VC firms are launching SPACs, raising billions of dollars to potentially buy startups they’re invested in

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These days, more venture capital firms are either forming their own special purpose acquisition companies, or SPACs, or having internal conversations about doing so. A SPAC would let them launch a startup onto the public markets, even one from their own portfolios.

Peter Hébert, a founding partner at Lux Capital, whose SPAC started trading on the stock market last fall, said he’s had at least 60 phone calls with venture capitalists who are asking if they should jump on the trend.

Lightspeed Venture Partners is among the SPAC-curious, according to Barry Eggers, a founding partner.

“We’re investigating,” Eggers said earlier this month when asked if the firm was considering such a move. “I’d say we’re in the early stages of understanding the opportunity — how a vehicle fits in with our set of products.”

So far this month, Khosla Ventures and Lerer Hippeau dropped regulatory paperwork to create five SPACS between them. The filings follow a rash of venture firms making the same play, including SoftBank, FirstMark Capital, General Catalyst, G Squared, and, the first, Ribbit Capital, a fintech-focused firm with some big exits in the works.

All together, those seven venture firms have closed on or plan to raise $3.9 billion across 13 SPACs, according to regulatory filings.

They’re part of an onslaught of SPACs, also known as blank-check companies. The number of SPACs in 2020 quintupled over 2019, according to the website SPAC Research, and the pace has escalated again in 2021 with 166 of them already launched, compared to 248 in 2020. That’s nearly five SPACs per business day so far this year. 

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Today, most blank-check companies are formed by private equity firms and individual investors who sell shares on the public markets, typically for $10. That money sits in a trust while the so-called sponsor looks for a company to buy.

After they find the company and merge with it, the acquired company starts trading shares as the publicly traded firm, effectively going public and, often, raising money or cashing out investors in the process.

There are blank-check firms that target a specific industry, while others are generalists; but they are required by the Securities and Exchange Commission not to pick a company to acquire before they raise funds from investors.

For some venture firms, they need not look very far.

Shopping for acquisitions in their own portfolios

An increasing number of venture firms are saying that they may use the funds to buy a company they’re already invested in, according to regulatory filings.

The idea is to triple-down on a good investment, according to Hébert, the Lux managing partner.

“Our objective is to make a long-term investment in an extraordinary company that we hope to hold — to see that capital multiply and compound — for many years to come,” he said.

The firm, an early investor in Anduril and Relativity Space, says it will look in and out of its portfolio for acquisitions.

It’s not illegal for a venture firm, or any sponsor, to buy a business where the sponsor has a financial interest, but it …read more

Source:: Businessinsider – Tech


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