SPACs, IPOs, Founder Advice & More | Kevin Hartz & Troy Steckenrider on 20VC with Harry Stebbings

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Key Takeaways

  • We see this SPAC phenomenon not as a flash in the pan, not as a quick up and down…but really an enduring vehicle to bring our innovation companies to market and we find that to be extremely exciting” – Troy Steckenrider 
  • What is a SPAC?
    • A SPAC is a pool of capital that is used to invest in a private company and help them go public. 
    • The capital is raised on the public markets through a traditional IPO and goes into a bank where it is held for up to two years. 
    • During that 2-year time, the SPAC management team has an opportunity to go find a partner company, negotiate a deal with them, and take them public. 
  • What are the benefits of a SPAC?
    • From the private company’s perspective, it’s an easier path to get into the public markets
    • From the SPAC’s perspective, it’s a way to invest in a company before it IPOs
  • “A company with a strong management team with a clear competitive advantage in an unusual market will always find great investors and draw those great investors” Kevin Hartz

Intro

  • Kevin Hartz (@kevinhartz) is Co-Founder & Partner at A*, a newly listed special acquisition company which raised $200M to acquire and take public a tech startup. 
  • Troy Steckenrider is Kevin’s co-founder and Partner at A*. Prior to A*, Troy was COO @ ZeroDown changing the landscape for homeownership with $136M in funding.  
  • Harry Stebbings (@HarryStebbings)

Books Mentioned

SPACs 101

  • Kevin and Troy are the co-founders of the SPAC company A* and are looking to partner with companies in the innovation economy 
    • SPACs are here to stay:
      • We see this SPAC phenomenon not as a flash in the pan, not as a quick up and down…but really an enduring vehicle to bring our innovation companies to market and we find that to be extremely exciting” – Troy Steckenrider 
  • What is a SPAC?
    • A SPAC is a pool of capital that is used to invest in a private company and help them go public. 
    • The capital is raised on the public markets through a traditional IPO and goes into a bank where it is held for up to two years. 
    • During that 2-year time, the SPAC management team has an opportunity to go find a partner company, negotiate a deal with them, and take them public. 
  • What are the benefits of a SPAC?
    • From the private company’s perspective, it’s an easier path to get into the public markets
    • From the SPAC’s perspective, it’s a way to invest in a company before it IPOs

The Evolution of Finance

  • In the 1960s and ‘70s, the venture capital business was actually a small and sleepy industry
  • There have been many startup incubators, but it was really Y Combinator that made a huge impact on the startup world
    • “While there have been many incubators and accelerators before that, it was really Y Combinator that got that correctly” – Kevin Hartz
  • In the 1990s, the average company that went public was 4 years old. Since the 2000s, the average company has been 12 years old.
    • Amazon and MIcrosoft went public at about a $500 million evaluation each

Making SPACs More Win-Win

  • A SPAC can still make money from taking a partnering with a private company even if the shares don’t sell well
  • Kevin and Troy are currently working on better aligning the incentives for SPACs and private companies so that it’s more of a win-win situation:
    • “If there is a fair deal for both sides, if there’s a fair deal that partner companies really see out there, you’re going to attract the best companies…We do want to be at the forefront of doing this” – Troy Steckenrider 
      • “What the future holds is a great reform vehicle”

Raising Capital

  • “A company with a strong management team with a clear competitive advantage in an unusual market will always find great investors and draw those great investors” Kevin Hartz
  • SPACs usually look for companies with a 4-6x valuation. So Troy and Kevin’s SPAC of $200 million is looking at companies with a valuation of $800 million to $1.2 billion.
    • “In the long-term the business will be valued in a way that is fair”  Kevin Hartz

Additional Notes

  • A PIPE is a private investment in a private equity. Typically, a large institutional investor will take a stake in a private company.
  • Troy’s favorite book is Churchill: Walking with Destiny by Andrew Roberts
    • Troy enjoyed learning about Churchill’s leadership philosophy throughout stressful times
  • Kevin’s favorite book is a company’s business financials
  • The hardest element of running a SPAC?
    • Getting a SPAC up and running is easy, finding a great partner is difficult
    • Finding a durable business you want to hold for the long-term
20VC with Harry Stebbings : , , , , ,
Notes By Alex Wiec

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