Oct 22, 2022 - Economy & Business

Not so SPAC-tacular anymore

Illustration of a u-turn sign with money and geometric shapes around it

Illustration: Natalie Peeples/Axios

When the special purpose acquisition corporation (SPAC) boom was in full swing, a number of VCs jumped in by sponsoring their own. Now, several have withdrawn from the market.

Why it matters: Turns out, SPACs aren't everything to everyone.

Flashback: By the summer of 2020, investors of all stripes were rushing into the growing SPAC market, forming and sponsoring their own vehicles in the hopes of adding one more investment to their arsenal. At least, that’s how many explained it at the time.

  • That included more than a dozen venture firms such as Khosla Ventures, FirstMark Capital, Highland Capital Partners, Dragoneer Investment Group, Tribe Capital, Lerer Hippeau, Greycroft, Foundry Group, Ribbit Capital and Lux Capital.

State of play: The broader market downturn has also affected SPACs, so at least a handful of firms have made a U-turn. These include:

  • Tribe Capital, which exited as a co-sponsor of its first vehicle in June, and a month earlier pulled the IPO registration of its second.
  • Ribbit Capital and Vy Capital recently liquidated their SPACs.
  • FirstMark Capital, whose first SPAC completed its merger with internet provider Starry earlier this year, has pulled the other two vehicles before their IPOs. Similarly, Khosla Ventures, which merged one of its SPACs with Nextdoor, has pulled the registration of its pre-IPO vehicle (it still has one searching for a merger target).

What they're saying: "The great irony is that the market that finally allows attractively priced investments opportunities is also the same market that leads the tolerant investor to go to the sidelines," a general partner of a VC firm that pulled its SPACs tells Axios.

Between the lines: The SPAC market no longer provides the VC-like perks that made it attractive, such as:

  • High-quality, long-term investors who would hold the stock instead of quickly trading it for a marginal profit.
  • A pool of good companies that are ready to be publicly traded.

Yes, but: Other VCs were able to time the market better, get deals done and reap the returns of being a SPAC sponsor.

  • Dragoneer was able to complete two of its SPACs and hasn’t liquidated its third.
  • Altimeter combined one of its vehicles with Southeast Asian transportation company Grab, and still has one looking for a merger target.
  • Reinvent Capital — a joint venture between Reid Hoffman and Mark Pincus — closed three mergers, with another SPAC still searching for a target.

The bottom line: Timing is everything.

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