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

Sep 23, 2020 - Podcasts

Reid Hoffman and Mark Pincus on the rise of Silicon Valley SPACs

Silicon Valley venture capitalists are no longer content with investing in startups and then eventually handing them off. Instead, many are now forming SPACs, or blank-check acquisition companies, to ride tech unicorns into the public markets themselves.

Axios Re:Cap digs into this trend with the co-founders of a new tech SPAC called Reinvent Technology Partners: Reid Hoffman, a co-founder of LinkedIn and partner at Greylock, and Mark Pincus, the founder and former CEO of Zynga.

Updated 39 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 12:30 a.m. ET: 33,880,896 — Total deaths: 1,012,964 — Total recoveries: 23,551,663Map.
  2. U.S.: Total confirmed cases as of 12:30 a.m. ET: 7,232,823 — Total deaths: 206,887 — Total recoveries: 2,840,688 — Total tests: 103,939,667Map.
  3. Education: School-aged children now make up 10% of all U.S COVID-19 cases.
  4. Health: Moderna says its coronavirus vaccine won't be ready until 2021
  5. Travel: CDC: 3,689 COVID-19 or coronavirus-like cases found on cruise ships in U.S. waters — Airlines begin mass layoffs while clinging to hope for federal aid
  6. Business: Real-time data show economy's rebound slowing but still going.
  7. Sports: Steelers-Titans NFL game delayed after coronavirus outbreak.

CDC: 3,689 COVID-19 or coronavirus-like cases found on cruise ships in U.S.

Cruise Ships docked in April at the port at Marina Long Beach due to a no-sail order in Long Beach, in California. Photo: Apu Gomes/AFP via Getty Images

There have been at least 3,689 COVID-19 or coronavirus-like illness cases on cruise ships in U.S. waters, "in addition to at least 41 reported deaths," the Centers for Disease Control and Prevention said late Wednesday.

Driving the news: The CDC released the data from the period of March 1 through Sept. 29 in an emailed statement confirming the extension of a No Sail Order for cruise ships through Oct. 31, as first reported by Axios' Jonathan Swan on Tuesday in his article revealing CDC director Robert Redfield was overruled in a push to extend the order into 2021.