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Deep Dive into SPACs with Harry Sloan and Eli Baker

Yulong Cui Analyst ARK Invest
by Yulong Cui, Analyst
Deep Dive into SPACs with Harry Sloan and Eli Baker
Deep Dive into SPACs with Harry Sloan and Eli Baker

Deep Dive into SPACs with Harry Sloan and Eli Baker

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A SPAC, or Special Purpose Acquisition Company, is a company with no commercial operations and is formed strictly to raise capital through an IPO to acquire an existing company. Today’s guests are twhich leads Soaring Eagle Acquisition Corp, a special purpose acquisition company. Together Harry, Eli, and their partner Jeff Sagansky have done several SPACs with target companies such as Skillz and DraftKings and our conversation today is all about how SPACs work and some of their advantages and pitfalls.

We begin with a quick definition of a SPAC and how it differs from a regular way IPO. We then talk about a few of the advantages of taking companies public using SPACs and the kinds of companies that this deal structure works well for. Harry and Eli take listeners through a granular explanation of what a typical SPAC would look like and the different phases the process involves. Our conversation then turns to some of the problems being seen in the world of SPACs and perhaps the market more generally right now. We explore the idea of SPAC sponsors being ‘gig economy IPO bankers for investment banks’. We talk about the problem of too many SPAC sponsors raising too many deals which points to a potential bubble. Part of what SPACs involve are long-term projections for young companies but these can be untrustworthy and this is producing a situation that is being exacerbated by over-speculation and retail investing trends. Our conversation winds down on this note and our guests speak to whether this could be something that regulators can address. We end off on the question of whether SPACs are here to stay. Join us

Key Points From This Episode:

  • Introducing Harry and Eli and how they got into doing SPACs.
  • A brief definition of a SPAC and how presents a different way of going public than an IPO.
  • Initial SPACs our guests worked on and why they chose the companies they did.
  • Advantages of using SPACs instead of regular way IPOs.
  • Why the observation that 70% of IPOs are SPACs now needs to be reframed.
  • A deep dive into the process of how SPACs work: IPOs via SPAC, the purpose of PIPE, etc.
  • How there is so much scarcity value attached to PIPEs and why this is causing a bubble.
  • Exploring the idea that ‘SPAC sponsors are gig economy IPO bankers for investment banks’.
  • Many SPAC sponsors raise too many deals unfortunately making things into an AUM game.
  • Why Harry and Eli think they are different from other players in the game.
  • What goes into the extra work Harry and Eli put into SPACs regarding getting to know target companies.
  • Why the projections made by SPACs are often less trustworthy than those by more mature publicly traded companies.
  • Difficulties drawing the line of when is it too early to take a company public using a SPAC.
  • Another issue of people not voting to get deals done because of retail access to options.
  • Final perspectives on why the SPAC phenomenon feels speculative and retail-heavy.
  • Harry comments on the Churchill leak and why leaks are a problem for SPACs but not regular IPOs.
  • Problems about SPACs that regulators should address.
  • Whether the amount of SPACs will continue to grow or hit a wall instead.