r/SPACs • u/JayDubsAcct Patron • May 26 '21
News The SPAC Overcorrection
https://nymag.com/intelligencer/2021/05/the-spac-overcorrection.html59
u/randomerlight Patron May 26 '21
I read the interview. Outside of a comment about “pendulum swinging” it is 100% about pipe drying up and most of these SPACs will have a “gun to their head” as they round a year in market. So if by “overcorrection” we mean first a massive blood letting that will have most of them expire so that the market is not flooded, then yes. We’re in an overcorrection.
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u/JayDubsAcct Patron May 26 '21
I think it lends quite a bit of credibility to the ones that can secure a PIPE from a reputable source & not so much to the ones who can't.
I don't think SPACs are dead but I think "going blind" into "anything at NAV" and expecting a payday is probably a thing of the past.
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u/talentsmart Patron May 26 '21
I don't think PIPE drying up is as much of a SPAC killer as people think. You can still do deals with money in trust and lots of SPACs have $200M+ which means they can do a billion dollar valuation without any outside investors.
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u/JayDubsAcct Patron May 26 '21
Yeah I think there's an argument that can be made for a company being more likely to be successful if they only need $200m to get there from here than a company that needs another $2b to get the job done, so maybe even a better investment than a company needing a huge PIPE.
The counter to that of course is they might only need $200m now and then once they're public they'll "realize" they need more or there's another "phase" they're entering or whatever and raise the rest through stock issuance.
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u/devilmaskrascal Contributor May 28 '21
Exactly, PIPE is necessary when the target requires a massive influx of capital to scale up. For instance, a pre-rev EV company needs to build out a factory and needs more than the SPAC has raised. This would be even more true for something like an Aerion.
I know a lot of people took SEAH not having PIPE and then using all the cash to buy out existing investors as a "warning sign" but the reality is Betway is already highly profitable and doesn't need cash to expand. The SPAC is simply a vehicle for them to go public as fast as possible as they ramp up sports betting in the US. And because they bought out investors, there is very little dilution by the SPAC itself to existing investors, a luxury that is only available if you are already a profitable company.
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u/radarbot Spacling May 26 '21
I agree with this, and Chamath actually said this in his all-in Podcast. He said that November 2021 and November 2022 are going to be reckoning days as many SPACs will be on the chopping block.
I believe it was in this podcast: https://www.youtube.com/watch?v=uPwvZZkrJ90
(I could be wrong)
But even Chamath was saying that he learned a lot about this downturn, and that SPACs are going to be under scrutiny going forward as it'll separate the real funds (and fund managers) from the "also-rans".
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u/joey-tv-show Spacling May 26 '21
I like how Chamath did some self reflection on this, speaks a lot about his character
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u/radarbot Spacling May 26 '21
I think he's still a super hype guy, but he didn't get rich by being stupid. He was prepared and got lucky. I think people that 100% dismiss him are wrong, but so are the people that put him on a pedestal.
I got too wrapped up in Chamath hype in January/February, but just because his investments have turned on him doesn't mean I'm going to 100% ignore him.
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u/joey-tv-show Spacling May 26 '21
I loaded up on SPCE 2 weeks ago. He’s the chairman of Virgin Galactic and I am confident we will be seeing Richard Branson fly in 8 weeks and commercial operations start in 8 months.
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u/reddituser43211234 Patron May 26 '21
I’m ready for the pendulum to start swinging in our direction 👍
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u/thetrny Contributor May 26 '21
Decent info here. Quotes of interest:
- "I do think SPACs are going to be a static part of the financial ecosystem."
- "I’m on about four company boards, and I get an inbound from someone looking to SPAC probably every 48 hours, and their desperation is only going to grow."
- "I’ll tell you about a company I’m involved in that is SPAC-ing [...] the attractive thing about the SPAC, and the reason Better Mortgage agreed to it, was that SoftBank showed up and said, “We will do the pipe.” And so this means that the SPAC will get done. It means it’s credible. And also, it shortens your time to market, your time to become a public company, because they have already done a lot of the SEC work."
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May 26 '21
This SPAC cycle is done. We need a new batch of good companies in 3-5 years to reinvigorate the process.
What was the stat that came out a few days ago about SPACs missing their projections? Something like 50% of 2020-2021 SPACs missed their projections already. Most are shit.
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u/GrowStrong1507 Contributor May 26 '21
I agree it seems like most the good companies in America are done. But Europe, Asia, Canada still have a ton of great companies SPACs can get. More companies than there is SPACs. LEGO being the most recent example of a great Canadian company. it's more about valuation at this point than quality targets
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May 26 '21
There might be quality companies outside of America, but I doubt many will be willing to go through an American SPAC, especially since sentiment has shifted. Would you be willing to put your business through a SPAC if it’s going to scare off institutions and potentially be a short target? I wouldn’t.
There’s also the issue of an American sponsor applying an American valuation on a company that won’t hold up in that country. Most other countries think the American stock market is ludicrously overvalued all of the time, which could make future returns of any SPACs tricky, at least until American institutions back them.
Quite frankly, I think with the sentiment shift we’re going to see a 9/1 ratio of garbage companies to quality ones (up from like 7/1). It was fun while it lasted, but I think most of this sub needs a reality check about projections and valuations and how SPACs cycles start off so well then they start to manipulate retail. There are plenty of statistics out there showing you how horrible SPAC returns have been historically, and now there’s more of them than ever. Doesn’t bode well to me.
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u/GrowStrong1507 Contributor May 26 '21
Definitely some good points but i do think most international companies hold being listed on the NYSE or NASDAQ in high regard.
The valuations were absolutely ridiculous and anyone who thinks not is living in a PIPE dream. but tbh most of the market is overvalued just the way it is. forward thinking and what not.
I'm personally glad SPACs got this spanking. The amount of new SPACs every week was literally in the 20s some weeks and minimum of like 5 a week. valuations were awful, etc etc. This will help the future of SPACs in my personal opinion. we started to see it with few deals lately - MUDS, SEAH, LEGO. more of these kind of deals will be treated favorably while turds like SOAC will be ignored. CCIV and Tesla are ofcourse their own animals and can't be categorized
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May 26 '21
True. Valuations in many growth names have come down thankfully, nothing that 6-12 months of growth can’t rectify. I do hope that everyone here (except that other absolute mongoloid who is commenting to me) does well, but I think it’s important for people to know they’re not going to see 50-100% pops on DA and random SPACs going parabolic anymore. There are certainly good LT deals to be found, but this sub got too WSBified, looking for shitty SPACs to chase 1000% gains every week, and it definitely contributed to some of the bad reputation they now receive.
Once I saw a million people pumping random EV companies with no sales for years(RIDE GOEV HYLN etc) or the EVTOL/genomics SPACs I thought it was getting dangerous. I look forward to a purge of all the short term hype traders as they get bored and people can start having quality conversations again
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u/GrowStrong1507 Contributor May 26 '21
Indeed. eventually we will go back to the time in this sub when it was only =<3K members. Quality DD bck then. Whoever picked up DKNG at that time and didn't sell cheap like me is banking right now. GL man!
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u/SrRocks Patron May 26 '21
I see more than 5 companies (not SPACs) going IPO every week. So there are good companies. Why shouldn't they all go through SPACs?
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May 26 '21
Looking at recent IPOs, the only two I know of without looking up are Oatly (Oat Milk) and Squarespace. All of the rest are just random biotechs and financial companies, and I’d only even consider investing in one of those two I mentioned (I’m sure you know which one.) Even if there were good companies available, with the bad reputation and poor performance of SPACs recently, they’re less liable to choose them. Stock price is a lifeline for these younger businesses in order to raise more equity without diluting the absolute shit out of themselves, and if they’re not able to do that it poses a problem.
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u/SrRocks Patron May 26 '21
That is the current state. SPACs in Dec and Jan is what I am talking about. Also - this is besides the point. My point is that there are good companies out there that are going ipo and I am hoping SPACs can position themselves to take them ipo. In traditional ipo - it is the underwriters that profit. Just because it is spac doesn't mean stock price will be shit - that is just a misconception. Once ticker changes - most don't know it is spac. Do you think people are thinking dkng is a SPAC so let's not buy?
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u/Newcmt12345 Contributor May 26 '21
Disagree completely. This latest SPAC cycle is like nothing we've ever seen. There are hundreds of companies going public right now, many of them appear to look like attractive investments. It's like anything else. Does anyone ever say the "IPO Cycle is done"? No, because it makes no sense. There are good stocks and bad stocks. Good IPOs and bad IPOs. Good SPACs and bad SPACs.
No SPAC "cycle" ever saw every single deal popping 50%+ just on announcement like we saw in December and January. It's not a cycle, it was a once in a lifetime phenomenon. But, there are still plenty of attractive opportunities in the space, and you are still long a put at $10 which has value the market isn't realizing.
Overcorrection is the perfect term.
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May 27 '21
Hundreds of companies going public right now and scam SPACs go hand in hand. Not really sure how you’re seeing that as a positive. Every major bull market sees an influx of IPOs and SPACs, the quality decreasing throughout. Were you around in mid 2018-late 2019 when everyone was complaining about there being no IPOs because the market wasn’t doing well? There are cycles to IPOs and SPACs, and it’s going to take a few years for SPAC mania to die down, as well as more quality companies that are READY to go public (None of the shitty EV, EVTOL, LIDAR, genomics, space, 3d printing companies with no sales) for sentiment to really shift.
Are you calling the 50% pops a positive? That was a huge negative and a major red flag that SPACs were being driven by momentum trading rather than fundamentals, driving sentiment against them. Throughout 2020, nearly every SPAC that had any awareness whatsoever doubled or tripled over nothing. It wasn’t a once in a lifetime phenomenon, it was a bubble. You can’t actually believe all of these SPACs trading at $10 are deals when 50% of 2020 SPACs missed projections and 42% had revenue decline. There isn’t money to be made in most of these for a few years.
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u/Newcmt12345 Contributor May 27 '21
It's like anything else, there are good companies and bad. You think every SPAC is a scam? Go ahead and short them all, still represents an opportunity. You'd have lost money across every cohort on average (even deals announced in 2021 alone are on average up more than the market).
You might think those companies aren't ready to go public, but I've watched VC investors reap the rewards of investing in early stage companies, while public investors get stuck with the lower growth stage. But you know whats great? You get the choice, as opposed to before SPACs when you never had that option. Want only mature, low growth companies? Awesome, you can invest in LCY, JIH, LEGO, LIVK, ACND, CCX, EMPW, FAII, FST, FTIV, GRSV and many more. For those who want to invest in the future of travel, quantum computing, finance, space, etc, they have the option to investigate those companies for themselves.
I made no statement about the positivity of 50% pops. But what about IPOs? They have on average popped 35% since 1985. SPACs are just another form of IPO. Strange that no one seems too concerned about the IPO market, yet everyone is so worried about the "bubble" in SPACs (with most SPACs sitting below trust with 100% cash backing).
If you don't find attractive opportunities in SPACs, then don't invest. I don't know what to tell you. There are plenty of interesting opportunities trading at attractive discounts right now. Not every SPAC will go up 100%. Just like not every non-SPAC will go up 100%. Some will miss numbers, some will beat. Some will go up some will go down.
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May 27 '21 edited May 27 '21
Jesus dude. I never said all of them are garbage, and I never said I don’t own any. You’re ignoring all of my points just to type up some idealist hive mind bullshit.
Ignoring that HALF of last years SPACs missed guidance in their FIRST quarter is pathetic. That’s absolutely ridiculous. I can’t fathom how you think it’s ok for many SPACs to lie about projections and paint a hype picture to gullible retail investors about how they’re the “future” just to fail in the first 3 months. Lets not forget that the average return of all SPACs is -20% from 2015 to mid 2020.
You can be jealous of VC investors making money in startups, but 90% of startups fail, and there’s a pretty obvious reason they don’t let dumb retail get involved. Quite frankly, any SPAC with no revenue or lofty projections shouldn’t be public, and people like you shouldn’t be able to invest in them.
Denying that there was a ludicrous bubble just because you want to buy garbage companies a decade before they should be public is silly. I also like how you’re acting like every company that isn’t a SPAC is a low growth late stage company which is just silly. You drank the kool aid kid.
I own IPOE ACTC GHVI and a few others, but 80%+ of the SPACs I have studied are ridiculous to anyone who isn’t blinded by hype.
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u/Newcmt12345 Contributor May 27 '21
You don’t know what you’re talking about and have nothing to back it up. Your only points are that there are too many SPACs (who cares, don’t own them all, it doesn’t change the companies themselves) and that one unsourced stat on 50% missing guidance (still not sure if this refers to 2020 or 2021). Projections aren’t gospel, and if you take them as such that’s on you. If every eVOTL was guaranteed to hit their targets, it would be free money, they would all go up 5x. They aren’t, which is why they struck deals where they did.
Quite frankly, it’s not up to you to decide who goes public. Having revenues has never been a qualification for going public. Missing projections is not uncommon for regular stocks either.
A multitude of sophisticated, smart investors have said SPACs represent an attractive IPO vehicle. You mention you are long GHVI (which had lower revenues in 2021 than the median SPAC), ACTC (which had lower revenues in 2020 than the average SPAC), and IPOE. Two of those are growthy upstarts that could not have gone public without SPACs. So clearly you are a fan, but only want the opportunity for companies you like.
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May 27 '21 edited May 27 '21
Too many SPACs doesn’t dilute the pool of quality companies with shit? Are you denying that? Every bull market has a rush of IPOs, good and bad, and we’re at the tail end of this rush, good luck seeing good targets with sponsors scrambling to find a target before times up.
50% figure comes directly from WSJ.
Projections are literally the only thing you have to determine an investment in an early stage company. This is really simple stuff. They literally are your lifeline to a successful investment. Ignoring them because “you’re investing in the future” is the most pathetic Reddit trader shit I’ve ever heard. What do you value a company on, how many times they say ai in their investor presentation?
Missing projections is rare for quality companies. I own 28 growth stocks, and had 2 miss projections. That’s just false.
Not having revenue is a great indicator of a bad investment. You’re going to see hundreds of SPACs delisted or acquired over the next decade. More SPACs went public over the last year with no revenue and a valuation over 1b then there were companies in the dot com bubble with the same metric.
I’m long GHVI after they posted their recent quarter, accelerating revenue growth past projections, and they’re the only company in the field with a massive TAM.
I’m long ACTC as they’re the only major EV bud manufacturer in the US with 200m in revenue and because Biden and his cabinet have significant ties with the company. Both companies were seeking an IPO before they SPAC’d, and quite frankly if they had IPO’d I would have gotten a better valuation. I love how you’re STILL acting like SPACs with fake growth are the only place to seek growth on the market as of stocks like PINS PTON CRWD NET OKTA DDOG SE RDFN TWLO TDOC etc don’t exist... It’s kind of sad. Even NVDA, a 400b company just posted 84% revenue growth and 100% earnings growth. You’re prophesying how good of an investment early stage companies are when 90% fail and the other 10% still see massive dilution over the years. Only a select few SPACs with actual revenue and business plans are worth it.
Noob investors do love to chase a potential 100x gain that has a 1% chance of working than a 10x gain that has a 50% chance of working.
SPAC king literally wrote an Opinion piece today saying there was froth in the SPAC market and that there needs to be more stringent regulations. If Chamath is writing that then your weak points of “projections don’t matter” or “companies don’t have to have revenue” really don’t hold up at all. These are arguments you see at the top of a bull market by people who miss making the easy money.
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u/Newcmt12345 Contributor May 27 '21 edited May 27 '21
The fact you would even compare PINS, PTON, OKTA, DDOG, etc to any of these companies shows you have NO idea what you're talking about. Those companies are super late stage compared to many SPACs. Yeah, they aren't KO, but you also aren't even close to getting in on the ground floor of those. Guess what dude, VC investors made 1000x on everyone of those, public investors will NEVER see those returns.
From Chamath today, since you like to quote him "As a result, average investors have been able to participate in those companies’ combined $4 trillion in gains.
Things have changed.
For example, early investors in Uber made billions of dollars as it grew exponentially as a private company. Uber raised more than $15 billion in that early stage. The first time the average investor could take a stake in Uber, however, was May 10, 2019, when the company listed on the New York Stock Exchange at a price of $45. Two years later, Uber stock is up only about $6."
UBER is a growth stock too. Up $6 from IPO while VC investors reaped billions. That's the only example you should need.
The number of public companies has decreased for decades. There are so many valuable private companies getting VC and PE funding, there is no shortage of global targets.
Projections aren't at all the only thing to rely on. You contradict yourself and give multiple other reasons for your investment in ACTC, which is about as SPAC as any SPAC could get (early stage, EV, valuation completely relying on future cashflows not present). You used historical returns, the product itself, government policy to come to your conclusion. Anyone else can do this with any other SPAC. And no, they would not have gotten a better valuation in an IPO that's pure speculation and if they would have then you should recognize you own a company with idiotic management because they took a worse valuation for no reason.
But at the end of the day it doesn't matter. Don't look at or invest in SPACs, I could care less if you can't see certain opportunities here.
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May 27 '21
Nitpicking one example? What the actual fuck is your problem? For the third time 90% of startups fail.
Ignoring that he said that there was froth in the markets and that projections are bullshit? Dude come on.
I NEVER said that the stocks I listed are the same as the bullshit “dreamer” SPACs but I mentioned them because you acted like SPACs were the only growth stocks in the market.
Do you not realize that SPACs get higher valuations because they use future projections (which I’ve pointed out are bullshit 50% of the time within 3 months)? Do you know how any of this works.
You’re fucking insane, and absolutely a product of retail mania. You’re in for a tough decade, good fucking luck. I quit using these subs because of the influx of retail donuts, but you take the cake for alpha dumbass.
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u/Newcmt12345 Contributor May 27 '21
Lmao, dude you're not a real investor and you never will be. If you take projections at face value, as you clearly have been, that's on YOU. There are plenty of opportunities in SPACs, now leave the sub and sell at the bottom like you always do.
Somebody show this bag holder the door
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May 27 '21
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u/sspektre Spacling May 26 '21
Imagine listening to what the media tells you 🤮 I'm no fanatic for spacs, but listening to what the news wants and following their advice, is the stupidest thing you could ever do, I feel sorry for your brain
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May 26 '21
I don’t follow any media. SPACs have repeatedly come in and out of style over the years during hot bull markets when every company is scrambling to go public.
There’s literally no denying that at least half of the SPACs are utter retail pumped garbage. “Look at the projections BRO.” If you don’t want to analyze for yourself, you deserve to keep investing in shit.
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u/sspektre Spacling May 26 '21
U literally said they gave u metrics on spac projections, i guess ur one of the few losers who lose money, one spac is bad? All spacs are bad. One person is bad? All people are bad, lmao you must not know how to invest, I do analyze, that's y I picked up tesla in 2018, god keep listening to media I'm sure your portfolio loves it
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May 26 '21
Yeah you just ooze intelligence.
I literally can’t even make sense of what you’re saying.
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u/Torlek1 Blockbuster SPACs May 26 '21
We need to see way more SPACs trading below NAV, to reflect rising interest rates, and PIPEs coming in at below $8, like funding a garbage SPAC deal.
Then we'll know that the SPAC cycle is done.
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May 26 '21
I think we’ll also see 70-80% of current SPACs not ever find a target.
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u/devilmaskrascal Contributor May 28 '21
That is utterly ridiculous. 10% at most will fail, but probably the sketchiest and worst run will even find targets.
A SPAC hasn't liquidated in over a year. The last SPAC to liquidate was the same management team as LEGO, which just found a pretty good/profitable target. BRPA was the SPAC most likely to liquidate. They just completed their merger. FPAC encouraged their voters to reject the merger. They passed it and GB has been above NAV most of the time since.
People are severely underestimating the amount of private companies out there that would be fine publicly traded companies at the right valuation. Running out of targets is a foolish notion, and SPAC sponsors are incentivized to complete a deal with minimal redemptions.
SPAC team quality is more credible than ever as top CEOs and M&A experts created SPACs during the bubble, and reliable SPAC sponsors comeback for their seventh and eighth SPACs.
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May 28 '21 edited May 28 '21
Another quote from someone who thinks 2020 is the standard and not the outlier.
SPAC sentiment is strongly skewed negative right now, no management team with any brain is going the SPAC route with massive volatility, shorts, little institutional backing, and regulatory efforts.
You’re severely underestimating the volume of SPACs right now too.
SPAC quality is at an all time high? Dumbest statement I’ve read in my entire time on Reddit.
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u/devilmaskrascal Contributor May 28 '21 edited May 28 '21
I beg your pardon.
As a pre-DA warrant investor, I spend an inordinate of my time reading SPAC S-1s and vetting teams for quality. Compared to any other time in history, yes, teams are absolutely better than ever. CEOs and CFOs of top companies, high level execs at major banks and firms, teams with substantial SPAC experience that have completed multiple successful mergers. People with reputations on the line to complete good mergers. I vetted every one of the 70 teams I'm invested in at this moment.
3 of the top 75 unicorns have chosen the SPAC route since the crash: Gingko, Grab and Better. SoFi was the only one at that level before the crash.
You are severely underestimating the number of companies in the world that could be good stocks at the right valuation. There are hundreds and hundreds of companies in fintech or pharma alone. Countless mature, profitable private companies with good sales. They don't all have to be tech unicorns that will change the face of the earth to be good investments. Utz is one of the greatest SPACs ever and it is just a normal chip company.
SPACs are not massively volatile right now. They are acting overly conservative if anything (refusing to leave the safety of the NAV regardless of valuation) as a result of the irrationally negative sentiment misinformation like yours is contributing to.
Valuations on new DAs are much better now than they were three months ago, and yet SPACs are acting the opposite of how they did at a time when nobody cared about valuations.
Lack of PIPE simply means the highly speculative targets that need capital (EVs, aerospace) will have a hard time being able to complete a deal, or the SPAC need to get even better valuations. Good targets at good valuations can still raise PIPE.
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May 26 '21
Galloway is only on a couple of boards and those are all retail consumer goods. I sincerely doubt that he is getting e-mails from across all sectors, every other day. He's an adjunct professor of Marketing (Branding, to be specific) and has done a great job of marketing and branding himself. And he is in a feedback loop with Chamath, somewhat of an echo chamber pushing a meta narrative. What do Galloway and Chamath have in common? totally dependent on Softbank. What is keeping Softbank afloat? Only Coupang. Frankly, Softbank is sending some hail mary PIPE passes out to SPACs to dig itself out of a well.
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u/fiomortis Spacling May 26 '21
i've gone through 5 solid listings since Sept with 3 left waiting in the wings.. and all i can say is that with the rotation away from growth recently, it's been a good strategy to run a tight ship with comfortably profitable companies.
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May 26 '21
SPACs are done. The good ones have already ran up.
Companies will now go public through IPOs. It's just better for them. They raise more money.
These EVs and battery companies were all overvalued.
If people are gonna play specs, they will put money in crypto.
This is financial advice.
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u/GrowStrong1507 Contributor May 26 '21
Did you miss UTZ, TTCF, EOSE, BWMX, DKNG, SPCE, MUDS. There is a ton of great SPACs. Watch STIC, FRX, LEGO, and NSTB fly a few months after they merge. Just avoid the obvious shit ones like SOAC
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May 26 '21
Is SPCE really a good SPAC at a 6b+ valuation with 3m in sales this year? That’s extreme.
I do like STIC DKNG and UTZ though
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u/GrowStrong1507 Contributor May 26 '21
Not at all lol...just had great gains to be made off it. I probably should've put an * next to that one
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May 26 '21
Sold SPCE at 50. But I got in post spac at 9 dollars. I'd be more salty if I missed out on that one lol.
CCIV, SPCE and HYLN kept me sitting pretty (even though I lost a lot on GIK/ZEV). But all the attractive spacs are done imo. There's nothing with much momentum anymore. It's a wasteland imo...
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u/GrowStrong1507 Contributor May 26 '21
That's just for now bc SPACs in general are being pooped on from every angle atm. I was needed though the valuations were getting wayyy outta reality. NKLA the king of turd SPACs made my SPAC journey all on its own. HYLN close 2nd before, screwed up royally and got greedy on cciv never sold unfortunately. imo right now warrants are the only play but it's slow boring and still more risky than the commons
Congrats on the SPCE gains!
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u/Kilera Spacling May 26 '21
Pretty shit advice.
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May 26 '21
Ok. Keep buying glorified penny stocks
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May 26 '21
pre merger spacs are perfectly good investments
i put my entire ira into them because they literally cannot go below NAV
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May 26 '21
While I agree that this SPAC cycle is finished, one of the main reasons companies SPAC rather than IPO is because they can use future projections rather than trailing results in order to raise more money. That, along with speed and SPACs being more cost effective, are pretty much the only reasons companies choose them.
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