August 31, 2020

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

“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

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)

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

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

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”

“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

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