SPACs are the new hot way to go public. Instead of having to file nasty reports with the SEC, or answer hard questions from reporters and the common herd, you just hand the deal over to some hedge fund sponsor, sit back and wait for the money to rain down.
Some of the companies that have come out this way have been good for speculators. Draftkings (DKNG) has been huge. Some, like Virgin Galactic (SPCE) have had nice runs before falling to Earth. Others have been pure dogs. Can you believe WeWork is going public through a SPAC?
SPACs are a way to take money from bankers and put it into the hands of hedge fund sharpies who know how to go on TV and spin a story. The godfather of the movement, Chamath Palihapitiya, admits as much.
SPACs are also a way for hedge funds to dump their garbage. Profitable companies that used to go public now wait until all the juice is squeezed from them, taking bigger-and-bigger hunks of private equity cash. Now the garbage, the companies that aren’t making money, can go public through SPACs.
For the hedge fund guys, it’s a win-win. Get people to invest blind, sell them on your garbage, then on to the next one before “investors” see an earnings report.
For the investor, however, it’s a lose-lose. It’s another recent example of the ultra-rich robbing everyone below them. The game is always the same. Get around laws that protect people, in this case securities law, by redefining them, in this case taking garbage public through SPACs. Just as low-end workers became independent contractors and lost the protections of a century.
The upper middle-class didn’t worry when their hedge fund masters came for the immigrants, the unions, or the gig workers who clean their toilets. Well, now the .0001% is coming for you.
How does it feel?