2021: A SPAC odyssey
There are a number of ways to take a private company public: You can pursue a traditional IPO, sell a chunk of shares at a set price and start trading. You can direct list, and merely start to trade. You can host a hybrid auction-offering, like what Unity did.
Hell, Google showed us back in the day that a reverse-Dutch auction is possible, after which no one else deigned to try it.
And then there’s the blank-check method: Instead of taking your company private, some rich people list a pile of hungry money instead, and then go hunting for a private company to merge with. If you consent, the money bucket and your actual company merge, renaming themselves after your operating entity. This is a SPAC-led debut.
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And it’s what we’re discussing today, because there are a few upstarts going public via special purpose acquisition companies (SPACs, or blank-check companies) worth checking out.
One deals with bitcoin, and one is a huge consumer-facing fintech that has a stadium named after itself. In the case of Bakkt, the cryptocurrency-powering entity, a SPAC made some sense at first blush. SoFi, on the surface, seemed less obvious. (Bakkt is owned by Intercontinental Exchange, an exchange-focused, public company. It has raised money from Microsoft as well.)
This morning I want to dig through the two offerings’ investor presentations to see what we can learn. After viewing the Opendoor-SPAC presentation, I had a few questions heading into the new deals. The first of which was whether SPACs were going to be used again to lift potentially-promising companies that lacked obvious, near-term growth stories to the public markets? If so, perhaps SPACs would wind up helping get more total companies public, which would not be a bad thing.
Especially given how many unicorns the private markets are birthing ahead of the public market’s ability to IPO them all; maybe SPACs would help close the liquidity gap?
So, does that very modest hypothesis fit with Bakkt and SoFi? And what can Bakkt tell us about Coinbase’s impending IPO and SoFi about the state of consumer fintech? Let’s find out.
SPAC me baby one more time
We’ll start with Bakkt. You can read its release, including all the messy details of a SPAC-led combination here. The piece you need to know is that the resulting, combined company will have an enterprise value of around $2.1 billion and more than $500 million in cash after all elements of the deal are closed.
So the market should soon have a publicly-traded, cryptocurrency-focused business that is loaded with cash. Fun!
Next we want to know how healthy Bakkt is as a business, which brings us to its investor presentation, which you can read here. The presentation stresses that Bakkt is backed by major companies, a plus for public investors who might still be skittish about bitcoin. It also stresses that Bakkt will handle a host of digital tokens instead of just cryptocurrencies.
Bakkt’s point that airline miles and other non-monetary rewards are related to decentralized cryptocurrencies in that they are digital tokens is worth considering. Bakkt views the breadth of its supported asset classes as both an advantage over its competitors, and something that it is expanding; equities trading is coming soon, which will users to view even more of their digitally-held assets in one place.
Then we get to the results section of the presentation, which includes what I think is the most egregious chart of all time:
Observe how competitors are denoted with actual data, while Bakkt bests them all with projections. Oof. So when it comes to what we can learn today from Bakkt about the impending Coinbase IPO I think that the answer is “not much.” Oh well.
We raise the above chart not merely to gently mock some of its embedded optimism, but also to note how nascent Bakkt’s consumer app really is. Per the company itself, it has yet to really launch:
This leads to the “results” shared being pretty heavy on speculation. Indeed, they are nearly all speculation. Check it out: