Nisa: You opened your SPAC a couple of months ago, how has the reception been? Anyone asking why you didn’t pursue a traditional IPO instead?

Mike: We have a very large network, due to our relationships with 600 VCs, along with our personal connections among the 8 board members. We have probably met with 25 or 30 companies and have turned down about a third of them, we probably have a third or so interested in having a dialogue about using the SPAC path, and the other third are either doing a private round (a core business for us), or are going to do some kind of bridge financing and traditional S1 financing. The whole world recently got caught up in some euphoria, and some companies have been taken public without doing due diligence. I have worked in capital markets for a while, and there is a sort of schizophrenic pendulum, and right now there is a re-rationalization of investing… The right kinds of companies will go public, along with the ones who shouldn’t, and that is healthy. 

Particularly in California, there is a lot of dialogue about direct listings, as opposed to S1, Roadshows, IPOs or SPACs. Direct listings are a very popular topic of conversation among VCs in the Valley. They make sense for a very small group of companies, and they might get 75% of the airtime and dialogue, but they’ll be less than 5% of the volume in activity. There have been a couple of successful ones obviously, Warby Parker, etc., but I think you will see a continuous story about the menu of options. 

Nisa: How would you summarize your discussions with the companies you’re speaking with?

The first question we ask, do you want to be public? Does that give you benefits on recruiting people and talent, a currency for M&A, or just in terms of a branding event for your customers and business? If you do want to be public, the second question is how do you want to get there. Do you want to go through a traditional Roadshow, S1, do you want to use a SPAC or direct listing? We are actually having that specific dialogue with all of the companies we talk to. Some are probably leaning in the direction of a private round and IPO later, and about a third are very seriously exploring the SPAC path.

We are giving companies advice on whether and/or how to go public. There were about 155 de-SPAC transactions in 2021; about 45 of those are tech companies, which is the sector we are focused on. I think you’ll see quite a bit of activity in January, February, and March, placing PIPEs and closing SPACs. First of all, there is a little bit of indigestion in the market that needs to be worked through, some of the hangovers from the beginning of 2021, from deals that shouldn’t have been completed. Some of those early-year deals got priced poorly, while many did not get priced and are clogging up the ecosystem. There is always some anchoring that goes on in people’s minds in terms of the value or price of their company. When you anchor yourself at a certain price level, sometimes you aren’t able to consummate it, which is happening to companies right now. There are a number of regular-IPOs being pulled now as well, but that whole pricing process has clogged up the system. 

The availability of SPAC capital and of private caapital gives companies options, but ultimately, the problems are caused by bringing the wrong company public or the wrong valuation.

Nisa: So when do you think your deal is going to go through?

Mike: Our deal is probably going to fit the timeframe that I outlined, looking at [Q1 2022]. We are talking to a lot of companies now about the specific steps to go through from here to the pricing of the PIPE, the listing of the transaction. For some of them, there are things that should be done about closing the accounting and audit period. There are actually a couple of cases where we will see a bridge round of financing to put them in a better position. You don’t want to be in a situation where you are talking with public investors, but you are running into a timing deadline and need money by a certain date. You always want to have enough money in the bank to have runway and flexibility, otherwise, the leverage is all in the hands of the investor. The Investors have inherent leverage, but you want to make sure that the company has its own runway and financial flexibility to price more slowly—which is what we are advising our prospective partners to do. 

Nisa: What kinds of companies are you speaking with right now?

Mike: There are some really good companies that I think are too early to go public right now, they’ll be good in a year or two, but they aren’t ready now. I think early in the year a lot of people forgot about the dynamic of being public and what that really means. In order to be a stable, successful public company that launches with momentum and has the right public market debut, you need a lot of things to line up. Just being able to raise money is not enough, some of those companies that went public too early last year; they rushed into what was a perceived window. I don’t think you will see much of that moving forward; it will be a lot of getting the company fully and flawlessly prepared first, and then going public when they are ready to launch with momentum and build a successful and stable company, not just someone who got financed and is figuring it out on the fly.

Nisa: Do you anticipate the fee structure changing moving forward?

Mike: First with our underwriting, we picked Citi because they are the leader in SPACs and back-end pipes; they are a substantial underwriting company in general where we have personal relationships with Tyler Nixon who runs the investment bank. Same can be said for Bennett Schachter at Morgan Stanley, and XX at Willaim Blair, who we chose because they provide excellent research and banking for $1-3B dollar technology companies (our target audience). We wanted the biggest underwriter in SPAC (e.g. Citi), the biggest underwriter in tech IPOs (e.g. Morgan Stanley), and an expert in mid-market technology (e.g. William Blair). We collectively also have many direct relationships with investors. We ended up bringing much of the capital to our own IPO from people we have known for a very long time. 

What we structured in our transaction, is that anyone we brought on as an investor, agreed they would forfeit any of the economics we bring them in exchange for redeeming or selling what they were allocated in our IPO (meaning, that they don’t consummate the backend). Virtually no other SPACs were able to do that, some investors were a bit frustrated, but we held firm on our beliefs. If you want to invest with us and be an anchor in our Alpha SPAC deal, you have to agree to forfeit your economics to the extent which you redeem or sell. Everyone agreed, which is a good indicator they will not redeem. 

I don’t think people should be paying a bunch of fees for something that doesn’t consummate, we are trying to work with a group of investors who know what we are doing and a lot of times we have co-invested with them before (23 private rounds at Alpha — Coupang, Coursera, etc.). Essentially, these investors are hiring us to go find a private company, we call them “PIPE-hunters” who are waiting for the backend to put money to work behind a company that we think is great, vetted with vigor, and is going to launch successfully as a public company. In theory that sounds good, but the proof of that is in the agreement to forfeit economics.

Nisa: For the anchor investors you bring in, should the banks be paid for that portion of the fundraising?

Mike: We have a tremendous relationship with our banking partners: Citi, Morgan Stanley and William Blair. We asked them and they agreed that 1% of the 3.5% of the gross fee would be held as a “jump-ball,” that we can make available to other banks in the future. That is an incentive to bring on firms who can research and help support the companies we work with; other SPACs couldn’t get that deal. Our relationship with these banks is holistic, we want them to help us with the merger, backend, long-term, etc. 

Our banking partners were happy to work with us; they believe we are going to find a great back-end deal. We are happy to work with them and pay their fees, because they provide a lot of value over the lifecycle of a SPAC. In late July when we were doing our IPO, the SPAC market was essentially closed. We wouldn’t be able to do it without these relationships, in addition to a differentiated team and offering that has a strong value proposition for partner companies. 

Nisa: What is it about APTMC that enables you to have these strong relationships with your partners? 

Mike: The SPAC market like many others will bifurcate, there will be the top quartile, and everyone else. You have to be one of the best SPACs to have a chance, and we aspire to be that with the help of partners, and the offerings they can provide over the lifecycle of the transaction. 

Nisa: Outside of Coupang and Coursera, are there any big IPOs on your radar?

Mike: There are a number of interesting companies out there right now, one of them is DriveWealth. DriveWealth is an infrastructure play that enables Neobanks to offer brokerage services. If you are a Neobank, you are already doing a lot of things with your customers; providing banking services, payments / banking infrastructure, etc. There is an entire world of technology, operations, legal, compliance, and infrastructure needed to offer those same clients the ability to trade stocks, mutual funds, etc. DriveWealth is sort of the brokerage infrastructure behind a lot of Neobanks. We think that is a really interesting, topical business with chairman Gensler and SEC focusing on things like payment, order flow, etc. Commissions have come down for retail investors and in our lifetime the cost of trading stock has gone down, which is a good thing. DriveWealth generally internalizes order flow and executes it themselves, which intrigues us. 

We look at about 15-20 transactions a week of private rounds, and we invest maybe once a month or 1-2 a quarter. Just because we are not investing does not mean it is a bad company; many times it just isn’t the right overall fit. We invested in Youtome, which is just going public. EdTech is an exciting space, but a tiny one. The big spaces are Fintech, Digital Health, a variety of real-estate tech and related plays, and of course eCommerce. 

Out of our target universe for our SPAC, we have vetted about 200 of the 1600 companies we have looked at and modeled carefully — we actually thought that 255+ of them were ready to go public and/or are market-ready, and we’ll zero-in on about 30 of them to find our eventual partner.

Nisa: What’s the future for SPACs?

Mike: My view is that the SPAC market is going to end up being the best SPACs and everyone else. The best SPACs will have a series of SPACs, and the rest will likely fail and liquidate. If I were to guess, I’d say about 25% of the SPACs out there will be considered the “best” SPACs.

Nisa: Can you talk about how APTMC is aligned with Alpha Partners, and how they’re working with nearly 600 VCs? 

Mike: Sure. This helps us have incredible deal-flow. There are about 2,000 VCs in the country, and even using Bloomberg’s readership, if we polled everyone we could collectively come up with about 100. Only the top-50 or so have over $1B AUM, meaning there are 1950+ others in the ecosystem. Most are pretty specialized. For the most part we partner with that other 1900, who don’t have the mandate or capital to invest in their own winners. When one of their seed rounds is successful, sometimes they don’t have the funding for a B, C, D round etc., so they bring those to us. That is enabling us to see a lot of deal-flow. With data-room access, their numbers, deeper analysis, etc., we can pick the most appropriate public companies. 

We offer two good options for these companies: if they want to do a private round we can help, and if they want to go public they can go through that process with us as well. With all of our experience, we really understand the public market as well as the private sector, and that bridge is pretty hard to find. A lot of VCs know the private sector well, while a lot of public market investors know the public sector better, but we have deep connections and capabilities within both areas, which is rare. We have great sourcing, which enables us to be choosy, we can say no to companies we don’t think are right.

Nisa: What else are you seeing in the market? 

Mike: People like direct investments. If I’m being honest, many of those people don’t have the analytical rigor or staff to do them safely, so we are their staff for that. We have a team of analysts, a patented software platform, and we really analyze these companies and they know we look at hundreds. The companies that make it through our filters have gone through a much more rigorous vetting process rather than just a blind direct investment. 

Nisa: Was there any reason you raised the SPAC in 2021, as opposed to late 2020 when things really took off in the sector? 

Mike: In some ways, it was a reaction to what we were seeing. Many companies were coming to us and asking about SPACs, because they trust us and know our expertise. After answering so many questions, we decided to form a SPAC of our own…and really do it right. Our board was built very deliberately with people we have known for 20-30 years. Two were former public company CEOs themselves, one is the leading voice on diversity and inclusion for corporate America, and the other is a prominent tech banker who can introduce our partners to a company anywhere in the world. 

Recruiting and talent is very important for growth companies, so we have the former CEO of Heidrick & Struggles, Tracy Wolstencroft. John Rice who started MLT (200 or so partner companies rely on his playbook for diversity and inclusion). Marcie Vu is a tech banker from Morgan Stanley and Qatalyst Partners; she can introduce us to any banking company in the world. Scott Grimes, who founded Cardlytics, ran it privately for a decade; took it public when the share price went from 13 to 130. We have a unique skill set on our board. Align that with my capital markets experience and our rigorous analytic experience, and we believe that’s something special. We opened the SPAC because we noticed some of these other SPACs didn’t have all of these pieces.

 

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