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Illustration: Sarah Grillo/Axios

Special purpose acquisition companies, or SPACs, are all the capital market rage right now, easily outpacing traditional IPOs. But, with great volume comes great pressure.

Why it matters: SPAC structures, which had remained stable for more than a decade, are quickly changing.

Background: SPAC sponsors traditionally get two things upfront...

  1. Around 20% of the SPAC's common stock, post-IPO, known as founder shares.
  2. Warrants to purchase more common stock, exercisable at a fraction of a common share.

Quick take: This has obviously been a pretty sweet deal for the sponsors, assuming they eventually consummate an acquisition. Not quite money for nothing, but not too far off.

Yes, but: What's happening now is downward pressure on those terms.

  • Most of this has been on the warrant side, where sponsors once were able to redeem for upwards of 2/3 of a common share.
  • Goldman Sachs, for example, recently dropped warrant coverage on a sponsored SPAC from 1/3 to 1/4, and Kevin Hartz's new SPAC began at 1/4.
  • Bill Ackman's recent SPAC, which raised a record $4 billion, did away the upfront founder shares concept altogether. Instead, it gets paid more like private equity carried interest, inclusive of a hurdle rate.
  • It's hard to see too many others following him down to zero, but don't be surprised to see 20% become an artifact.

Driving the news: Part of it is simple supply-and-demand competition, given the SPAC spike. But part of it is an influx of a new class of sponsor, including investors who view the SPAC landscape as if it were an orchard in what would later become Silicon Valley.

  • "I think this is a revolution, and [changing the terms] could break the backs of lots of these opportunistic carpetbaggers," Hartz says.
  • He adds that SPACs are "just in the top of the 1st inning," and that many well-known Silicon Valley venture firms are exploring sponsored SPACs.

The bottom line: If you don't like what you see from SPACs right now, just wait a couple months.

Go deeper

Felix Salmon, author of Capital
Oct 1, 2020 - Economy & Business

How equity became more attractive than debt

Illustration: Annelise Capossela/Axios

The prime example of something highly improbable that became conventional wisdom: The idea that both interest rates and inflation will remain near zero for well over a decade.

Why it matters: As Axios' Dan Primack writes, private equity firms (the polite rebranding of "leveraged buyouts") have historically bought companies and loaded them up with debt.

Miriam Kramer, author of Space
Updated 17 mins ago - Science

NASA's delays Mars helicopter test flight

Ingenuity (left) with Perseverance on Mars. Photo: NASA/JPL-Caltech/MSSS

NASA announced Saturday it rescheduled its Ingenuity Mars helicopter's first experimental flight, originally planned for Sunday.

The latest: "During a high-speed spin test of the rotors on Friday, the command sequence controlling the test ended early due to a 'watchdog' timer expiration," NASA said in a statement. "This occurred as it was trying to transition the flight computer from ‘Pre-Flight’ to ‘Flight’ mode."

56 mins ago - Politics & Policy

Scoop: Ohio Senate candidate Josh Mandel escorted out of RNC retreat

Ohio Republican Senate candidate Josh Mandel. Photo: Chris Maddaloni / Getty Images

During this weekend’s highly anticipated donor retreat hosted by the Republican National Committee in Palm Beach, Ohio Senate candidate Josh Mandel was escorted off the premises while his primary opponent, Jane Timken, was allowed to stay, two sources with direct knowledge of the situation tell Axios.

What we’re hearing: The invitation-only event is taking place at the Four Seasons Resort, and the RNC reserved the entire hotel. While Timken, former Ohio GOP chair, was invited to the event “because she is a major donor” — Mandel was not, so he was asked to leave, according to one of the sources