Tekkorp, the new SPAC on the block

Pointing out an unsustainable investment frenzy is a thankless task. By its very nature, a frenzy means that there is easy money to be made. That’s why investors pile into it. Then it begins to feed on itself, as more interest yields more investment, yields more interest and so on. Pointing out that this may not be sustainable is an open invitation to getting yelled at. And it really does not matter what the economic environment is. The entire world could be shut down for half the year and it really makes no difference. As long as the money is flowing, the mania will continue on and on until one of two things happens. Either the money stops flowing from the source, or all value is stripped from the money regardless of whether it is flowing or not.

Twenty years ago we had an absolute frenzy in IPOs. The number of IPOs that hit the public markets at the peak in 1999 was 486. In the 20 years since, we haven’t gotten close to that peak.

Most of these 486 were companies that never made any money. They just had a name that ended in dot com, and from that alone they were able to draw funds. Now, 20 years later, we have millennials who were babies and toddlers the last time this happened, with no experiential understanding of what was going on at the time. On top of that, we have orders of magnitude more money pouring into the system from central banks than we did back then, supercharging the trend to heights of dizzying potential.

Given all that, this time the urgency to get into the IPO game as fast as possible is irresistible to entrepreneurs, and so I cannot fault any for jumping through all the hoops as fast as possible to get to the front of the public trading line. This time around, it’s not even the IPO proper that is leading the charge. It’s a special kind of IPO, an express lane so-to-speak. It’s an IPO called a special purpose acquisition company, a SPAC, that makes it to the public markets without even having a business plan. Its sole purpose is to serve as an empty shell to be filled with any business it may choose to acquire, with all the money and trust provided by investors. It is by far the fastest way to become publicly traded. At least the dot coms of the late 1990s had to have the pretense of having a business plan. SPACs don’t even have to do that much.

Tekkorp, the new SPAC on the block

Pointing out an unsustainable investment frenzy is a thankless task. By its very nature, a frenzy means that there is easy money to be made. That’s why investors pile into it. Then it begins to feed on itself, as more interest yields more investment, yields more interest and so on. Pointing out that this may not be sustainable is an open invitation to getting yelled at. And it really does not matter what the economic environment is. The entire world could be shut down for half the year and it really makes no difference. As long as the money is flowing, the mania will continue on and on until one of two things happens. Either the money stops flowing from the source, or all value is stripped from the money regardless of whether it is flowing or not.

Twenty years ago we had an absolute frenzy in IPOs. The number of IPOs that hit the public markets at the peak in 1999 was 486. In the 20 years since, we haven’t gotten close to that peak.

Most of these 486 were companies that never made any money. They just had a name that ended in dot com, and from that alone they were able to draw funds. Now, 20 years later, we have millennials who were babies and toddlers the last time this happened, with no experiential understanding of what was going on at the time. On top of that, we have orders of magnitude more money pouring into the system from central banks than we did back then, supercharging the trend to heights of dizzying potential.

Given all that, this time the urgency to get into the IPO game as fast as possible is irresistible to entrepreneurs, and so I cannot fault any for jumping through all the hoops as fast as possible to get to the front of the public trading line. This time around, it’s not even the IPO proper that is leading the charge. It’s a special kind of IPO, an express lane so-to-speak. It’s an IPO called a special purpose acquisition company, a SPAC, that makes it to the public markets without even having a business plan. Its sole purpose is to serve as an empty shell to be filled with any business it may choose to acquire, with all the money and trust provided by investors. It is by far the fastest way to become publicly traded. At least the dot coms of the late 1990s had to have the pretense of having a business plan. SPACs don’t even have to do that much.