Everything You Need To Know About SPACs | Anuj Abrol on Venture Stories

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Key Takeaways

  •  A SPACs (special purpose acquisition company) is a blank check company that is publicly listed. Its goal is to buy or merge with a company within 18-24 months.
    • If a SPAC doesn’t buy a company within that time range, you basically just get your money back so there’s little downside
  • Two benefits of SPACs:
    • They’re forward-looking and often have companies that may not produce a profit right now, but will produce a profit in the long-run
    • SPACs allow anyone to invest in the company, unlike private companies where you need to be an angel investor or venture capitalist
  •  From March-May 2020, more SPACs IPO’ed than traditional companies IPO’ed
    • In a traditional IPO, a bank gets 3-7% while when you do a SPAC, the banks only get about 5%
  • Why do people want to see private companies go IPO sooner?
    • 1) It forces the company to be honest and transparent about their results
      • “It forces you to be honest about how healthy your business is now, what is the direction you’re going into things” – Anuj Abrol
    • 2) It allows everyday investors to get access to more investments
      • “If you’re staying private for longer, that means a lot of the growth is not necessarily being captured by the every American investor. It’s largely going to a venture capitalist.” 

Intro

  • Anuj Abrol (@nujabrol) is the founder of Witty Wealth, a newsletter focused on sharing investment advice in an entertaining and educational manner
  • Host: Erik Torenberg (@eriktorenberg)  

About Anuj Abrol & Trading

  • Anuj Abrol is the founder of Witty Wealth
    • “Witty Wealth is a community that helps tech stock investors build confidence in their own abilities” – Anuj Abrol
      • Anuj will be using lessons he learned from evaluating startups and applying them towards tech stocks. He’ll also explain SPACs (special purpose acquisition company).  
      • He’s also trying to make investing a multiplayer game where, as a community, people figure out what they want to invest in
  • Where are more and more young people using Robinhood and trading stocks?
    • One possibility: Young kids have been given a stimulus check and are bored since sports aren’t on and they are seeking entertainment
      • Dave Portnoy from Barstool has been trading stocks live and has made it into a sport 

SPACs 101

  • A SPACs (special purpose acquisition company) is a blank check company that is publicly listed. Their goal is to buy or merge with a company within 18-24 months.
    • If the SPAC doesn’t buy a company within that time range, you basically just get your money back so there’s little downside
  • Two benefits of SPACs:
    • They’re forward-looking and often have companies that may not produce a profit right now, but will produce a profit in the long-run
    • SPACs allow anyone to invest in the company, unlike private companies where you need to be an angel investor or venture capitalist
  • SPACs were created in 1992
    • “SPACs do rise in popularity whenever we’re entering volatile times or in sort of a recessionary time” – Anuj Abrol
      • “Just because things are popping, it doesn’t necessarily mean it’s an inefficient market”
  • Chamath Palihapitiya is considered one of the revivalists of SPACs because he created a SPAC called IPO.A and then it merged with Virgin Galatic
  • “I think they can be a great vehicle for the future if they’re used correctly” – Anuj Abrol
    • It gives regular Americans access to VC-type deals that they can invest in

Direct Listings & IPOs

  • From March-May 2020, more SPACs IPO’ed than traditional companies IPO’ed
    • In a traditional IPO, a bank gets 3-7% while when you do a SPAC, the banks only get about 5%
  • In a direct listing, you aren’t necessarily raising new capital, it’s mostly just employees selling their shares
    • “The most efficient pricing, is in theory, direct listing” Anuj Abrol
      • In the middle, you have the SPAC: It’s a direct negotiation that the company does with their acquirer and they’re very clear and transparent about the price
        • The IPO is the least efficient because you have the least amount of control over the stock price 
  • Why do people want to see private companies go IPO sooner?
    • 1) It forces the company to be honest and transparent about their results
      • “It forces you to be honest about how healthy your business is now, what is the direction you’re going into things” – Anuj Abrol
    • 2) It allows everyday investors to get access to more investments
      • “If you’re staying private for longer, that means a lot of the growth is not necessarily being captured by the every American investor. It’s largely going to a venture capitalist.” 

More on SPACs

  • The 3 best-performing SPACs so far:
    • IPO.A merging with Virgin Galatic
    • VectoIQ merging with Nikola Trucks
    • Diamond Eagle merging with Draft Kings
  • The 3 things you want to look for in a sponsoring investor:
    • Do they have experience in the space?
    • Do they have experiencing operating companies? 
    • Do they have a history of financing or raising capital?

Bull & Bear Cases For Companies

  • Slack:
    • Bull: Is an amazing product and their churn numbers are quite low
    • Bear: The question is, can they beat Microsoft teams and Microsoft’s distribution advantage?
  • Peleton:
    • Bull: Has a great brand and a cult following
    • Bear: Aside from their brand, they don’t have much of a competitive moat
  • Zoom:
    • Bull: Amazing product
    • Bear: Also doesn’t have much of a competitive moat. It’s more a default option for video conferencing than the best video conference tool.
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Notes By Alex Wiec

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