When a company a startup wants to make an initial public offering (IPO), then there are several strategies that will be implemented. One of them is the Special Purpose Aquisition Company (SPAC) or a blank check company. It seems that many startups are using this strategy. However, who would have thought that Silicon Valley condemned this method.
According to Roger Lee of Battery Ventures, back then SPAC was only four bad letters in Silicon Valley. Currently, Lux Capital founder Peter Hebert calls the blank check company a stealer of the 2021 IPO calendar.
“We encourage high-end companies to take this seriously,” said Hebert, quoting from CNBC International, Monday (15/2/2021).
According to SPACInsider’s records, this blank check company has managed to raise US $ 44 billion through 144 deals. Half got in 2020, which is a record in itself.
What is SPAC?
SPAC contains a group of investors to raise funds for shell companies that do not have a clear business. This blank check company then had an ordinary IPO set a price of US $ 10 per share and then began looking for companies to acquire.
Once they got their dream and reached an agreement, SPAC and the company attracted another investor known as PIPE or private investment in public equity. Money from PIPE will later enter the company’s balance sheet to be exchanged for company shares.
Meanwhile SPAC investors will get shares from the acquired company, then investors can make public transactions. We can call it de-SPAC.
The advantage of this model is that SPAC allows the company to provide future projections, something that the company did not do in the IPO prospectus due to liability risk.
Wall Street Skeptics Regarding SPAC
Even so, Wall Street skeptics reminded SPAC of the dot-com (internet company) bubble of the late 1990s. At that time many startup companies easily entered the capital market to attract funds from investors through IPOs.
The high adoption of computers at that time made it easy for many investors to invest in internet companies. In fact, many have made internet company stocks a place to speculate.
As a result, the valuation of internet companies in the capital market grew bigger than the actual price. The problem is that many startup companies whose business models are not yet clear are bankrupt. There are even startups that went bankrupt 9 months after the IPO. Investors also lost money. More than half of internet IPO companies went bankrupt during the dot-com bubble era.