Capital Markets / Investor Relations in Two Minutes or Less
What is a SPAC?
A SPAC stands for Special Purpose Acquisition Corporation.
There are two traditional ways for a private company to become publicly traded.
The easy and less invasive route is the SPAC structure.
The more difficult and more rigorous route is the Initial Public Offering (IPO) structure.
The pathway chosen signals a lot about the quality of the underlying business to investors.
What Can Baseball Teach Us About SPACs?
Let us consider three baseball players:
Brien Taylor
Todd Van Poppel
Ken Griffey Jr.
Yes, my major awakening to Major League Baseball was 1990!
The common thread of these three players revolved around the considerable upside potential each player exhibited.
In the case of the first two players, their respective careers began and ended with the significant potential they exhibited.
In the case of Ken Griffey Jr., he represented a true irrefutable 5-tool player.
The lens of upside potential versus 5-tool player applies well to SPACs.
A SPAC IPO, or de-SPAC, revolves primarily around upside potential.
SPAC companies likely suffer from four problems that will ultimately limit them from reaching said potential:
1. Under provisioned around people, process, and systems
2. Lack of public company experience amongst the employee base
3. Less rigorous vetting process
4. Optimistic and unattainable projections
An IPO company represents the 5-tool player, for several reasons:
1. The business model is fully baked
2. More rigorous vetting process
3. Employees likely have significant public company experience
4. More realistic long-term financial projections
The key determinant for investors truly revolves around the quality of the underlying business.
If you are considering going public there is one key question to answer:
Do you have an actual business or just a great idea?
If you go public without a real business, two things are guaranteed to happen:
1. You will eviscerate shareholder value
2. You will likely enjoy a short tenure as a public company executive
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