Startup Legal Talks (1)
Listing of shells (SPAC) is not as simple as you think
More dry stuff, less wordy, and welcome to startup law. Today, let’s talk about the listing of shells (SPAC). Since 2019, the word SPAC has been heard everywhere. It seems that without mentioning the listing of shells (SPAC), it will be considered as an outsider in the entrepreneurial circle. .
But today's video is probably going to throw cold water on entrepreneurs and investors. Shell building and listing is not as magical as everyone thinks. It can neither let entrepreneurs go to the sky in one step, nor can investors get rich overnight. If you are an entrepreneur, then the entrepreneurial project is not good enough, and you still cannot get into the eyes of the sponsor of the shell-making and listing. If you are an investor, you should know that the listing of shells has even brought Wall Street's top fund manager Bill Ackman to court by the majority of investors.
1. Shell-making and listing (SPAC) is not a new concept
In fact, shell-making and listing (SPAC) is not a new concept. This concept was invented as early as 1993, and in the next two or three decades, there have been shell-making listings (SPAC) one after another. company of. But it is very strange why it has become so popular in recent years? Especially in 2019, 2020 and 2021, there is suddenly an explosive growth.
2. Why did the shell-making and listing (SPAC) suddenly become popular in recent years?
On the one hand, it is also because of the supervision of the SEC in the past 20 to 30 years that the number of listed companies actually declines every year, and more companies are delisted than listed. From more than 8,000 listed companies in 1996, there are only more than 4,000 listed companies in 2016. And everyone knows that from 2017 and 2018, more and more money has entered the capital market. It was originally thought that after the outbreak of the epidemic in 2019, the economy would enter into a recession, but after the quantitative easing monetary policy, more capital poured in. There is a lot of money, but there are not many projects that can be invested. After investing in the project, there are not many ways to exit, which reminds everyone of the shell-making listing (SPAC) that has been under pressure for many years, and the shell-making listing (SPAC) is so popular.
3. The difference between shell listing (SPAC) and backdoor listing
Shell-making and listing (SPAC), the full English name of Special Purpose Acquisition Company, is a special purpose acquisition company. Acquisition, as the name suggests, the process of going public must include acquisitions. Both the shell-making listing and our traditional backdoor listing involve the process of acquisition. It is actually the shell company that is listed. After the shell company is listed, the business of the target company is injected into the shell through acquisition.
But the difference is that in the traditional backdoor listing, the target company still has some places to take the initiative, because this shell company is not a shell, but because the business operation is getting worse and worse, it has actually become a A shell, under such circumstances, the shell company must find a target company to inject fresh blood, otherwise it will face the risk of delisting. In shell listing (SPAC), because the purpose of the establishment of the shell company is to select a suitable target company for listing, the leading role of the shell company in shell listing (SPAC) is stronger. In other words, the target company can do very little, basically like an emperor choosing a concubine, and can only wait to be acquired by a shell company.
4. SPAC is not a shortcut for entrepreneurs
It should be clear here that the so-called shell-making listing is not a startup company that creates a shell for itself and then goes public. It was someone else who created the shell for you to go public. This "other" is the investment institution. And the raw material for making this shell is nothing but money. That is to say, investment institutions have raised a lot of funds and used these funds to build a shell. Because this is a shell company, there is no actual operating history to review, and the entire listing process can be completed within three or four weeks. After this process is completed, the shell company has the opportunity to find a suitable target company in a period of 12 to 24 months and inject substance into the shell company through acquisition. This also means that there will be no opportunity for entrepreneurship and NASDAQ to ring the bell. Speaking of Nasdaq ringing the bell, if you want to know more about the concept of a Nasdaq listing, you can go to Lecture 17 of my 20 Lectures on US Corporate Law.
5. Shell listing (SPAC) is not a good news for investors
In fact, shell-making and listing not only have nothing to count on for entrepreneurs, but also for investors, shell-making and listing is a game of breaking the blind box, because before the shell company is listed, it is not allowed to disclose any information to the public. down to the information of the target company to be acquired. We can only wait for the shell company to go public and use the next 12-24 months to complete the acquisition of the target company. That is to say, in the process of raising funds and listing of shell companies, the majority of investors have absolutely no way of knowing which company the money they invest will eventually enter.
In fact, this year, there is a company accused of listing a shell (SPAC), the sponsor of the listing (SPAC) is the famous American fund manager Bill Ackman (Bill Ackman), he raised 40% of the investors. billion dollars and quickly listed the shell company. But the next step in the process of choosing a physical target company stumped him. With Bill Ackman's reputation and the amount of money he's raising, he couldn't find some little-known startups, so he took aim at Airbnb, but they Such a good unicorn company doesn't look down on Bill Ackman, who said that I can go public with my own strength, why should I use your shell and be under your control. As a result, Airbnb went public on its own. Later, Bill Ackman took a fancy to Universal Music, but Universal Music is not a vegetarian, it is also strong, and plans to go public, and Universal Music is going to It is the stock exchange in Amsterdam, the Netherlands, and people still look down on the Nasdaq and the New York Stock Exchange in the United States. But what's worse is that Universal Music is valued at $40 billion, and Bill Ackman's shell company is only $4 billion, which is only enough to buy 10% of Universal Music's stock . But Bill Ackman's time is running out, the two-year deadline is approaching, he has to find a company to invest the money, and he has no choice but to choose Universal Music (Universal Music), just use The funds raised bought 10% of Universal Music's stock. After buying it, he was sued by his investors in court, saying what kind of shell listing (SPAC) is this? What others want is that you buy a unicorn company, and you invest 10% of other people's stocks. What is the difference between your SPAC and a private equity fund at any mature stage?
After watching this farce, I am afraid that everyone has discovered that shell-making and listing (SPAC) is not only out of reach for entrepreneurs, but also for investors, it is not as perfect as imagined.
Summarize
Others studied hard for ten years and were admitted to university. One day, the university will expand its enrollment. As long as you pay millions of school fees, you can buy a university diploma. Then the university diploma is naturally worthless. Many times you hear a concept that is good, fast and saves money, too good to be truth, and it is too good to be true, then basically a question mark will be placed. There are no shortcuts to starting a business, and it is still strength to fight. As an entrepreneur, you still have to make a good product, make a market, and honestly go back to find investors. As an investor, it is still necessary to carefully select good startup projects. The concept of shell-making and listing (SPAC) is more than the substance. Just like a toy of capital, it will be tired of capital in a few years, and it will press the bottom of the box again.
More dry goods, less wordy, here is the law of startups, see you in the next issue.
