SPACs have existed for decades, but have only recently taken the public markets by storm. This summer, SPAC IPOs raised more in just two months than they did in all of 2019. The motivating factors behind the 2020 SPAC frenzy are various, and shed light on the implications of SPAC-enabled public offerings for institutional investors.
The Recession Factor
Michael Fertik, the founder of Reputation.com and the early-stage venture studio Heroic Ventures, has studied the recent developments in SPAC funding. In September, I had the privilege to have Fertik join my presentation about SPAC at an educational webinar organized by TI Platform Management about the current SPAC boom, its historical antecedents, and what it means for markets, entrepreneurs, and institutional LPs. The Valley’s first flirtation with SPACs, Fertik explained, was in 2008, between the onset of the Great Recession in 2007 and the increased SEC oversight of SPACs that started the next year. The second wave of tech-facing SPACs occurred in 2015-2017. The third is happening now.
In this regard, tech-facing SPACs are not atypical of the overall SPAC market: the three-year period from 2015-2017 includes two of three historic leaps in overall SPAC funding. In 2014, total SPAC IPO funding was $1.8 billion. Total funding doubled the next year, to $3.9 billion, and largely held steady in 2016, at $3.5 billion. Then SPAC funding boomed again, nearly tripling to hit $10 billion in 2017. Thus far in 2020, SPAC dollars are experiencing another multiplication, as year-to-date IPO funding has more than quadrupled 2017’s total.
