
Is Social Capital trying to end run banks by creating IPO 2.0? - awwstn
https://www.recode.net/2017/8/23/16194374/social-capital-investment-firm-banks-ipo-public
======
kgwgk
Matt Levine comments on that today, his conclusion: "I don't understand the
problem this is solving. IPOs are annoying, but then they end, and you have
price discovery and an investor base and a relationship with the capital
markets. The problem of going public is not so much going public -- writing a
prospectus, doing a roadshow -- as it is being public -- filing quarterly
financials, dealing with investors, forever. The SPAC doesn't solve that. It's
just an interesting technological gimmick to deal with some of the superficial
difficulties of the process. I guess that's what tech companies are into these
days."

[https://www.bloomberg.com/view/articles/2017-08-24/unicorn-s...](https://www.bloomberg.com/view/articles/2017-08-24/unicorn-
spacs-and-cargo-quants)

~~~
leroy_masochist
If I had to guess, it's intended to solve a problem in founders' minds -- that
of the potential for an IPO process to go poorly. What if investors don't get
our culture? What if they're more skeptical of our growth and future plans to
improve margins than our VC investors have been?

As such I'd disagree with Levine's suggestion that IPOs are merely annoying
drudgery; I think they're a genuine point of concern for founders from a
strategic perspective, and that in a lot of cases, the founders are much more
worried about successfully executing the IPO than they are about the long-term
hassles of running a compliant publicly traded company.

The interesting question in my mind is whether the SPAC organizers are doing
this with a specific target already in mind, or whether they are actually
going to run a real process to determine which company to buy into. I guess
they would have to be transparent with investors with regards to their
intentions, right?

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JumpCrisscross
> _An acquisition by a blank check company with a management team that is
> well-known to, and respected by, technology company founders, their current
> third-party investors and their management teams, we believe, can provide a
> more transparent and efficient mechanism to bring a private technology
> company to the public markets_

This is similar to a reverse takeover [1]. (Replace "blank cheque company"
with "public shell".)

Why do reverse takeover candidates merge into their public shells instead of
getting acquired by a pre-capitalised blank cheque company? Because with the
latter, the acquirer needs the capital up front. You can do some financial
engineering whereby the acquirer "buys" some of the target's shares with the
shell's shares, but at that point a reverse takeover is simpler, cheaper and
less risky.

You'll notice a scaling problem with this method. If you need the capital up
front, you need to convince investors to come in up front. Doing that
replicates IPO bankers' jobs with extra steps and less transparency.

[1]
[https://en.m.wikipedia.org/wiki/Reverse_takeover](https://en.m.wikipedia.org/wiki/Reverse_takeover)

------
JSONwebtoken
I'm not convinced this novel idea would work in practice, but the investment
banking industry should be disrupted.

Too many Harvard grads being paid too much money to work too many hours to add
too little societal value.

~~~
jstanley
You don't get to decide how much "societal value" a job adds. Society decides,
by paying for it.

It's likely that the investment banking industry adds a lot more value than
you think it does, else where does the money come from?

~~~
Nursie
Of course you do - you can recognise that (for instance) carers add a lot of
value to society, making little money while each making a huge impact on a
small number of people.

And you can recognise that a lot of people make a lot of money from doing
things so abstracted from every day life, nobody would be the wiser if they
just popped out of existence one day.

~~~
DanBC
An off topic nitpick: In the UK strictly speaking carers by definition are not
paid. People often say "carer" when they mean "care worker". This is important
because care workers have legal rights which are often ignored, and because
carers are often not identified (and thus don't receive the statutory help
they're entitled to) because people think "carer" means "paid employee".

~~~
Nursie
Oh fair enough, I shall try to keep that in mind. I do use the terms
interchangeably and that's probably not helpful.

------
prostoalex
GSV Capital pursues a similar thesis (top holdings are Palantir and Spotify
[http://gsvcap.com/top-10-investments/](http://gsvcap.com/top-10-investments/))
but looking at their 5-year performance, the public interest has been rather
tepid.

~~~
probe
Very interesting, I'm surprised there aren't more public securities like this.

Here's a harsh, but interesting, counterargument to why GSVC isn't performing
well - [https://seekingalpha.com/article/1692862-use-the-twitter-
ipo...](https://seekingalpha.com/article/1692862-use-the-twitter-ipo-news-to-
exit-poorly-managed-gsv-capital)

I really like the idea of doing share buybacks of this public security, and
does offer a different path to liquidity for a company and founder/employee
(sell a part of your company for a publicly traded security, which you can
sell at market prices for immediate cash)

~~~
prostoalex
For a retail investor the proposition entails all of the risks of a private
investment with none of the instruments available on publicly traded stocks -
access to financials, flat common stock structure with no preferential stack,
analyst coverage, quarterly calls with the management to discuss strategy.

The instrument is useful for speculative bets, so I guess the supply of it
highly depends on the availability of speculative capital.

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dforrestwilson
Social Capital has invented nothing new here:
[http://www.investopedia.com/terms/s/spac.asp](http://www.investopedia.com/terms/s/spac.asp)

^ SPACs have been a thing for a long time. Chamath is trying to hype something
that he has no experience doing as the new new thing.

[https://www.recode.net/2016/2/9/11587720/social-capitals-
cha...](https://www.recode.net/2016/2/9/11587720/social-capitals-chamath-
palihapitiya-confirms-bidding-in-upcoming)

~~~
dforrestwilson
A followup: [https://www.cnbc.com/2017/08/24/high-profile-failures-
snap-a...](https://www.cnbc.com/2017/08/24/high-profile-failures-snap-and-
blue-apron-masking-a-great-year-for-ipos.html)

------
vxNsr

        Translation: Going public is a pain in the neck. And other tech bros are the answer to those annoying banker bros!
    

Ugh, when did Kara become so political?

