Business Values: Some Things I Just Don’t Believe In
Sometimes I see things I just don’t believe in. Here’s an example.
A recent Fortune Magazine article describes how Dov Charney, the founder and CEO of American Apparel, raised money through a SPAC. SPACs are shell companies that raise hundreds of millions in equity and go public. Once public they wait for an opportunity and once they find one, they put their equity to work. Since going public is such a painful process with Sarbanes Oxley and all the other red tape, SPACs are attractive to entrepreneurs as a quick way to raise big capital.
Here’s my thing: I just don’t believe in SPACs. Time may prove me wrong, and if that’s the case, so be it.
American Apparel is an interesting company who has grown very quickly. They do untraditional things like manufacture all their garments in the
Time will tell. Let’s give it 5-10 years. Standing here today, American Apparel’s decision to take investment from a SPAC seems like folly to me.
SPACs remind me of something we recently went through up here in
Things that sound too good to be true, usually are too good to be true. Other things like SPACs, they fall into the category of things I just don’t believe in.
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9:27 am
I think you have a fundamental misunderstanding of what is going on here. It’s just another way of going public. And frankly, a much safer way for the business owner. When doing an IPO, the broker can bail out at any moment if they don’t like the market, and that’s after the business owner has spent a bunch of money.
With a reverse-merger, the company is certain to go public. The SPAC, or any reverse merger shell, is simply an investor. A shell is soulless on purpose. The shell then looks for a company to become its soul, and then hands the reins over to that company.
Reverse mergers are the main method of going public in Canada.
9:31 am
Jay – you are right and none of that is lost on me. All the points you made are the benefits of the shell and the revese merger – especially from the entrepreneur’s perspective. That said, I still don’t believe in SPACs.
9:51 am
Mike, you’re entitled to whatever logic you choose, but I don’t see what there is to not believe in.
Your main contention seems to be this:
“That said, SPACs seem like soulless entities to me. What are the odds they share the business values of the people at American Apparel? Slim to none I’d say. What if the dark clouds come when you have an investor like that? Won’t be pretty I suspect.”
The business owner gets to retain control in a reverse merger. And in the case of a SPAC, the business owner is actually in a better position than with a VC. The reason is that the SPAC is made up of a bunch of smaller investors, not just one or two big VCs who can hold a hammer over the company, even after its gone public. If dark clouds come, all the investors in the SPAC would have to get together in a grass roots movement to have any power. It’s a bunch of smaller shareholders voting instead of one huge one. The SPAC does not simply vote as a block as a regular large investor would.
I live in the States and I think the reverse merger method of going public as is usually used in Canada is actually far better for many reasons.
9:57 am
Jay – again I totally agree with you. I think I misrepresented myself to some degree with my “That said, SPACs seem like soulless entities to me” statement.
There is no logic per say as to why I don’t believe in SPACs. It’s a visceral thing more than anything. SPACs seem like a great financing vehicle – and an alternative to VCs – I still don’t believe in them, and where that comes from is hard to explain…but I’m sticking with no.
Rationally speaking I am inclined to agree with everything you say. My gut…it says otherwise.
2:16 pm
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8:08 pm
I think spacs are a great vehicle. We own 2,640 acres of Alluvial Gold deposit and I am looking for a spac to raise 200mm usd. worth 8B at $300.00 gold. Gotta dig it though.
CARL
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