SPAC IPOs / Blank Check Companies — 🔥 HOTTEST INVESTMENT IN 2020 🔥
but . . . why?
What is so potent about this financial instrument is that it has caused some of the most eye-watering massive gains in a market that is already saturated with them?
Oh, and if you have no idea what I’m talking about, no worries.
I’ll explain it simply.
As we’ve discussed, the Traditional IPO process is totally broken.
In essence, there are two principle problems with it: the pricing process, and the fees.
We covered both of those problems in-depth, so now let’s talk about addressing that head-on.
The Solution To Broken IPOs
Let’s talk solutions: what is the answer to the IPO pricing problem?
Remember that the core problem with Traditional IPOs is the pricing process, and that the company going public is inherently at a disadvantage.
Essentially, the bank deals in absolutes, while the company looking to go public have to play along or risk their chance at riches through a public listing.
So, what is the alternative to pursuing a Traditional IPO?
Well, there are two very promising approaches that are worth considering.
Let’s explore them now:
Solution #1: Direct Listings
One simple approach is to conduct direct listings, of which both Spotify and Slack have done. In a direct listing, companies going public circumvent the Traditional IPO process entirely and instead allow existing shareholders to sell their shares directly to the public at market-clearing prices (hence the term ‘direct listing’).
The goal is to have better price discovery.
It should also allow the company to raise more capital for future business endeavors.
Solution #2: Reverse Takeover Companies/ Shell Comanies / SPACs
The longer answer is that many companies can actually mitigate the pricing issues by going public sooner or by leveraging reverse takeovers.
The earlier a company goes public, the less aggregate dollars they miss out on if there is a pricing issue. Mispricing the IPO by 25% for a $400 million company is $100 million vs. mispricing the IPO by 25% for a $1 billion company is a loss of $250 million for the company.
The reverse takeovers allow a shell company / blank check company / SPAC to acquire an existing attractive business.
The final result is that the private market company is now publicly traded post-merger with the publicly traded smaller organization. We recently saw Chamath Palihapitiya do this with Virgin Galactic and it was quite successful.
Are These Solutions Realistic Replacements For The IPO?
In each scenario, we are likely to see a convergence of the reversal of both trends. Companies will start going public sooner and they will avoid the traditional IPO process. Founders will pursue direct listings if they are larger and small-to-medium sized businesses will pursue reverse takeovers.
The public markets have long been avoided by tech company founders.
. . . those days are numbered though. There are definitely challenges with operating a publicly-traded company, but the benefits drastically outweigh the downside.
After all, I think another real change we’re seeing is a decline in the prestige of the VC firm, which is often used as a signaling factor for investing trends, combined with a rise in the profile of the individual.
That’s important.
Bill Gurley of Benchmark and outspoken anti-IPO advocate has been arguing this concept for a while now:
So, the trends are clear to me: the emergence of SPACs & Direct Listings contrasted against the decline of VC Firms & Traditional IPOs.
When we look big picture, it’s clear that this trend is part of a larger decline in “safe” & “passive” investing. Rather, investors looking for ROI, traders looking for alpha, and even retirement savers looking for stability will all increasingly have to embrace more risk for the same returns compared to years ago.
Risk-on assets are the new vehicle for finding new profits in this new market.
So long as Central Banks of the world continue to embrace race-to-the-bottom monetary policy and Governments of the world continue to adopt slippery-slope fiscal policy, then it is imperative we take our financial destiny into our own hands by accepting our own economic policy.
That is what it means to be a SOLO CAPITALIST 🔥
That is what this newsletter is all about — finding and backing the next big thing that will absolve us of the need to participate in this rat race.
We need to decouple ourselves from this unstable and morally bankrupt system and chart a new path.
We need to seek new avenues through new methods, like SPACs + Solo Capitalism.
We need to discover new opportunities in new markets, like the rapidly evolving Electric Vehicle industry & the Green Energy revolution.
We need to embrace the new investing age and rewrite the status quo.
Ready to get started?
If you’d like to learn more about SPACs, killer trading strategies, and building a system for consistent profit, check out our site to get free access to some of our best courses, such as the ‘Trading The Next Big Thing: Secrets To SPAC Gains’ course and ‘The Wheel: Passive Income Through Trading’ course.
See you there!
Cheers,