[joschmo]

As someone that's raised money for SPACs, been an advisor to SPACs and sold companies to SPACs, the answer is a resounding no. Most VC-backed companies, whether in tech or biotech, don't need the strategic shift that's core to a SPAC thesis. You usually get bought by a SPAC when you need new management to come in and kill darlings for long-term health, not as an option to go public.

The folks that think it's a method to avoid day-one price pops are mostly incorrect. Price pops are intentional as selling 10% of your company at a discount fills up the IPO book much faster and causes 10x+ oversubscriptions. This signals strong demand to the majority of very large asset allocators who come in post-IPO. Those investors psychologically overvalue day-one pops years into the stock's public lifetime. I've had conversations with heads of tech investing at many $100bn+ funds who mention day-one pops when they enter a stock 5 years post-IPO. Doing the math, strong market confidence in your company pays dividends when you're selling the other 90%.

[valuearb]

The underpricing pop disappears faster than a fart in the wind. Underpricing in IPOs is direct theft of value from shareholders and employees to investment banks and their clients, and provides zero value for the company.

[nuclearnice1]

Why does it persist?

I can think of three non-exclusive possibilities:

* Market power of banks

* Corruption of the stock-compensated managers who benefit from the pop

* Genuine or perceived benefit to the company in further price raising. (Mentioned above)

[lmm]

There's an (also non-exclusive) argument that it's a fair price for the risk that IPO buyers are taking. IPOs do "fail" sometimes, so the pop isn't as great a risk-adjusted return as it looks.

[jamez1]

Sorry, this is ludicrous. No analyst is basing their investment view on the 1 day post-IPO movements. Maybe a few months in, as an ancedote about market sentiment, but 5 years in the stock is traded totally differently, by different holders in a basically a different world. When funds make investment decisions we collate a whole bunch of random facts, some relevant, some just general interest. 1 day returns off the IPO can be filed under general interest, just like the gossip magazine articles written about the founders. At best it's attached to the fame of the stock, not the other way around - Facebook's pop is memorable not because of the pop but because of the stock.

Maybe because you're from the sell side you're hearing what you want to, it often puzzles me some of the views that you guys have on the market, the role you have just doesn't actually matter that much to the market. A stock is a business, not an investment banking product. The investment banking actions over the life of the business are out-sized, but they also quickly fade to be indiscernible - Facebook would still be the same company today and worth the same amount today even if it was backdoor listed on the pink sheets at first.

[ketzo]

> The folks that think it's a method to avoid day-one price pops are mostly incorrect. Price pops are intentional as selling 10% of your company at a discount fills up the IPO book much faster and causes 10x+ oversubscriptions.

Just because it's intentional doesn't mean companies can't still try to avoid it though, right? I'm still pretty uncertain in my knowledge around this, but isn't this actually still a good reason for a company to seek a SPAC deal?

[Lazare]

No. The "pop" is part of the cost of the IPO, but SPACs are more expensive than an IPO.

If your thinking is "IPOs are good, but too expensive; what if there's a big pop I miss out on?", then you would never want to consider a SPAC. If your thinking is "IPOs are good and the pop is fine, but there's too much risk of the deal falling apart", then you might consider a SPAC instead.

[ketzo]

But that second part is what’s key these days, right? Reducing uncertainty seems big — as I understand it, with an IPO you don’t know exactly how much money you’ll raise until the literal end of day 1, whereas with a SPAC, the specific dollar amount your company raises is worked out through negotiation well in advance of “going public”.

Thank you for the clarification on that first part, though.

[fragmede]

I might be totally misunderstanding the IPO process, but as the company, I sell, say, 100 shares at $10 at 9:00 AM Eastern of the first day. At the end of the trading day at 5:00 pm Eastern, for my balance sheet, it doesn't matter what the share price is, up or down; I've made $1,000 from that initial sale. There are follow-on effects to the company when more shares some time later, but the amount my hypothetical IPO raised is limited to the $1,000 at the start of the day.

[ketzo]

Other places on this thread, there are references to "filling up the IPO book," which is referencing the fact that you can offer 100 shares, but you don't know that all of them will sell, or that all of them will sell for the price you offer them at. That's part of the reason they're often underpriced -- to ensure they all sell.

[ooobit2]

OOC: I'm not familiar with SPACs and reorgs/realigns. I have experience with PE in acquisitions within professional sales. But do you have any insight into how these work top-down with leadership vs. IPO/PE acquisitions? Is there much difference in the usual 2 EOQ expectation for turnaround results?

[ackbar03]

hi, can I ask, how would I go about learning about all these different financing methods / vehicles if I wanted to read about it by myself? And say for some reason I wanted to do an IPO/finance through a SPAC or something myself, where would I start and what would I need (assuming I don't want to hire some investment bank for me).

I used to work as a trader at an investment bank and I've always been curious about the corporate finance side of the business. I have a friend who worked in corp finance at a boutique IB and struck out by himself. He eventually ended up running his own boutique bank in China and deals almost exclusively with SPAC's by helping his Chinese clients list on Nasdaq or whatever. I was always curious how he did it and what one needs to do if he wanted to follow a similar path