs, your everyday investor can get access to an IPO.
Things to be Mindful Of
Do your Due Diligence - If only I had done a little more stalking would I have realized who Alpine Andy actually was. Turns out, I had a few friends that went on similar terrible dates with him (SLC is small people). The same thing goes for SPACs. While they can be a black box, you should really do your due diligence on the investors/sponsors that put them together. See if they’ve had successes/failures with SPACs and check out their business reputations.
Don’t put your eggs in one basket - Just like any investment, you shouldn’t put all your eggs in one basket. Lucky for me, when my date went bust, I had already started flirting with my roommate, so I had a deal pipeline waiting for me. Do the same with investing and make sure you’re diversified. If you need to get exposure to SPACS, consider investing in a SPAC exchange-traded fund (ETF) where you get exposure to a bunch rather than just one.
Hype - I got caught up in dating a skier because of the hype. I had always had a weird obsession with them without even really meeting one in person. SPACs have a similar buzz. Everyone is talking about them online and they have a ton of momentum. While some are going to yield great returns, SPACs often yield less return than your average IPO.
You Win Some, You Lose Some - My pro skier situation obviously didn’t work out but another one of my best friends is now dating a pro freestyle skier and they are madly in love. Sometimes you’re going to win the jackpot, and other times you’re gonna end up with Alpine Andy. It’s really up to you to do your due diligence and IMO, there’s also a bit of luck involved.
What’s next?
Stay tuned for next week’s article (I’ll be dropping hints on my IG @notyourbfsinvestmentadvice). I also host a weekly Clubhouse room on Tuesdays at 4:30pm PST/7:30pm EST called Not Your Boyfriend’s Investment Advice, so you can ask me anything live (we will be live April 13th!!). If there is a topic you want to discuss, please DM me or email me at kelsey.willock@tardiapp.com. See you next week lover.
Loved it! As always!