🦄 The DART Weekly #6 ~ The Rise of SPACs

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November 28, 2020

Entrepreneurship Chronicles

How many of you have always dreamt about becoming a successful entrepreneur? At what age did you start dreaming about it? And now, are you leading your own great venture?
If the answer is yes, then relax and enjoy the story of one of your successful colleagues.
If you answered no, then hold tight to your chair, because today’s entrepreneurial chronicle is all about motivation. 
We are talking about Sir Richard Branson, the man behind the Virgin Group. And by the way, the “Sir” is not only a fancy appellation. The man was knighted by the Queen for his "services to entrepreneurship”!
Richard’s desire has always been becoming an entrepreneur. His inner motivation (Youtube) was so high that at the age of 16 he left school to found his first venture, called “Student”. It’s 1967 and the magazine is launched to the public.
Driven by his ambition, it does not take longer for Richard to move on to a bigger business: 3 years later Virgin, a discount record store, sees the light. 50 years later, the Virgin Group companies hit an aggregated amount of more than $16B in global sales. 

THE TAKEAWAY
What’s in between the first discount record store and a multi-billion dollar company? A tremendous and stormy (Financialpost) journey, which saw Richard’s building an empire across a variety of industries: the group is now controlling over 200 businesses, from airlines to trains to sport. What’s the secret behind his success? In his own word: “Work out!” (CNBC). In our words: the early you start dreaming big, the more time you have to achieve it!

Ventures 101

🛸 WWS - World Wide SPAC

When you talk about startups, it's impossible not to mention the exits. The exits are liquidity events during which investors sell shares of the company and (hopefully) realise a hefty return. These are acquisition, merger, IPO, direct listing ... and SPAC. 

WTF is a SPAC?

SPAC stands for special purpose acquisition company. Such entities raise capital through an initial public offering and use the funding to acquire/merge with an existing company.
Like CEOs of normal companies in the process of doing an IPO, SPAC managers go on a roadshow to drum up the interest in the vehicle. But there is a major difference: it is unknown to investors what the target of the SPAC is going to be (Forbes). That's why they are often referred to as blank check companies.

Unicorn chasing SPACs

SPACs come in all sizes. Some manage more than half a billion dollars (Seeking Alpha), others are as small as a $6M trust fund. On average the private company to-be-merged is 4 to 6 times the SPAC (TechCrunch <- great overview, worth reading). The valuation of the company varies accordingly, but the profile stays the same: R&D heavy companies, addressing a big market, but with immature unit economics.
The SPAC is short on capital? No problem there are PIPE deals, private investments in public equity. The manager will approach institutional investors and disclose the acquisition target, creating information asymmetry between retail and institutional investors.

SPAC bonanza

On average a SPAC has a 2-year life and requires $2M to cover the operating expenses and the management fee corresponds to 2%. Many investors have been wary of them, but SPACs are now on the rise.
The trend increased the pace in October 2019, when Richard Branson's Virgin Galactic went public with a $2.9B market cap (Reuters). Behind the operation there was ex-Facebook growth exec Chamath Palihapitiya, who addicted to the kick went on becoming a serial SPACer (TechCrunch). Then 2020 came and SPACs raised $47.1B - 44% of all US IPOs (CB Insights). Experts and celebrities followed suit and meddled with SPAC, e.g. Silicon Valley entrepreneurs Reed Hoffman and Mark Pincus, music producer Jay-Z, front office executive Billy Beane and infamous ex-Uber executive Emil Michael (TechCrunch).

SPAC v. IPO

SPACs are an attractive offering. The target company is able to go public quickly without much of the volatility associated with a traditional IPO. Meanwhile investors get access to high-reward investments with limited risk.
Great! How come they aren't as big in EU then? European investors face stricter restrictions, but there are early signs that regulators started looking into it (LinkedIn).
If so, would SPACs contribute to the liquidity of markets where entrepreneurs and private investors have a hard time exiting their ventures?
To be continued...

Of Unicorns and Cowboys

🦄 The Rounds

The deals worth knowing in Europe and beyond - ordered from coolest to coolio


🇫🇷 Buzzing: There is a protein deficit ahead of us, InnovaFeed aims to close the gap. With €140M it will build an industrial plant for large-scale insect-breeding & processing, sustainable and meant for animals.

🇩🇪 Psyched: Atai Life Sciences raised $125M to treat mental trauma with... psychedelics. It is developing a range of drugs for mental health treatment. Peter Thiel is on board, next up: convince the governing bodies.

🇮🇹 Voluminous: Vertical management and user-centricity, the secrets of Rome-based Shampora that recently raised €3M to expand its platform for personalized beauty products.

🇱🇻 Blend: Blend Ask.fm, Tinder and TikTok, you will get F3, a social network for Gen Z that blends Q&A and videos. With 25M registered users it has just raised $3.9M.

🌈 The Pots

The exits you should follow in Europe and beyond - IPO, direct listing, SPAC, bankruptcy ... all awesome stuff


🇬🇧 SPACed: Arrival is one notable startup. It build electric vehicles, it will produce locally, it has famous backers ... And now it will go public through a SPAC, collecting $660M.

🇺🇸 Quick: Meal kit giant Hellofresh acquired Factor75 for $277M. The startup based in the Chicago metro area is specialised in prepped meals complying with all type of diets.

🇪🇪 Polyglot: Growth by acquisition. Kahoot acquired learning language startup Drops for $50M. The startup has 21 employees, 3 apps, 42 languages, $7.5M revenues and it is fully boostrapped!

🤠 The Funds

The tales of unicorns' hunters you should know about - particularly relevant if you are a founder looking for backing


🇬🇧 Construction: With a track record starting in 2016, Round Hill Ventures announced its new Fund. €200M put to use for backing late seed to series B proptech startups.

🇫🇷 Impactful: "When you invest ... you are shaping the future". This is the premise of 2050, brand new VC fund focusing on food, healthcare and sustainability. It will invest beyond the 10 years time horizon.

🧑‍🎤 ... and The Quirky Ones

The crazy stuff we gossip about while sipping our chai latte - it's like others, but better

🇪🇺 Family: The European unicorns' stable is getting bigger, albeit not overcrowded. Here's the complete list of startups that belong to the herd.

🇺🇸 Apex: It appears that Stripe is in talk for new funding. Not surprising. At valuation of $70B. Mind blowing. It is currently valued at $36B.

🇸🇪 10x: Not a VC. Not an exchange. A secondary market for startup shares, e.g. Klarna's. Swedish Tioex offers its users the possibility to purchase shares of non-listed startups. The catch? To find the sellers.

🏴󠁧󠁢󠁳󠁣󠁴󠁿 Farewell: There is a SaaS startup for every use case, also bereavement. Glasgow-based Exizent raised £3.6M in late summer. It helps people to overcome losses and the related bureaucracy.
🌌 Wanna know more about the social and economic factors driving huge transformations in finance, startups, government regulations and economic policy? Take a look at the weekly newsletter by our friends at Reshaped!

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