Startups advertised via SPACs see fewer restrictions to promote actions

Publicity and predictions of rapid growth have become routine aspects of the booming IPO alternative of becoming known through SPACs. The use of so-called blank check companies, which go public without assets and then merge with private companies, increased in 2020, which according to Dealogic reached a record $ 82.1 billion in 2020, compared to $ 13.5 billion in 2019.

Startups that became known through SPACs, including many emerging companies with no revenue, said they were attracted to the relative speed and security of the process, which can be completed months faster than some IPOs.

But as the instrument is favorable, there are concerns about the regulatory differences between the two ways of becoming public. According to some venture capitalists and corporate governance experts, the prospect of increasing retailers through media and inherently speculative forecasts.

Because many of the companies are so young, the forecasts make it look very attractive, David Cowan, a partner at venture capital firm Bessemer Venture Partners, said he has short positions in several SPACs, which means he bets the shares will daal. from current levels. “These forecasts are a loophole in the backlogs the SEC has put in place to protect investors,” he said.

The Securities and Exchange Commission requires executives of the company to remain during a quiet period during a public listing. Regulators do not want companies to market their shares to unscrupulous investors outside of a regimental process.

Similarly, businesses usually do not include projections in IPO documents, due to regulations that jeopardize the risk of lawsuits if they miss the plans. Startups advertised through SPACs have fewer restrictions because the transactions are considered mergers.

The SEC did not respond to requests for comment. Outgoing SEC Chairman Jay Clayton told CNBC in September that he was committed to ensuring that SPACs offered “the same rigorous disclosure” as IPOs.

Many of the companies published through SPACs say that they are attracted by the readily available financing – not by the regulatory differences.

Vir Fisker Inc.,

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a start-up of electric vehicles that announced an agreement in July to become known through the merger with a SPAC, ‘the driving force was the ability to raise money’, a company spokesman said. The differences in communication prescriptions did not influence the start-up decision, he said.

Fisker today has ambitious plans, but little in terms of product or revenue to show investors. While it had about 50 employees last spring, it announced forecasts to investors who demanded that it would earn $ 13 billion in revenue by 2025, compared to zero in 2020. The founder, Henrik Fisker, repeatedly went on cable television and was still productive on social media. . After the announcement of the agreement – but before the merger was finalized at the end of October – Mr. Fisker wrote on Twitter about how the company was sold out of discussions for the sports utility vehicle he plans to build in 2022, alluding to upcoming news before announcing a deal with a manufacturer.

The Fisker spokesman said Fisker did not market to individual investors and that his interviews were included in regulations submitted to investors.

SPAC sponsors have also used the waves to promote their companies. Venture capitalist Chamath Palihapitiya appeared on CNBC in September, revealing a merger between his SPAC and real estate company Opendoor, in which he mentioned, among other things, the expected growth in the company.

“These guys will generate nearly $ 10 billion in revenue in 2023,” he said, more than double the company’s double revenue last year.

The stock of its SPAC increased by 35% with the announcement of the merger. Mr. Palihapitiya and Opendoor declined to comment.

Many new CEOs published through SPACs have called for more customized places.

After the start of hydrogen electric trucks Nikola Corp.

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said the Trevor Milton Foundation will unveil a SPAC merger in March, conducting many interviews with numerous podcasts and YouTube channels visited by small investors. He talked about the billions of dollars in future revenue the company expected and rejected criticism from people who said Nikola’s expected valuation was too high.

Jason MacDonald runs the YouTube financing channel JMac Investing, which he says attracts a crowd of individual investors interested in SPACs. The summer had only a few thousand viewers, but he had an interview with Mr. Milton found out, in which the founder of Nikola spoke about the high valuation of the company and said: “The business model is there, the profitability is there.”

Mr. MacDonald’s viewership has grown – he has more than 26,000 followers – and he interviewed another CEO published by an SPAC. He hopes for others.

“Every semi-interesting SPAC I contact with these companies,” said Mr. MacDonald said. He said he offers companies the chance to hold interest from individual investors. “It’s going to be an interview, but it’s not difficult,” he said.

Public communication has helped to drive some non-traditional investors crazy.

Lukas Brown, a 19-year-old student studying in southwestern Norway, said he was investing in the SPAC that merged with Nikola last year after a tweet from Mr. Milton saw in which Nikola’s plans to become public were discussed.

“To me, it’s honestly pure speculation,” he said.

He said he more than tripled his initial investment before selling these shares. Afterwards, he said he should have been more concerned about Milton’s frequent tweets about the share price, which “should have been a danger sign.” ‘

Nikola’s share peaked at about $ 80 a share in June; it closed the year at $ 15.26. Mr. Milton resigned in September after a short seller accused the company of misrepresenting its technology. He and Nikola denied allegations of fraud. The Department of Justice has joined the U.S. security regulator in investigating allegations that Nikola misled investors by making exaggerated claims about the technology.

Nikola and a representative of mr. Milton declined to comment on this article.

Write to Eliot Brown by [email protected]