SPAC sponsors could soon be held liable for over-hyping to investors The US Securities and Exchange Commission is said to be preparing to adopt rules that would make those overseeing special purpose acquisition companies (SPACs) liable for financial exaggerations to investors. According to Bloomberg, the Wall Street watchdog is expected to release expanded rules for SPACs on Wednesday. The rule …
There is a bandwagon and most of the people jumping on it are crooks, same could be said for selling shares in these new-fangled joint stock companies which allow the 'investors' to walk away with no liability !
But doing a traditional IPO is also a pain in the posterior. You find a merchant bank that will take 5-8% of your company as a fee and another 20-30% of your company that will be sold at a steep discount to their chums. You then spend a year tarting yourself around investors instead of building your business. Every little thing you say in this year, to anybody, is going to be jumped on later by some lawyer to either get part of your company if it does well, or to get money back if it doesn't.
On the IPO day, if you are lucky, the price zooms up beyond what your bank (that took 5+% to advise you) estimated, and all their chums cash out - you are locked in until all the excitement is over. At the end of the day, if you are lucky, the bank will make 2x what the founders make.
The SPAC alternative from your point of view is that a man turns up at your door with a very large cheque and you have a free choice.
The post-SPAC alternative is that a man from Google/Facebook/Samsung turns up with a smaller cheque and a threat to buy a competitor and put you out of business if you don't accept.
For an investor, you have the choice to give Mark Cuban your $$$$ in the hope that they will make a good investment, without you knowing what it is. Investing in an IPO you are hoping that you can buy in from the insider bank selling, and make a profit !
That's a pretty good summary.
And people wonder why so the founders of so many small startups end up selling out to some big company like Facebook or Microsoft willing to write them a big check - the buyer not the seller pays the M&A fee for that, and those fees are generally in the low single digits so it is a lot less of a slice than an IPO anyway.
For every company that IPOs and turns into a Facebook or Google, there is countless others that never reach a high enough stock price to make up for the IPO cut, or do it so briefly most founders miss out believing it will go even higher. Even those that succeed may take a while to do so, and you'll kick yourself if you sell too early and miss out on the really big gains but also kick yourself if you hold too long waiting for big gains that never materialize.
Taking the buyout is guaranteed money, at worst you might have to wait 24 to 36 months to get it all if the company makes you staying on a condition of the sale, but you know what you'll be getting with minimal risk and stress.
If you don't know what this is then let me inform you.
When No 45 aka Donald J Trump was kicked off social media he vowed to start his own.
He raised a shed load of $$$ via a SPAC (most of that went into his own pocket AFAIK) and Truth Social was born. There seems to be one rule for Truth Social and that is 'you cannot criticize the dear leader'.
Since its launch, it has been a total and abject failure. no 45 hasn't used it since it launched which should tell you that this was a scam/grift or something equally smelly right away. Lots of gullible investors (including his most devoted sycophants like MTG) have lost lots of money while DJT has been laughing his way to a Hole in One (Apparently).
Personally, I hope that everyone involved with the launch of Truth Social gets to wear an orange jumpsuit but given the lacklustre response of the DOJ to his many more serious crimes, I very much doubt it.
It would seem to me that if the problem is that these schemes are proving to be a poor investment for buyers because only the big boys make money, then there is a quite simple solution : don't invest your own money in them. I was never aware that it was the regulator's job to guarantee that a profit would be made if you put your money in, I thought it was your own responsibility to decide whether it was a good investment or not.
When investing in tech, it helps if you understand tech, rather then believing in magic. Just thinking that it's got to be valuable because of hype is your problem if you open your wallet hoping to cash in big time and lose out.
Why would you be stupid enough to give your money to a venture capital fund with no idea what they are going to invest in? Those poor people who backed Sequoia and A16Z and Kleiner-Perkins must be dumb.
Fortunately the SEC only allows rich people to invest in VC funds because its job is to protect poor stupid people.
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