With IPO Freeze, Dying SPACs Won’t Be Coming Back

admin

If your business got off the ground in the last decade, 2022 may be the first year you’ve experienced a painful reality of the startup world — the market for venture capital goes up and down . Lucky timing makes a big difference.For example, startups that raise capital when times are tough and build their…

If your business got off the ground in the last decade, 2022 may be the first year you’ve experienced a painful reality of the startup world — the market for venture capital goes up and down .

Lucky timing makes a big difference.For example, startups that raise capital when times are tough and build their business to $100 million in revenue growing at north of 40 percent a year, may be able go public just when investors crave for your stock.

The Violent Up And Down Movement Of Technology Stocks And IPOs

The recent market fluctuations are nothing new.For instance, while it began rising in 1995 after the successful initial public offering (IPO) of Netscape, the NASDAQ soared 86 percent in 1999 the year before the dot-com crash began — which sent NASDAQ down 76 percent from its March 2000 high of 5,048 to its September 2002 low of about 1,200.

History does not repeat itself; but sometimes it rhymes, noted Mark Twain.That comes to mind in considering that 2021 was a record year for IPOs — when 1,073 companies IPO’d, raising $317 billion.In the first half of 2022, the totals were down 91 percent and 97 percent, respectively with 92 companies raising nearly $9 billion, according to FactSet .

In peak boom years — like 1999 and 2021 — investors lower their the quality standards.That’s because headline grabbing profits strike more investors with the fear of missing out (FOMO).Since many of them lack the social cachet needed to access the best IPOs, aggressive opportunists enter the scene to satisfy their demand.

How Blank Check Companies Take Advantage Of Envious Investors

Such opportunists include the promoters of blank-check companies — publicly-traded companies with no revenues and no business except for the intent to acquire one.

Such companies have been around since the 1880s.According to the Los Angeles Times , in 1881 railroad promoter Henry Villard created a “blind pool” the exact nature of which he would reveal “90 days hence.”

Villard’s great insight was that investors are more eager to fork over their money if you don’t tell them how you will invest it.

Ultimately Villard went bankrupt — giving up a beautiful Manhattan mansion which was later occupied by tax cheat Leona Helmsley.

Old Blank Check Wine In New Bottles: Special Purpose Acquisition Companies (SPACs)

During the last several years, that old blank-check wine has been poured into a new bottle — labeled SPACs, According to the New York Times , SPACs raise money through IPOs “and merge with a privately held company, effectively taking them public.”

SPACs enable lower-quality companies to go public fast.That’s because — in exchange for a whopping 20 percent stake in the funds for a “nominal investment” — SPAC promoters enable private companies to go public while bypassing the “heavy regulation and drawn-out legal process” demanded of IPOs, noted the Times.

Another hitch for SPACs is that if they can’t close a deal to merge with a private company in two years, they must return the money that they raised to their investors.That is just what happened to largest-ever SPAC, “a $4 billion vehicle created by the billionaire investor William A.Ackman, [that] was wound down in July,” the Times reported.

Like the IPO market, SPACs underwent a rapid ascension in 2021 followed by a sharp decline this year.In 2021, SPACs raised more than $160 billion — so far in 2022, that figure is down some 92 percent to about $13 billion, according to SPAC Research.

Early Warning Signs That The Bubble Is Poised To Burst

For future reference, if you are looking for signs of a market top, run away from the places where the tourists suddenly flock.Ackman’s was a SPAC tourist — but at least he was well known as a hedge fund investor.

The most obvious signs of a SPAC top, however; were celebrities like Jay-Z and Serena Williams.

Crypto-currency is another sketchy field that attracts tourists.

A case in point is Matt Damon who in October 2021 was pushing Crypto.com .Since then, Bitcoin has fallen 72 percent from its November 2021 peak of about $68,000.

To be sure, not all SPAC promoters have completely exited the scene.Consider former Facebook executive, Chamath Palihapitiya, who was able to close six SPAC mergers — including the spaceflight company Virgin Galactic and the online lender SoFi.All but one now trade below their initial price.

Meanwhile, Palihapitiya has shut down two of his funds that oversaw some $1.6 billion.after failing to find merger partners.He is still seeking merger partners for his two biotechnology focused SPACs, according to the Times.

The lesson for leaders: If you can’t be lucky, be smart and raise capital by making your business profitable.

The post With IPO Freeze, Dying SPACs Won’t Be Coming Back appeared first on Inc…

Leave a Reply

Next Post

Nano Money Compared With Nexty Money - Crypto

Categories Categories on 15 minutes ago Are you currently aware of the fiat currencies and the crypto currencies? They both are currencies in one single type or the other and are start for community use over the world.But they're equally different and specific in their very own ways.There is always one class that favors the…

Subscribe US Now