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SPAC’s: The New Way to Go Public

George Gilder

Posted April 15, 2021

George Gilder

Holy SPAC!

What the heck is going on out there in the US capital markets?

When one of my lead analysts Steve Waite was working on his Venture Investing in Science back in 2016 — with his co-author Doug Jamison (who, at the time was CEO of Harris & Harris Group, a publicly traded venture capital company) — SPACs (short for special-purpose acquisition companies) were nothing to write home about.

That year, there were 13 SPACs that collectively raised $3.5 billion. Doug and Steve didn’t mention SPACs in their book because, frankly, there wasn’t much to write about.

SPACs traditionally have been disdained in Silicon Valley — considered another bad four-letter word, as VC Roger Lee noted.

But, as Bob Dylan sang, “The times, they are a changin.” SPACs are coming on strong.

Last year there were 248 SPACs — a 19-fold jump over the 2016 deal count. One of those SPAC’s was Luminar, which I invested in early on.

It is said that the board of every high-profile start-up today is discussing special purpose acquisition companies as a legitimate way to go public.

Access to liquid capital markets is crucial to emerging technology companies and astute venture investors like me who back them.

SPAC Mania

Turns out last year was just a SPAC warmup act.

It is still early in the year, but there have already been more SPACs this year than in all of 2020. According to the folks at SPACInsider, there have been 301 SPACs that have collectively raised $98 billion in gross proceeds.

Here’s a chart showing deal count going back to 2003. We are clearly in uncharted territory.

spac ipo

Not surprisingly, with the significant increase in deal flow, there is talk of a SPAC “bubble.”

So-called bubbles have long been part of the capital market landscape, as Carlota Perez noted in her book, Technological Revolutions and Financial Capital. Charles P. Kindleberger’s classic book, Manias, Panics, and Crashes: A History of Financial Crises, also documents the history of financial manias.

These books were required reading for investing classes Steve was teaching at Quinnipiac University. He wanted to make sure students graduated with a real-world perspective on capital markets as opposed to the unworldly, static-equilibrium models taught in conventional economics and finance.

When “SPAC mania” ends is anybody’s guess. SPACInsider closely monitors deal flow and at last glance, there were hundreds of companies in the SPAC pipeline. As noted earlier, Silicon Valley seems to be changing its tune with respect to its view of SPACs.

From a Venture Investing in Science perspective, it is noteworthy that deep science companies are tapping the public capital markets for capital via SPACs. Among these are IonQ — a quantum computer pioneer, Desktop Metal, a 3D printing company, and emerging Space companies such as Rocket Lab, Spire, and Redwire.

Another recent SPAC announcement was Lilium, which is a pioneer in flying electric-power vehicles. The Chinese online giant, Tencent, is an investor in the company.

The pre-eminent VC, Peter Thiel, once lamented that we wanted flying cars and all we got was 140 characters (i.e., social media company, Twitter).

Surprise! With the rise of SPACs, we are getting flying cars!

Today’s Prophecy

Seemingly from out of nowhere special-purpose acquisition companies have become a phenomenon in the US capital markets. This wasn’t planned by any government authority or foreseen by the pundits and talking heads. Entrepreneurs are getting access to capital. That a positive development for the US economy.

Yes, some SPACs will go down in flames. But there will be some successes. Let us celebrate the surprises that allow entrepreneurs to do their thing. For without them, economic dynamism and prosperity would wither and die.


George Gilder
Editor, Gilder's Daily Prophecy

Steve Waite
Senior Analyst, Gilder's Daily Prophecy

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