9th Feb 2021
- Tactical exposure to a growing space with significant top-tier deal flow.
- Positioned in companies benefiting from capital injection and the guidance of new management with a proven reputation.
- Strategic positioning to limit downside risk but retain significant upside potential in this new opaque and volatile space.
In this recent market run, a unique player has emerged as a potential leader in the next generation of public investing, The SPAC. Proceeds raised through this process have risen dramatically this past year, significantly changing market dynamics. Very real and legitimate companies have come to market recently through this vehicle and have garnered significant attention. In this article I will lay out why I think this SPAC process is here to stay and why an allocation to the SPAK ETF might be the best way to go about gaining exposure to the trend.
The traditional IPO process has evolved in recent years as the venture capital industry grew in size and sophistication. As a result of the new VC landscape, companies have been utilizing the IPO process later on in their life cycle. This means investors buying the IPOs of today, are often times buying companies well into their growth cycle.
With SPACs, retail investors alike get the potential for increased exposure to some companies at an earlier stage of their life cycle. While this is not true in all cases as the VC industry has forever pushed out the process, it clearly has been true in many cases (CURI as reference here). This unique model offers exposure to the benefits of both a VC like pipeline and a Private Equity like management structure. In short, with SPACs investors gain the benefit of a proven business leader that has a track record of advising on strategic changes, and the institutional like capital injections to spur growth and valuation. The SPAC leaders usually come from a background focused on capital ejection and a proven strategy to quickly unlock value. In a way, SPACs allow a retail investor to invest in both a VC and PE deal with minimal capital. While there are obviously going to be a bunch of failures and blow ups, the bottom line is the vehicle is attractive and will continue to be a go-to-market strategy going forward.