Feb 26, 2021
Dylan’s Weekly Notes:
IPOs. Private equity. SPACs. Raising capital allows companies with an attractive product or service to obtain funding. They can do a traditional IPO, casting bait at roadshows with different narratives to prospective investors until they catch a bite. But the fish in the lake are limited by investment banks. Private equity raises require a bit of selling your soul and unfavorable conditions. Then there are SPACs.
SPACs aren’t new. But they’re newly en vogue. For companies, they offer a fast and easier path to capital. For SPAC participants, it’s an opportunity to get in on the ground floor. It’s quick. It’s efficient.
For the retail investor, IPOs are the elusive pot at the end of the rainbow. Initial placements are done with institutions, not Joe Blow. Joe also doesn’t have access to private equity firms because most Joes aren’t accredited investors. But buying shares in a SPAC gives the illusion of getting in early.
Forget about the fact that there’s an inherent premium priced into a SPAC. Forget that most SPACs are priced at $10 because this one goes to eleven. Forget that some SPACs don’t even have an acquisition target in mind when they begin trading publicly. Just buy it because it’s going to go higher, right?
Our capital markets are the most efficient on the planet. Companies with the best ideas bubble to the top and get the funding they need. Goldman Sachs will take you public, provided they can make money for themselves. If Goldman passes, private equity is lurking out there willing to take your first born in exchange for a lot of zeros.
But if you want to skip the pomp and circumstance, there’s the SPAC. The metaphorical equivalent of a furnished home waiting for a family. Whether that family will make for good neighbors or increase property values doesn’t matter. What matters is you, me and grandma can buy a piece of the house in advance. Knowing what we’re buying isn’t as important as being able to buy. And maybe, just maybe, we’ll get lucky and make a few bucks. A win for the company and a win for retail traders. Wouldn’t that be spac-tacular?
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