The Space Boom: Was It a Failure?

The Disappointing Aftermath of SPAC Mergers

Observing the failure of Special Purpose Acquisition Company (SPAC) deals after the merger is complete is disheartening. The erosion of value is palpable, as the aspirations of founders, staff, and investors who retain equity in these now-public companies diminish.

This trend isn't limited to any single industry. Companies in the media sector have struggled as SPAC targets. Similarly, insurtech ventures haven't fared well.

A Broad Spectrum of Failures

The difficulties extend to other areas as well. 3D printing businesses acquired via SPACs are showing weak performance. The same holds true for e-scooter companies.

Even hardware and software providers focused on the apartment building market haven't succeeded. Fintech companies present a varied picture, but many have also delivered disappointing outcomes.

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SPACs and the Public Market

SPACs did facilitate a faster route to public listing for numerous startups and unicorns than traditional IPOs might have allowed. However, the frequent emergence of poor results following the initial excitement and the onset of regular post-IPO operations suggests a broader pattern.

The data accumulated thus far leads to the conclusion that the SPAC boom represents a significant failure. This is not to say that all SPACs were unsuccessful, but the overall outcome has been largely negative.

A Failed Promise

In what way has it failed? The initial hope was that SPACs would become a reliable mechanism for transitioning unicorns from the private to the public market. It was anticipated they would help reduce the accumulation of expensive, formerly private companies at the exit points of the startup ecosystem.

Unfortunately, the consistently unfavorable results indicate that this outcome is unlikely. The performance has simply been too poor to support that vision.

The Growing Number of Unicorns

A significant, yet often overlooked, challenge within the technology investment landscape is the continuous increase in the number of unicorn companies. The rate at which venture capital firms and private investors are creating substantial paper wealth far exceeds their ability to bring these companies to the public market.

Currently, over 900 unicorns are awaiting an exit strategy, with Crunchbase reporting 944 and CB Insights identifying a slightly higher number of 959.

Consequently, several trillions of dollars in value remain untapped within the capital markets, poised for investment. Special Purpose Acquisition Companies, or SPACs, initially presented a potential solution.

What drove the initial popularity of SPACs? The congestion of unicorns seeking liquidity was a key factor, though not the only one. CEOs who chose to go public through a SPAC often emphasized the ability to establish a price early and secure funding in a single transaction. These were legitimate advantages that attracted interest from venture-backed companies.

However, for founders hoping SPACs would accelerate the process of unicorns achieving liquidity, the performance of SPAC-led initial public offerings has been largely disappointing.

I recently compiled a list of companies that went public via SPACs to illustrate the extent of the setbacks. Consider how substantially many of these companies have declined below their initial SPAC price of $10 per share:

• Dave.com, a fintech company that recently utilized a SPAC, currently trades at $4.92 per share.
• Latch, focused on hardware and software for multifamily properties, is valued at $6.40 per share, also significantly below its starting price.
• Bird, the e-scooter provider, which went public through a SPAC, now has a share price of just $4.68.
• Desktop Metal, a 3D printing company leveraging a SPAC, is currently worth $4.47 per share, a steeper decline than Bird.
• Babylon Health’s share price stands at $6.05, representing another unfavorable outcome for SPAC-led debuts.
• BarkBox is trading at $4.22 per share, a particularly poor result.
• Buzzfeed’s value has fallen to $4.34 per share, losing over half its value in a remarkably short period.

Given this track record, which reputable company would willingly pursue a public listing through a blank-check company? While SoFi is often cited as a successful SPAC example, the overall results of the SPAC boom have been largely unsuccessful.

As a means of addressing the unicorn backlog, SPACs have proven ineffective. They failed to significantly reduce the number of unexited startups valued at $1 billion or more in 2021. This indicates a failure to establish a new, faster, and more effective pathway for private companies to go public.

The historical skepticism surrounding blank-check companies may have been justified. They have traditionally been used to offload less desirable assets, and this pattern appears to be continuing.