2020: A SPAC odyssey

A year of uncertainty opened tech's eyes to an IPO alternative. Whether the attraction will remain in 2021 is less clear.

2020: A SPAC odyssey

Was it just a fad, or is the SPAC here to stay?

Image: Grafiker61/Protocol

For many in the tech industry, 2020 was a year of two acronyms. There was COVID, obviously. And then there were SPACs.

Special purpose acquisition companies, or SPACs, were catapulted into the mainstream this year, quickly rising from a niche IPO alternative to a credible option for a lot of startups. The numbers are testament to the explosion of interest: Over 66 SPACs have been raised this year, according to PitchBook, up from 30 in 2019. Heading into 2021, plenty of those are still looking for targets to take public, suggesting the SPAC boom isn't over just yet.

Though sometimes seen as complicated, the underlying SPAC process is relatively simple. A "sponsor" (usually a financial institution) creates a SPAC, listing it on the stock market and raising money from public investors. The SPAC's aim is to find a private company, acquire it and take it public, with the SPAC's investors ultimately owning a portion of the target company. Once the SPAC sponsor has found a target, they announce the deal, and the "deSPAC" process begins: Current SPAC investors are convinced to keep their shares and new investors are courted. If all goes to plan, the target company ends up public having raised money, with the SPAC sponsor typically taking a fee in the form of stock.

SPACs have steadily been growing in popularity for a few years now. Over that time, they've been shedding their older reputation as a way to list unattractive companies. In the tech industry, Chamath Palihapitiya was their biggest proponent, taking Virgin Galactic public via a SPAC last summer. The success of that listing attracted interest from others, and some boards and founders started to learn about the process. In the broader discussion of IPO alternatives, though, they were still second place to direct listings.

Then came March. Over the space of a few days, the stock market recorded some of its worst days on record and private fundraising all but dried up. For companies that wanted to go public or raise money, SPACs suddenly looked like a beacon of hope. SPACs involve negotiating with just one party — the sponsor — rather than the multiple investors that have to be convinced to buy into an IPO. And if you can't agree on a price that suits, you can always decide not to proceed without facing the embarrassment that comes from pulling an IPO at the last minute. In an uncertain environment, those advantages made SPACs particularly appealing.

"In the earlier part of this year when the market did slow down and we saw heavier volatility ... [SPACs provided] a very attractive alternative," Nasdaq head of capital markets Jay Heller told Protocol. Shift co-founder Toby Russell, who used a SPAC to go public this year, cited the "volatility and the risk in the COVID environment" as one reason why a SPAC stood "head and shoulders" above an IPO for Shift.

As markets started to recover in the spring, the other big advantage of SPACs came into play: speed. It's significantly quicker to go from private to public via a SPAC than it is via an IPO. In a market where no one knew if the good times would last, that was particularly appealing. "Given how well the public markets were performing," Shift co-founder George Arison said, "getting into the public markets faster than we had originally planned made a ton of sense."

In other words, the SPAC boom was partly driven by necessity. Hard as it is to imagine now, with IPOs popping all around us, in the first half of this year, SPACs were one of the only ways for some companies to raise money and go public. But that semi-forced adoption opened people up to the possibility of using SPACs even in more normal times, with investors and entrepreneurs alike starting to see their potential benefits. The speed that was a necessity this year might be a nice-to-have in other times, for example. And unlike IPOs, SPACs allow companies to file forecasts. Citi's co-head of North America equity capital markets, Paul Abrahimzadeh, said that gets "the market more clarity on growth," making SPACs particularly appealing for companies with hockey-stick performance.

Investors started to get in on the trend, too. Ribbit Capital, FirstMark and Lux Capital have all launched their own SPACs. For FirstMark, there's the potential for a new kind of "full-stack VC firm": It said it's open to taking one of its portfolio companies public, meaning it can guide startups all the way from conception to listing. Even SoftBank, the biggest proponent of "stay private longer," has said it plans to launch a SPAC.

Going into 2021, that influx of new SPACs could make them even more attractive for startups looking to list. "It'll give leverage to the companies to negotiate better and better terms," IVP's Jules Maltz said. Daniel Cohen, who ran the SPAC that took Shift public, agreed, saying that sponsors will likely have to make increasingly bigger investments in the companies they take public to seal a deal.

As with any new trend, though, there's a risk that it's inflating too quickly. "One of the things I worry about with this proliferation," Arison said, "is that [sponsors] don't actually know what they're doing." Navigating the "deSPAC" process, he said, is tricky: Sponsors have to convince the SPAC's backers to stay invested and court new investors, which is easier said than done. If new SPAC sponsors fail to do a good job, there's a risk that some high-profile SPACs won't go according to plan — taking SPACs' reputation back to square one.

Next year could therefore determine whether SPACs stick around as part of the going-public arsenal, or if they're relegated once more to an option only for the least-attractive companies. And with SPACs facing plenty of competition from other innovative methods — new regulation could make direct listings much more attractive, while others are experimenting with auction-based IPOs — their success is by no means guaranteed even if their reputation remains untarnished.

Fintech

Gavin Newsom shows crypto some California love

“A more flexible approach is needed,” Gov. Newsom said in rejecting a bill that would require crypto companies to get a state license.

Strong bipartisan support wasn’t enough to convince Newsom that requiring crypto companies to register with the state’s Department of Financial Protection and Innovation is the smart path for California.

Photo: Jerod Harris/Getty Images for Vox Media

The Digital Financial Assets Law seemed like a legislative slam dunk in California for critics of the crypto industry.

But strong bipartisan support — it passed 71-0 in the state assembly and 31-6 in the Senate — wasn’t enough to convince Gov. Gavin Newsom that requiring crypto companies to register with the state’s Department of Financial Protection and Innovation is the smart path for California.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.

Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

Keep Reading Show less
James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.
Workplace

Slack’s rallying cry at Dreamforce: No more meetings

It’s not all cartoon bears and therapy pigs — work conferences are a good place to talk about the future of work.

“We want people to be able to work in whatever way works for them with flexible schedules, in meetings and out of meetings,” Slack chief product officer Tamar Yehoshua told Protocol at Dreamforce 2022.

Photo: Marlena Sloss/Bloomberg via Getty Images

Dreamforce is primarily Salesforce’s show. But Slack wasn’t to be left out, especially as the primary connector between Salesforce and the mainstream working world.

The average knowledge worker spends more time using a communication tool like Slack than a CRM like Salesforce, positioning it as the best Salesforce product to concern itself with the future of work. In between meeting a therapy pig and meditating by the Dreamforce waterfall, Protocol sat down with several Slack execs and conference-goers to chat about the shifting future.

Keep Reading Show less
Lizzy Lawrence

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She's a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school's independent newspaper. She's based in D.C., and can be reached at llawrence@protocol.com.

LA is a growing tech hub. But not everyone may fit.

LA has a housing crisis similar to Silicon Valley’s. And single-family-zoning laws are mostly to blame.

As the number of tech companies in the region grows, so does the number of tech workers, whose high salaries put them at an advantage in both LA's renting and buying markets.

Photo: Nat Rubio-Licht/Protocol

LA’s tech scene is on the rise. The number of unicorn companies in Los Angeles is growing, and the city has become the third-largest startup ecosystem nationally behind the Bay Area and New York with more than 4,000 VC-backed startups in industries ranging from aerospace to creators. As the number of tech companies in the region grows, so does the number of tech workers. The city is quickly becoming more and more like Silicon Valley — a new startup and a dozen tech workers on every corner and companies like Google, Netflix, and Twitter setting up offices there.

But with growth comes growing pains. Los Angeles, especially the burgeoning Silicon Beach area — which includes Santa Monica, Venice, and Marina del Rey — shares something in common with its namesake Silicon Valley: a severe lack of housing.

Keep Reading Show less
Nat Rubio-Licht

Nat Rubio-Licht is a Los Angeles-based news writer at Protocol. They graduated from Syracuse University with a degree in newspaper and online journalism in May 2020. Prior to joining the team, they worked at the Los Angeles Business Journal as a technology and aerospace reporter.

Policy

SFPD can now surveil a private camera network funded by Ripple chair

The San Francisco Board of Supervisors approved a policy that the ACLU and EFF argue will further criminalize marginalized groups.

SFPD will be able to temporarily tap into private surveillance networks in certain circumstances.

Photo: Justin Sullivan/Getty Images

Ripple chairman and co-founder Chris Larsen has been funding a network of security cameras throughout San Francisco for a decade. Now, the city has given its police department the green light to monitor the feeds from those cameras — and any other private surveillance devices in the city — in real time, whether or not a crime has been committed.

This week, San Francisco’s Board of Supervisors approved a controversial plan to allow SFPD to temporarily tap into private surveillance networks during life-threatening emergencies, large events, and in the course of criminal investigations, including investigations of misdemeanors. The decision came despite fervent opposition from groups, including the ACLU of Northern California and the Electronic Frontier Foundation, which say the police department’s new authority will be misused against protesters and marginalized groups in a city that has been a bastion for both.

Keep Reading Show less
Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

Latest Stories
Bulletins