From my adventures in finance, I notice that nobody really understand what the experience is like for the issuer.
All the perspectives are about the secondary market.
SPACs: great for issuers
Crypto: great for issuers
NFTs: great for issuers
IPOs: great for issuers
Direct Listings: decent for issuers
Bonds: AMAZING for issuers
Be an issuer. Concepts become a lot more obvious alot faster when you think "what do the issuers get out of this" and dive and dig to find out the answer. If you're reading Matt Levine's digestible breakdown, it's too late.
Either way, just remember its an option sometime after you cover your basic finances. It doesnt have to all be a larger stock portfolio to eventually make a downpayment on a 30-year mortgage. You might actually have enough capital to play the real game
So what's to stop a VC firm from juicing the returns they provide their own limited partners by simply standing up a series of SPACs which they in turn use IPO proceeds to acquire some of their own poorly performing companies that couldn't get acquired or go public on their own, while also enjoying the 20% "promote" that sponsors get?
Nothing. Everything is a contract, you just need to get someone to agree to it. The regulator just makes sure information is disclosed, the investor is the one that has to be discerning.
In prior market conditions, people were not agreeing to SPAC contracts. In these market conditions they are.
In theory, the answer is that reputational risk disincentivizes this behavior. In practice, markets these days are pumped so full of easy money in need of somewhere to go that that seems a fairly remote concern. As to "is this all a game"--while I don't think it's good for society that this is the way things are, the extremely wealthy have been playing finance on easy mode for a while now, and so far there's no sign of that stopping.
There is not supposed to be any prior relationship between the SPAC's sponsors and the company being acquired. I believe it violates SEC rules. So the VC shouldn't be able to set up SPACs specifically for acquiring their own companies.
And yeah the SEC has input on the wording of the proposed target company vote. So they would eventually know.
But since VCs typically have single to low-double digit ownership of anything in their portfolio, it would probably pass muster just fine. Would just need to be disclosed.
I’ve seen SPAC investors approve buying newly formed companies, formed two months prior. So they’ll approve anything (except buzzfeed lol)
Both. But only for the credit worthy, which is determined by the market.
They all rely on new money from investors to pay back the old one. There is a word for that, but it doesn't matter.
The investors rely on assurances that their investment could be paid back from other sources.
In practice though they just use new debt from new investors to payoff the old one to old investors.
The remaining proceeds can and are used for anything with no transparency. But there doesn't need to be, as long as investors are paid back.
Credit markets are very misunderstood (Bonds, Credit, High Yield, Junk, Fixed income are basically synonyms, there are many subsections of this market and regional ones around the globe). People just think they're boring and don't take a second look.
> In practice though they just use new debt from new investors to payoff the old one to old investors.
One particularly interesting idea I've heard bandied about is to eliminate the rollover risk this represents by allowing the issue of perpetuities. Obviously repayment risk remains, as Evergrande currently reminds us.
So the issuer just pays interest forever until it happens to be paid off?
Similar to how a credit card is paid off? Or line of credit? That’s kind of interesting, crowd invested credit lines. Doable now, only by investing in a lending corporation, but not on the open market.
CREAM Finance’s Ironbank in the defi/open finance space is attempting something like that, where protocols get a credit limit and can borrow to finance their operations. Interest payments shared with investors.
> So the issuer just pays interest forever until it happens to be paid off?
Well, by definition perpetuities are never paid off. You could just buy your debt back on the open market though. I'm not a lawyer, so IDK if there's any interactions with "Dead hand" rules in the area based on a brief review of wikipedia[1], similar to 99 year leases or whatever motivated this potential disaster[2].
All the perspectives are about the secondary market.
SPACs: great for issuers
Crypto: great for issuers
NFTs: great for issuers
IPOs: great for issuers
Direct Listings: decent for issuers
Bonds: AMAZING for issuers
Be an issuer. Concepts become a lot more obvious alot faster when you think "what do the issuers get out of this" and dive and dig to find out the answer. If you're reading Matt Levine's digestible breakdown, it's too late.