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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.

Students vandalize and steal from schools for viral TikTok challenge

TikTok logo displayed on a phone screen in Krakow, Poland on July 18, 2021. Photo: Jakub Porzycki/NurPhoto via Getty Images

A viral TikTok challenge is leading students nationwide to shatter mirrors, steal fire alarms and intentionally clog toilets, The Washington Post reports.

Driving the news: Dubbed the the “Devious Licks challenge, students are showing off their "devious licks" on TikTok — with a sped-up version of "Ski Ski BasedGod" by rapper Lil’ B playing in the background.

Axios-Ipsos poll: People of color face more environmental threats

Expand chart
Data: Axios/Ipsos poll; Note: ±2.5% margin of error; Chart: Sara Wise/Axios

Americans of color are much less likely than white Americans to experience good air quality or tap water or enough trees or green space in their communities, and they're more likely to face noise pollution and litter, a new Axios-Ipsos poll finds.

The big picture: Our national survey shows Black and Hispanic Americans are more likely than their white counterparts to live near major highways or industrial or manufacturing plants — and to have dealt in the past year with water-boil notices or power outages lasting more than 24 hours.