Mad Hedge Technology Letter
May 13, 2022
Fiat Lux
Featured Trade:
(SPAC BUSINESS PULLS BACK)
(GS), (SEC), (SPAC), (SPXZ)
Posts
Never waste a crisis.
The SEC sure isn’t.
They are using this stock market meltdown to broaden out the risk to who is liable for special purpose acquisition companies (SPACs).
The new regulation has meant that investment bankers who do the deal then advise the companies post-IPO are bailing on this business in droves.
There have been whispers about this potential regulation for quite a while as many investment advisers were putting through low-quality companies that would never turn a profit in a million years.
Investors would be held with the bag as these SPACs were prone to severely underperforming in the stock market.
Powerful Wall Street banks like Goldman Sachs (GS) are pulling out of working with most SPACs it took public, the second-biggest underwriter of special purpose acquisition companies last year, has been telling sponsors of the vehicles it will be ending its involvement.
A SPAC works with its adviser even after going public to finish its merger with a participating firm, known as the de-SPAC transaction.
If it fails to complete that deal, it’s forced to return capital to investors. In cases where the public company is very close to completing the de-SPAC process, Goldman will fulfill its role.
SPACs were popular on Wall Street over the past couple of years, luring financiers, politicians, and celebrities who were able to profit from investors piling into the investment vehicles.
The SEC is tightening oversight of SPACs including exposing underwriters to greater liability risk.
Lawyer advocates have argued the listings were bypassing rules imposed on traditional initial public offerings and exposing retail shareholders to extra risks.
The SEC’s proposal would require SPACs to disclose more information about potential conflicts of interest and make it easier for investors to sue over false projections.
There is no visibility on what company might be acquired (this is a regulatory requirement). A SPAC’s prospectus often includes some wording about the type of company or industry it intends to focus on, but there’s nothing to stop it from going in a totally different direction.
In many cases, those same sponsors were courted by large banks to put their names behind their SPACs, with the structure allowing them to turn an initial investment of a few million dollars into many multiples of that. And their Wall Street underwriters could make more than 5% in fees for taking a SPAC public, helping the sponsor find a takeover target and complete the de-SPAC.
The SEC's concerns might be warranted just based on how awful SPAC stocks are performing.
Take for example, SPAC ETF Morgan Creek - Exos SPAC Originated ETF (SPXZ) whose shares have gone from $21 in the past year to $11 today.
There have been a few SPACs that are worth investing in partially because once the SPAC goes public, the company can turn its business 180 degrees and do something completely different.
They are not beholden to anything, unlike traditional IPOs which are strict in defining what they do and how they do it.
Naturally, a lot of fraud-type companies can go public quickly with the help of a famous celebrity marketing their SPAC and that’s exactly what has happened.
New York doesn’t need more IPOs, but it needs more high-quality IPOs and this will prevent many investors from losing all their money.
One of the big unintended consequences of this bear market is that regulation is finally focusing on the fringe elements in tech and that should mean a healthier tech sector moving forward.
Mad Hedge Technology Letter
February 22, 2021
Fiat Lux
Featured Trade:
(AN ATTRACTIVE REAL ESTATE TECH PLAY)
(SPAC), (GHVI)
Special purpose acquisition company (SPAC) mania continues to bring a plethora of new tech names to the public market increasing the range of assets the Mad Hedge Technology Letter can look at.
The latest is the VC-backed real estate tech company Matterport (GHVI).
Matterport has built the world’s most advanced platform for quickly and easily creating, modifying, and distributing 3D models of real-world spaces.
The company has amassed the largest repository of 3D space data in the world for industries including real estate, architecture, construction, insurance, hospitality, and more.
Matterport leverages this data to drive its AI and deep learning algorithms to create unparalleled digital reconstruction of physical spaces, with an understanding of the spaces themselves and the objects within them.
This firm went public with Gores Holding VI, a special-purpose acquisition company founded late last year by investment firm The Gores Group.
Virtual walkthroughs of properties have mushroomed during the pandemic, especially in regions of the U.S. where in-person showings were prohibited.
Matterport’s 3D technology is used in more than 130 countries by clients, which include Redfin and Marriott International.
Some prominent investors include DCM Ventures and the venture arms of Advanced Micro Devices and Qualcomm.
The SPAC popularity has now migrated to real estate, with several companies — including Opendoor and Porch.com — going public in 2020 via blank-check firms.
Matterport keeps improving its software with a major update this week, specifically for iPhone 12 Pro and iPad Pro 2020.
This update injects improved dimensional accuracy with LiDAR for those two devices.
This means that the 3D sensor at the back of the device will be deployed to capture and recreate a more life-like iteration than ever before.
Matterport has been around for a while and this app and the company behind it have been capturing 3D models.
But now the new application of LiDAR on these most advanced devices gives this software a better dimension.
This is really the first step to the real estate industry becoming more integrated with technology.
Matterport is also an expert in the handling and display of 3D-captured content from a variety of cameras, both standard flat and 3D / spherical.
Other fusion real estate technology companies are also getting in on the act hoping to go public via their own SPAC.
Recently, Compass, a New York-based real estate brokerage startup that heavily markets its technological prowess, filed paperwork to do an IPO of its own.
Alternative notables to keep an eye out for are Chattanooga, Tennessee-based tech-enabled moving company Bellhop and San Francisco-based residential real estate marketplace Sundae plan to raise more private capital before pursuing public listings.
Co-founder Gregor Watson said Oakland-based home rental marketplace RoofStock could eventually go public or sell a large strategic stake.
Carmel, Indiana-based Realync could also be an acquisition target after raising capital in 2020, according to co-founder and CEO Matt Weirich, who named RealPage and Santa Barbara, California-based Yardi Systems as logical buyers for its virtual leasing and engagement platform for multi-family residences.
I also have a good feeling about Matterport’s management.
Matterport’s CEO RJ Pittman also has a strong track record at his previous companies like having most recently served as Chief Product Officer for eBay following leadership positions at Google, Apple, and Groxis.
Pittman’s appointment coincides with a period of significant growth for Matterport, which has built a library of 1.4 million 3D models, with 600 million model views since the company’s inception.
We are barreling towards a tipping point in market adoption of 3D models to transform how building environments are designed, developed, experienced, and managed.
The commercial applications are quickly unfolding, and Matterport’s industry-leading technology is well-positioned to drive rapid market expansion.
I am convinced that management at Matterport will unlock the full potential of the breakthrough technology and unparalleled 3D media and data.
This company is on the verge of driving transformation and creating high-performance teams that will then attract world-class industry talent and accelerate the next phase of growth.
Matterport’s underlying shares have been the recipient of unbridled optimism in the accruing of future revenue and shares have already appreciated by around 100% since going public around a month ago.
