SPACs Represent New Opportunity for Venture Funds and Their Portfolio Companies

SPACs have a number of advantages for both venture capital funds and their portfolio companies to achieve successful exits. I have represented a number of companies in the going public process, including traditional underwritten public offerings, reverse mergers with fallen angels and mergers with SPACs. The main advantage of going public via a SPAC for the portfolio companies of venture capital funds is the ability to set the valuation before incurring a large investment of time and money. In a traditional underwritten offering, the company incurs the vast majority of the expenses before knowing the valuation in the IPO. In a merger with a SPAC, the valuation is negotiated at the time of the signing of the merger agreement and prior to preparation of all of the expensive SEC disclosure documents. There are other advantages (and of course some disadvantages) to this approach including the ability to disclose projections in the registration statement for the merger shares which is not permissible in a traditional underwritten IPO.

Well-respected venture capital funds are embracing this new approach to taking their portfolio companies public. This is definitely a trend worth watching.