After dominating the news over the last year, SPAC IPOs have cooled off recently. Many companies that went public through the SPAC process have since performed poorly. PIPE money, required additional capital for SPAC IPO, has dried out. SEC has added rules and compliance measures complicating the SPAC process. There is still $100B of SPAC capital waiting to take companies public but the luster is off.
To be honest, SPACs made little sense for many categories of companies. Today, private capital is aplenty with quick funding rounds and high valuation multiples. For companies that have scaled up, traditional IPO and direct listing options are more appealing. There are some advantages in taking the SPAC route, like price discovery, but it is an expensive route. This resulted in adverse selection – companies that weren’t ready or unable to raise financing were the ones keen to take up the SPAC process.
Except in deep tech! SPAC makes perfect sense for deep tech startups. Private capital for deep tech is still lacking so a SPAC IPO financing is an attractive option. A unique feature of SPAC IPO is the companies’ ability to provide forward guidance. For deep tech companies, most of their value is based on future adoption and scale. So the forward guidance helps make their case in SPAC IPO.
- Deep tech companies should view SPAC as a fundraising opportunity than an exit and raise capital to build for long term.
- Some companies fear the premature public market scrutiny that comes with SPAC IPO; but providing transparent accountability gives the discipline for long term success.
- Some worry about inability to raise future capital – this is simply not true; if the company is progressing well, there are plenty of PIPE and fresh issuance options available.
Deep tech founders, lean into SPACs if you are at the right stage of growth!