Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Halliway, Tracy. Uh will
Speaker 1: obviously be remembered for a lot of things, no doubt,
Speaker 1: you know, after the pandemic, the all of the political
Speaker 1: stuff that we saw, the extraordinary sort of year in
Speaker 1: economics and the stock market and everything Somewhere down the
Speaker 1: list maybe like down like fifty or seventy or ninety
Speaker 1: in terms of like the things that people look back on,
Speaker 1: I would say it's kind of a the Year of
Speaker 1: the Spack. Yeah, certainly, definitely if you're in capital markets,
Speaker 1: it's the year of the Spack. And I think I'm
Speaker 1: trying to remember the latest numbers, but I think it
Speaker 1: was something like sixty billion dollars raised in which was
Speaker 1: more than the previous ten years combined, something like that. Right,
Speaker 1: So we've just seen this extraordinary surge for people who
Speaker 1: don't know, it's like, uh, these vehicles where people buy
Speaker 1: into an I p O and then the company has
Speaker 1: some certain amount of time to then go out and
Speaker 1: actually acquire a company bring it public, subject to the
Speaker 1: approval of the people who bought into the I p O.
Speaker 1: We've seen a lot in the electric vehicle space, We've
Speaker 1: seen a lot of other technology other areas, but just
Speaker 1: generally a it exploded and be you know once, like
Speaker 1: many things, not the type of thing we expected to
Speaker 1: see in the first half of the year. I think,
Speaker 1: like thinking back to March April May, we would not
Speaker 1: expect it to be such an extraordinary year in capital markets, right.
Speaker 1: And I think one of the reasons that facts tend
Speaker 1: to draw a lot of attention is that most people
Speaker 1: are a lot of people associate them with these sort
Speaker 1: of like pre two financial crisis excesses. So there's this
Speaker 1: idea that there's so much money slashing around in the system,
Speaker 1: people are sort of desperate to put it to work,
Speaker 1: so they'll just stick it into a blank check company,
Speaker 1: not knowing what that company is eventually going to be,
Speaker 1: and just sort of hoping um that their money will
Speaker 1: get deployed in one way or another. So I think
Speaker 1: a lot of people look at it as another example
Speaker 1: a froth in the market. But again, as we discussed
Speaker 1: on a previous episode with someone who is actually running
Speaker 1: us back, there's also an argument that this makes sense.
Speaker 1: The structure makes sense for a lot of companies in
Speaker 1: the market. Yes, I think that's right for a lot
Speaker 1: of companies that make sense. And I think that's also
Speaker 1: UM a part of the change, which is that not
Speaker 1: only were I I would say respects maybe associated with
Speaker 1: spect of XI, I think they were associated to with
Speaker 1: like shady companies that it's like, Okay, if you had
Speaker 1: a asset, if you had a company that couldn't do
Speaker 1: the typical I P O route, couldn't really withstand scrutiny,
Speaker 1: maybe you try to take it public via s back.
Speaker 1: And I think it's sort of like, you know, the
Speaker 1: they didn't leave a good uh flavor taste in people's mouth.
Speaker 1: And I think that's changed. And I think that one
Speaker 1: of the things that we saw this year is like
Speaker 1: more seeming higher quality assets came public. That way, more
Speaker 1: UM investors and banks with sort of a reputable or
Speaker 1: strong reputations willing to or eager to use these type
Speaker 1: of financing capital markets vehicle for this, and so maybe
Speaker 1: they're they're shedding some of their previous reputation, which was
Speaker 1: sort of not that shedding the spack stigma, shedding the
Speaker 1: spec that's well put, shedding the spack stigma. I mean,
Speaker 1: we'll see. I mean, who knows, maybe we'll look back
Speaker 1: the class of twenties SPACs and they all have flopped.
Speaker 1: There have been some flops, I mean, like you know,
Speaker 1: obviously not flops, but you know, controversies. Nicola was a
Speaker 1: very popular spect that surged to the moon for a
Speaker 1: while and then all kinds of questions rose about it's
Speaker 1: business and it's CEO left. So there's still like lots
Speaker 1: of questions about the types of companies coming public this way,
Speaker 1: but it's certainly am It does not seem to be
Speaker 1: going away anytime soon, which means we need to learn
Speaker 1: more about learn more about them. Yeah, I agree, let's
Speaker 1: do it. So we're gonna talk about spacks. We're also
Speaker 1: just gonna be talking about the extraordinary moment for capital
Speaker 1: markets in general. I'm very excited about today's guest. We're
Speaker 1: gonna be speaking with Larry weasonek key is uh for
Speaker 1: the last three years, he's been the co president at
Speaker 1: Cowen and Company and has a long career doing global
Speaker 1: capital markets at Lehman, Barclays and so forth. And so
Speaker 1: I'm going to get the lay of the land. M Larry. So, Larry,
Speaker 1: thank you very much for joining us. Well, Joe Chacey,
Speaker 1: thanks for allowing me to join. You really appreciate it.
Speaker 1: I'm trying to think where to start, But what do
Speaker 1: you sort of what do you do at counting company?
Speaker 1: Describe counting companies sort of role and your role within
Speaker 1: the bank. Sure, well, look I'll start with COUN is
Speaker 1: a you know, hundred plus a year old institution, UH
Speaker 1: that really was in some respects reborn about ten years
Speaker 1: ago when the old Cowen, which had been bought about
Speaker 1: two decades ago by sak Chen, had been spun out
Speaker 1: and went into the financial crisis, probably a little bit
Speaker 1: too small and too narrow to navigate the period of
Speaker 1: O eight and O nine, and it ended up merging
Speaker 1: with a alternative asset manager, Ramius. And so the current
Speaker 1: coun is really about ten years old, and the combination
Speaker 1: of the legacy of what was Ramius and what was
Speaker 1: count at that point and really over the last decade
Speaker 1: the firm's grown enormously and we're but but nonetheless we're
Speaker 1: a pretty targeted institution. We're about people, UH, and we
Speaker 1: focus uh disproportionately, although not exclusively, uh in on the
Speaker 1: US markets and in particular on the arenas of equities, credit,
Speaker 1: and banking delivered to UH not only but again predominantly
Speaker 1: growth sectors of the economy. UH. And in addition, we
Speaker 1: have an asset management business, which is the remnants of
Speaker 1: what was ramious UH, where we also try in as
Speaker 1: much as we can, focus on areas where where we
Speaker 1: have a core strength and knowledge base UM, and again
Speaker 1: it tilts more towards disruptive areas. So with your advisory
Speaker 1: hat on, I'd be really curious to hear um what
Speaker 1: you've heard from clients in so you have a really
Speaker 1: good perspective on what corporates are basically looking for, what
Speaker 1: they've experienced in a really strange year that I think
Speaker 1: was probably marked by a real sense of urgency when
Speaker 1: it came to raising funding around springtime during the worst
Speaker 1: of the market sell off, and then we've sort of
Speaker 1: segued into a moment where people are talking about bubbly markets,
Speaker 1: excess liquidity slashing in the system, and this idea that
Speaker 1: capital is sort of free and available to everyone. I'd
Speaker 1: be curious if you could give us some some color
Speaker 1: on what you've seen. Well, Chacy, it's a It's a
Speaker 1: great question and one that would take a lot longer
Speaker 1: than the podcast to answer, but I'll try and maybe
Speaker 1: pick a few core elements and then we can delve
Speaker 1: into it deeper. I think the first is that, having
Speaker 1: been around the capital markets now for longer than i'd
Speaker 1: like to remember, it's always been the case that we're
Speaker 1: reminded in periods of dislocations of how strategic financing decisions
Speaker 1: of the past actually are um when challenges come about
Speaker 1: in the broad economy and the capital markets and specific
Speaker 1: many a time in good times, folks believe that the
Speaker 1: financing decisions are a choice for the treasurer or the
Speaker 1: assistant treasurer. It's not a boardroom kind of conversation. And
Speaker 1: that always comes to roost when we hit difficult times.
Speaker 1: And that's true whether you look back in the seventies,
Speaker 1: the late eighties around the SNL crisis, whether we look
Speaker 1: at the Internet bubble, whether we look at o A.
Speaker 1: Those who didn't set up their foundation with a strong
Speaker 1: you know, think of it as you have to build
Speaker 1: the basement first, then build the first floor, then the
Speaker 1: second floor. The capital structure of a company is that
Speaker 1: is that that basement, that first floor, the foundation. And
Speaker 1: so what we saw when we hit March, and we
Speaker 1: saw the beginnings of the acknowledgement of what the pandemic
Speaker 1: might be. Is many companies found themselves is where either
Speaker 1: their plan on the business side was being blown up
Speaker 1: or maybe their business was actually gonna be able to
Speaker 1: be somewhat resilient, but they were worried that the financing
Speaker 1: plan that they had set in place to help them
Speaker 1: with the business side wasn't as robust as they thought.
Speaker 1: And what am I gonna do if I want to
Speaker 1: grow any more capital and I don't have it on hand?
Speaker 1: That was a big question that was you know, in
Speaker 1: every board room in in in March or April. So
Speaker 1: I like to say financing is always strategic, but we're
Speaker 1: remind of that when we hit difficult times. So we
Speaker 1: mentioned that, you know, especially the second half of sort
Speaker 1: of turned into the year of the Spack unexpectedly just
Speaker 1: an absolute boom trade. You mentioned it bigger, more money
Speaker 1: through these vehicles than than I think the last ten
Speaker 1: years combined. When from that perspective that you described that
Speaker 1: financing decisions must be sort of strategic to the company,
Speaker 1: what was it about this moment in particular that's like
Speaker 1: this is the vehicle for right now. What is it
Speaker 1: on sort of the investor side of the people you
Speaker 1: saw want to put money to work in this way,
Speaker 1: that they're willing to buy into these And what was
Speaker 1: it on the sort of the cell side, Uh, that
Speaker 1: there were um companies that were ready to and eager
Speaker 1: to go public through this route. Yeah, well, you know,
Speaker 1: I like the way you actually even coined the question,
Speaker 1: which is the two sides of it, which is what
Speaker 1: were the issues why people would finance the SPACs? And
Speaker 1: then why why do companies sell into spac And I
Speaker 1: think that the first thing to recognize is for many
Speaker 1: folks who have not been around the capital markets, they
Speaker 1: see all of a sudden on Bloomberg, you know, all
Speaker 1: these SPACs being done, and they think that this is
Speaker 1: some kind of new creation. The reality is SPACs have
Speaker 1: been around in one form of another for more than
Speaker 1: twenty years. And everything about blank check corporations they go back,
Speaker 1: you know, you can go back to the twenties and
Speaker 1: thirties of the last century and they were blank check companies.
Speaker 1: So like a lot of financial engineering or a lot
Speaker 1: of financial structures, the market and the technology have to
Speaker 1: align for them to become broadly utilized. And I think
Speaker 1: that's something that when we look back at two twenty, well,
Speaker 1: the question really is why in two twenty did they
Speaker 1: line up so well that it became commonplace? And I
Speaker 1: think that goes to this issue of the financing is
Speaker 1: strategic question, which is that up until February of this year,
Speaker 1: i'd say most of your listeners had never heard of
Speaker 1: us back and then something changed. And what changed was
Speaker 1: that for particularly very very um growth oriented companies, companies
Speaker 1: that maybe in the past would have gotten their next
Speaker 1: round of funding in the private market and did another
Speaker 1: year or two before going public, what happened was the
Speaker 1: private market ostensibly dried up UM. And what I'm about
Speaker 1: to say here is true both about venture backed opportunities,
Speaker 1: but also it was true in the p world. So
Speaker 1: if you look at general private equity investment, when when
Speaker 1: sitting around with you know, financial sponsors in March and April,
Speaker 1: I can tell you the one thing they weren't talking
Speaker 1: about was how they were deploying a new capital. They
Speaker 1: were focused on their existing portfolio. So with that going on,
Speaker 1: if you're the CEO and the board of a company,
Speaker 1: that your growth plans are potentially even taking off because
Speaker 1: maybe you have a product offering that is actually going
Speaker 1: to benefit from the pandemic. It could be disruptive consumer,
Speaker 1: it could be in things like sustainable energy, where it
Speaker 1: could be in areas like uh, you know, energy transition,
Speaker 1: where those opportunities are really unaffected, where they're accelerated potentially
Speaker 1: by the events of what's happened in the pandemic. But
Speaker 1: you don't have the funding you need in that scenario,
Speaker 1: all of a sudden, privately negotiated transaction with an entity
Speaker 1: that brings capital to bear becomes very interesting. And because
Speaker 1: of a number of other developments in the eighteen months
Speaker 1: prior as to how deals were getting done in this
Speaker 1: back market, it allowed for a path to real capital
Speaker 1: for the companies UM, so long as they were public
Speaker 1: public market ready, And that's where the period of kind
Speaker 1: of the second quarter really changed things. What does public
Speaker 1: market ready actually mean in this context, because again I
Speaker 1: think Joe mentioned this in the intro, but when a
Speaker 1: lot of people hear the words facts, they think that
Speaker 1: this is basically a way of UM sort of listing light.
Speaker 1: You don't have as strict disclosure requirements and maybe you
Speaker 1: can get away with a few things like using forward
Speaker 1: earnings projections and things like that that you wouldn't be
Speaker 1: able to do if you went down the traditional A
Speaker 1: PEO process listening. I think it's a really interesting point
Speaker 1: that as we sit here today looking back on twenty
Speaker 1: we can say that the events of I wouldn't just
Speaker 1: say two, I'd say nineteen as well as we started
Speaker 1: seeing some real significant increase in direct listings. What we
Speaker 1: would say is companies that want to go public in
Speaker 1: the US now have three paths available to them. They
Speaker 1: have standard I p O s with all of the
Speaker 1: regular structures around that, they have direct listings, and they
Speaker 1: have sale to US back. And so I'll address particularly
Speaker 1: your question about sale to US back, but broadly speaking,
Speaker 1: I'd say a market where there's more choices and companies
Speaker 1: can match what they feel is appropriate for them to
Speaker 1: the best path um is probably a better market overall.
Speaker 1: It's a more complete market. And again we're not here
Speaker 1: to talk about direct listings, but there are a lot
Speaker 1: of folks who are big advocates for that as well
Speaker 1: as an alternative on this back front. I think probably
Speaker 1: the two elm monts that were the biggest beneficiaries for
Speaker 1: companies thinking about going to the market that broadened. It
Speaker 1: was one the fact that they can use forward projections.
Speaker 1: And so we have to think about the world of
Speaker 1: a company that is investing for the future, that is
Speaker 1: has limited cash flows today and historically would be challenged
Speaker 1: to get that story across to the public market. And
Speaker 1: the reason it will be a challenge is they have
Speaker 1: to rely on historical numbers, which might be just investing
Speaker 1: cement in the ground or whatever it might be to
Speaker 1: build that business, and they might be a number of
Speaker 1: years away from having real cash flows or significant revenues
Speaker 1: when you have the ability to use forward projections. And
Speaker 1: then an important part of the second piece. Many of
Speaker 1: these deals, the way that they get done is in
Speaker 1: front of the um deal being announced, the m and
Speaker 1: A deal being announced, they line up a pipe and
Speaker 1: investment from a series of institutional investors, and those investors
Speaker 1: have the opportunity to look at those forward projections, to
Speaker 1: meet with management and have in depth conversations, much more
Speaker 1: in depth conversations then they could have in an I
Speaker 1: p O process. So if you think of it, think
Speaker 1: of the lead investors in an I p O is
Speaker 1: being similar to the lead investors in a pipe tied
Speaker 1: to a SPACK deal. The difference is there's a lot
Speaker 1: more education that goes on for that pipe investor in
Speaker 1: a SPACK than they get in an I p O process.
Speaker 1: So for a company who's forward or their future is
Speaker 1: fairly different than maybe what their history was because of
Speaker 1: where they are in their evolution, that process allows them
Speaker 1: to raise capital from these pipe investors, which then when
Speaker 1: that's lined up, that's when they have completed the necessary
Speaker 1: requirements to sign a merger agree and that's when the
Speaker 1: deal gets announced, and then months later the deal closes
Speaker 1: and ultimately it starts to trade in the public market.
Speaker 1: That process that moves forward, that discussion with investors comes
Speaker 1: up with what price is a clearing price and allows
Speaker 1: them to have certainty before they announce. It is extraordinarily
Speaker 1: interesting too many companies. And it's not just because they
Speaker 1: can use forward projections. It's that they minimize the many
Speaker 1: many months of risk that's involved in a standard IPO process,
Speaker 1: where when they finally go to the market, if the
Speaker 1: market's not there for them they had timing, etcetera, they
Speaker 1: have a failed i PO. When you have this negotiated
Speaker 1: process with the spack and with the pipe investors, that
Speaker 1: predates the merger agreement being announced. If the deal doesn't
Speaker 1: come together, the market doesn't know about it. It was
Speaker 1: never out there. You don't have all the embarrassment of
Speaker 1: a I p O getting priced at the you know,
Speaker 1: below the range whatever it is, and that has an
Speaker 1: appeal to a certain percent of the core puts out there.
Speaker 1: Certainly not everyone's still a very robust I PO uh
Speaker 1: you know uh market, but for some companies a better path. So,
Speaker 1: you know, it's interesting you talking about transformative technologies, new technologies.
Speaker 1: There have been a lot in UM the electric vehicle,
Speaker 1: autonomous vehicle, space vehicle tech, clean energy, many of the companies.
Speaker 1: It's not just that the future is not going to
Speaker 1: resemble the past, it's that there's almost no present. Maybe
Speaker 1: it's just a technology still in commercialization or with revenue
Speaker 1: expected to be a few years off. You know. I'm
Speaker 1: thinking about like one of the big I p o s,
Speaker 1: for example of this year, the software company Snowflake, which
Speaker 1: has a real business UM but still being valued at
Speaker 1: sort of multiples and expectations way into the future. And
Speaker 1: maybe someone just drew ruler and sort of projected where
Speaker 1: their earnings are going to be and are coming up
Speaker 1: with a multiple on that. Is there something fundamentally different?
Speaker 1: I mean, all companies are, all growth tech companies are
Speaker 1: fundamentally you know about the future. Is there something fundamentally
Speaker 1: different about say a company that has some projectable business
Speaker 1: like an enterprise software company versus a transformative or new
Speaker 1: tech in which there's nothing really even to extrapolate yet
Speaker 1: in terms of why the spack route may make sense
Speaker 1: for them, whereas something is slightly more predictable and established
Speaker 1: the I p O route makes sense for the for
Speaker 1: them like like a snowflake. Yeah, I do. I do
Speaker 1: think that you highlight an interesting point, which is and
Speaker 1: it maybe gets a bit more to the value of
Speaker 1: the spack team and why when companies look to sell
Speaker 1: these days, they're often doing what has become known as,
Speaker 1: in quotes, a spack off. I want to talk about
Speaker 1: spa off. Yeah, they're not necessarily responding to the first
Speaker 1: spact that that calls them up. And the reason for
Speaker 1: that is that you're exactly right. If you're a company
Speaker 1: that is now getting to choose how you're going to
Speaker 1: enter the marketplace, let's just compare that that's sack the
Speaker 1: company and their board looking at selling to a SPACK
Speaker 1: to going the I p O path. One of the
Speaker 1: things they would do in an I p O path
Speaker 1: is they would think through, I probably need to bring
Speaker 1: different people onto my board as a public company than
Speaker 1: I would have when I was a private company. Maybe
Speaker 1: some of the vcs are going to come off the
Speaker 1: board and we're gonna put some, you know, folks who
Speaker 1: have more public market experience onto the board. When selling
Speaker 1: to a SPACK, I can do that, and I can
Speaker 1: do that by selecting a SPACK that has expertise in
Speaker 1: my area. So let's just say, for example, I'm in
Speaker 1: one of those hyper change arenas. I'd rather sell if
Speaker 1: I'm a financial tech company to a SPACT that has
Speaker 1: some significant fintech executives involved with it, because I'm basically
Speaker 1: picking at a minimum to new board members, but one
Speaker 1: or two depending on the structure, but two new board
Speaker 1: members for now when I'm a public company, who's gonna
Speaker 1: have oversight of the company. And so one of the
Speaker 1: things that is really important is what does the SPAC
Speaker 1: bring to the table. What are the backgrounds of the
Speaker 1: folks from the spack who will ultimately go on my board.
Speaker 1: Maybe it's they have real good connections in the industry
Speaker 1: I'm selling to and they will help accelerate my business.
Speaker 1: So the decision of what SPAC will I sell to
Speaker 1: becomes very similar to what private equity fund would I
Speaker 1: sell to if as going private or if I have
Speaker 1: a choice of growth equity funds. So I'm now doing
Speaker 1: growth equity round in the private market. Um, who would
Speaker 1: I want to come in to be my partner for
Speaker 1: the next five years. So think of that process of
Speaker 1: selecting a spack that company sells to as who is
Speaker 1: going to be part of my oversight and part of
Speaker 1: my ecosystem to help me complete my plans. Because all
Speaker 1: these companies, what they really want to do in the
Speaker 1: public market is basically execute on their plan. And that's
Speaker 1: why SPACs that have a lot of expertise are emerging
Speaker 1: as being, you know, honestly better bidders than those who
Speaker 1: are just you know, a few folks have come together
Speaker 1: to try and put some capital to work. So just
Speaker 1: on the spack off point, I mean, one of the
Speaker 1: things you you're an analogy to private equity. Just then,
Speaker 1: one of the things we heard about private equity in
Speaker 1: the latest cycle is that targets became fewer and fewer
Speaker 1: as as there was more money poured into alternative assets.
Speaker 1: As the spack space heats up, and you know, lots
Speaker 1: of people are setting these up and lots of people
Speaker 1: are looking for targets to to merge with. Um how
Speaker 1: competitive of is it at the moment? And you know,
Speaker 1: like what is a spack off actually look like in
Speaker 1: your experience? Like everything else, It's almost like if you say,
Speaker 1: if you've met one family office, you've met one family office.
Speaker 1: Or SAM could be said about private equity, SAM can
Speaker 1: be said about how how a company decides to run
Speaker 1: there what's really an M and A process which is
Speaker 1: a back off the differences, and this is important for
Speaker 1: your listeners to understand. Unlike a normal M and A
Speaker 1: process where the deal ends when the other side says
Speaker 1: I'm willing to buy you at a price and he
Speaker 1: and I have a money good in a spack, the
Speaker 1: capital markets decide whether that's a proper deal or not
Speaker 1: because it has to be funded. And and that's where
Speaker 1: the combination of what's known as the d spack the
Speaker 1: process where the original investors in the spacks, or at
Speaker 1: least those who are still holding it at the time
Speaker 1: a deal is announced, they get to decide whether or
Speaker 1: not they want their money back or whether they're going
Speaker 1: to roll into the new company. And that's also where
Speaker 1: in the moments prior to that, the pipe investors, which
Speaker 1: are generally not only but generally very large institutions that
Speaker 1: are public market investors, um they make that decision. So
Speaker 1: you have to first think about a spack off is
Speaker 1: finding the right partner who can deliver two things. One,
Speaker 1: they can really help my business grow I'm now saying
Speaker 1: my meaning on the company. And secondly, they have the
Speaker 1: credibility in the marketplace that they're going to help me
Speaker 1: get the capital that's at the end of the rainbow.
Speaker 1: The end of the rainbow is that these companies get
Speaker 1: capital via bout the pipe and what's known as the
Speaker 1: d SPAC process. So when when we're advising, let's say
Speaker 1: a company on a spack off, we're much more focused
Speaker 1: on the quantity the qualitative elements as opposed to quantitative
Speaker 1: It's almost never about the highest price because whatever the
Speaker 1: SPAC might indicate they think the value is, it is
Speaker 1: only real if it's validated by the capital markets investors
Speaker 1: via the back end. And so what's most important is
Speaker 1: the quality of issues. What do they bring to the table.
Speaker 1: Do they have real insights that can add to you
Speaker 1: as a public company, Do they have credibility in the
Speaker 1: capital markets to help raise the capital um And you know,
Speaker 1: will they when the when you move forward, will they
Speaker 1: be valuable on your board, because you're gonna be living
Speaker 1: with these folks on your board for a while. So
Speaker 1: just to sort of like put it all together, there's
Speaker 1: a natural reason. It sounds like why the spack boom
Speaker 1: is also very heavily concentrated in a lot of these
Speaker 1: sort of new energy, alternative tech type things in which
Speaker 1: money is important for them to continue their development, but
Speaker 1: also they really have sort of key strategic goals. So
Speaker 1: maybe for an enterprise software company in which the business
Speaker 1: is set and then it's just a matter of growing
Speaker 1: it through the sales force, the spack in addition to money,
Speaker 1: really brings in some strategic uh alliances that are more
Speaker 1: needed to like get from point A to point B.
Speaker 1: I think you're right for why two thousand twenty was
Speaker 1: when we say it with the Year of the Spack
Speaker 1: where you said it actually not me why why that's
Speaker 1: where we saw the real breakthroughs. It was those kind
Speaker 1: of businesses, you know, where there's a huge amount of
Speaker 1: investment for the payoff in the future. By the way,
Speaker 1: the deepest capital market in the world is not the
Speaker 1: private market. It's still the U S public market, and
Speaker 1: so getting access to that capital is helpful. And you're
Speaker 1: and so I would agree with your thesis. I do
Speaker 1: think that's going to broaden out though, because I think
Speaker 1: that you know, we're starting to see and the price
Speaker 1: software companies that are coming down this path. I think,
Speaker 1: what will you know? It really depends on the nature
Speaker 1: that anytime you see this much activity, um it forces
Speaker 1: everyone to look at it. It's a little bit I
Speaker 1: use example, and maybe it's because I'm a old convertible
Speaker 1: bond originator of the convertible bond market, which is you know,
Speaker 1: over the last thirty years, there's been periods where it
Speaker 1: seemed like every company in the world was doing converble bond,
Speaker 1: and then they've been periods where literally there's almost no
Speaker 1: issuance for eighteen months or twenty four months, and the
Speaker 1: only companies that come are growth companies looking for another
Speaker 1: way to raise capital. And so I think that we
Speaker 1: should look at what's happened with Spack says, when this
Speaker 1: settles down to a natural equilibrium, and we will, we
Speaker 1: will find an equilibrium. It will be one of the
Speaker 1: choices facing companies that think about going public and for
Speaker 1: certain situations where they either like the certainty of the
Speaker 1: capital at a price that comes from it, they like
Speaker 1: the corporate governance benefits of picking the board members that
Speaker 1: bring real quality, but they might not be able to
Speaker 1: get as good at a set of board members if
Speaker 1: they win a natural path plaiting for smaller companies, your
Speaker 1: typical billion dollar company coming to the market is still
Speaker 1: a relatively small comp the in the US market today,
Speaker 1: so they might end up with a much better board
Speaker 1: by selling to a SPACK than they would if they
Speaker 1: went to normal I p O path, raising fifty million dollars, etcetera.
Speaker 1: So there's a lot of things in there, but we
Speaker 1: are seeing it broaden out. I would say if we
Speaker 1: think about twenty one, I think it will be interesting
Speaker 1: is you're going to see more companies in areas where
Speaker 1: they were willing to go the IPO path. They would
Speaker 1: normally go and spend six months nine months with all
Speaker 1: the process, but if they can move quicker, they can
Speaker 1: get a deal done in three months via a deal
Speaker 1: with a spack. They can get raise more capital that
Speaker 1: way than they might by doing another private round and
Speaker 1: then coming back with the I p O in the
Speaker 1: second half. I think you're going to see that they're
Speaker 1: gonna say, you know what, SPACs are more acceptable now.
Speaker 1: It's no longer a four letter word um in the
Speaker 1: negative way. And what you'll see is companies that otherwise
Speaker 1: would have done an IPO that might come to the
Speaker 1: SPACK market again. Not because it's not going to diminish
Speaker 1: the benefit of the I p O process. It's just
Speaker 1: gonna be another choice UM. But we'll see it broaden. Now.
Speaker 1: It's interesting that you're talking about these trends sort of
Speaker 1: coming and going in capital markets. One of the big
Speaker 1: trends just a year or two ago was this idea
Speaker 1: that public markets were dead and that these big tech
Speaker 1: companies or these growing tech companies were going to stay
Speaker 1: in the private market forever, because why would they ever
Speaker 1: bother to I p O when they can get as
Speaker 1: much money as they want through private fundraising. So I'm
Speaker 1: curious when it comes to SPACs, why bother going public
Speaker 1: at all? If capital is plun too full in the
Speaker 1: private market. That is a great question, and I think
Speaker 1: it comes back to the reflections of when you look
Speaker 1: at the abyss of March we had, my example being
Speaker 1: comparing it back to other periods of time when the
Speaker 1: markets dried up. When you're in the public capital markets,
Speaker 1: you have at the deepest market available to you for
Speaker 1: raising capital. You might have doing a difficult market except
Speaker 1: a deeper discount to raise equity than you would in
Speaker 1: a more brilliant market, but you have a marketplace where
Speaker 1: people meet every day, uh and agree on price and size. Um.
Speaker 1: That's just not true in the private market. The private
Speaker 1: market get you know. If i'd like to say, when
Speaker 1: the public market gets a cold, the private market gets
Speaker 1: the flu. You know. Unfortunately, when you're dependent on the
Speaker 1: private market, it works great so long as each successive
Speaker 1: round can be done in a higher value. Uh. And
Speaker 1: the market is fairly fairly good. If you looked at
Speaker 1: the amount of of a capital that was put to
Speaker 1: work from March one to say, the end of June,
Speaker 1: it wasn't a lot. And if you were a company
Speaker 1: that was living saying I can wait another two years
Speaker 1: to go public because I can always keep raising money
Speaker 1: in the private market at higher levels, when all of
Speaker 1: a sudden, that doesn't work anymore, because since the public
Speaker 1: markets down, the private markets shut unless you're willing to
Speaker 1: do it down round at a very very big discount.
Speaker 1: It all of a sudden opened up eyes again to
Speaker 1: really a generation of entrepreneurs and their venture backers. Again,
Speaker 1: I say it that way because you know a lot
Speaker 1: of folks who are running venture capital funds and entrepreneurs
Speaker 1: that you know they were in high school in two
Speaker 1: thous eight. They don't remember the challenges of a very
Speaker 1: difficult market. So I think it made reminded them of
Speaker 1: while the public market really does have a value, it's
Speaker 1: there to be the place where folks who want to
Speaker 1: transact in the deepest pool of capital in the world
Speaker 1: get to transact on a daily basis us and so
Speaker 1: I do think that you can't separate that from what
Speaker 1: happened in two twenty and that's why SPACs have taken
Speaker 1: off again. It's also we're seeing more companies go public. Look,
Speaker 1: you mentioned Snowflake before and again, I I don't want
Speaker 1: to speak about particular companies. I think there's something to
Speaker 1: be said about why are all these very large tech
Speaker 1: companies coming up going public now because at some point
Speaker 1: your investors need liquidity. You know, the average venture capital company,
Speaker 1: if you look back a decade ago, m tended to
Speaker 1: have a monetization event, usually around seven to ten years.
Speaker 1: What's happened post the financial crisis is it's stressed out.
Speaker 1: The ten or twelve years. That's a long time for
Speaker 1: venture capitalists have their money locked up. It's a long
Speaker 1: time for the founders, the employees they've hired to not
Speaker 1: have monetization. And so what we're seeing is it's not
Speaker 1: that they don't go public. They just waited three or
Speaker 1: four more years because they could. But they ultimately are
Speaker 1: either going to be sold or come to the public
Speaker 1: market because at some point the folks who risk capital
Speaker 1: a decade ago need to get that capital redeployed. And
Speaker 1: so I think we're in a period of growth of
Speaker 1: public companies for the first time since you know, maybe
Speaker 1: you go back to Sarvane's Oxley, you know, for the
Speaker 1: first time since that. I also think it's why you're
Speaker 1: seeing the advent of the private exchange market, where we're seeing,
Speaker 1: you know, a lot more activity where companies are allowing
Speaker 1: their historical investors to trade in the secondary market privately
Speaker 1: pre I p O, because they recognize that ten years
Speaker 1: a long time for people to keep their capital tied up.
Speaker 1: So all that leads to this symbiotic relationship between private
Speaker 1: capital for the early stage and then ultimately going to
Speaker 1: the public market when it's a more established company. I mean,
Speaker 1: you make a compelling case that a public markets are
Speaker 1: the sort of deepest pool of liquidity and companies needed
Speaker 1: that there are a lot of company needs who ten
Speaker 1: years ago got their first private funding and it's now
Speaker 1: time for them to realize some of that. Just cynically, though,
Speaker 1: it certainly seems like and I hate um, I won't
Speaker 1: use the word bubble, but it certainly seems like valuations
Speaker 1: on public markets not only are high by historical measures
Speaker 1: of other public markets, but that the company is going
Speaker 1: public are enjoying a pretty nice premium of from their
Speaker 1: last private market valuations in many of these cases. And
Speaker 1: so I'm curious if there is to what extent is
Speaker 1: some of this re equalization, the re expansion of public
Speaker 1: market just sort of a recognition that if you have
Speaker 1: a good asset, if you have a company that's private
Speaker 1: or something like that, there's a decent chance that you
Speaker 1: can get a higher valuation right now on public markets. Yeah,
Speaker 1: there's no question that all else constant, right if you
Speaker 1: if you again, if we had an academic UH finance
Speaker 1: professor on, they'd say, the same company of its public
Speaker 1: UH should always trade a higher value in the public
Speaker 1: market because because the private market, I have to have
Speaker 1: a discount for the fact that I can't get liquidity
Speaker 1: when I wanted on a regular basis. So there's no
Speaker 1: question that you know, this is true, and many times
Speaker 1: today I think it's even more true. But I'm not
Speaker 1: so sure it's as much about where the institutions live
Speaker 1: as I think one of the things that we're seeing
Speaker 1: is particularly for hyper growth companies or the opportunity for
Speaker 1: real growth in areas that are transformative. I do think
Speaker 1: that we're seeing a generational shift. We're seeing many of
Speaker 1: these businesses. And this is true where the existing public companies,
Speaker 1: whether it be companies that go to the public market
Speaker 1: via I p O, direct listing or spacts that in
Speaker 1: some respect the you know, the quote unquote Robin Hood
Speaker 1: investors often are taking over the stocks for some period
Speaker 1: and that dynamic where UM investors who are looking for
Speaker 1: that next great investment theme are coming in, uh in
Speaker 1: buying these stocks, they are often bidding them too levels
Speaker 1: that broadly speaking, neither the research analysts or the institutional
Speaker 1: investors seem to be fully agreeing with those valuations. And
Speaker 1: you know that happens in a market when there's a
Speaker 1: lot of growth. We've seen it before, and those stories
Speaker 1: tend to retreat after that buying is exhausted. And we've
Speaker 1: seen some of that in twenty I think we'll see
Speaker 1: more than twenty one as uh. You know, newer investors
Speaker 1: decided to come in in the aftermarket without necessarily having
Speaker 1: all the research and knowledge of what the right valuation
Speaker 1: should be. Those folks are not they're not involved in
Speaker 1: the I p O is not involved in the initial
Speaker 1: settat of values. They come into the aftermarket, and again,
Speaker 1: you know that's that's part of uh, you know, the marketplace. So, Larry,
Speaker 1: I mean, one of the things that you mentioned early
Speaker 1: on is that now investors kind of have three distinct
Speaker 1: routes to go in public. There's the traditional I p O.
Speaker 1: I'm sorry, companies have three distinct routs to go in public.
Speaker 1: There's the traditional I p O, there's this back and
Speaker 1: then there's the direct listing and um we we talked
Speaker 1: about this on an earlier episode, but it looks like
Speaker 1: regulations will allow such that companies could actually raise money
Speaker 1: through direct listing, so that they cannot only come public
Speaker 1: and get liquidity, but actually get cash for the new cash,
Speaker 1: which they couldn't previously do. And then you have like
Speaker 1: a lot of like long time uh sort of Silicon
Speaker 1: Valley types super critical of the traditional I p O
Speaker 1: the cut that banks get the premium, the so called
Speaker 1: money left on the table. What do you see is
Speaker 1: the future of the traditional I p O isn't necessarily
Speaker 1: going to survive and for what kinds of companies doesn't
Speaker 1: make the most sense if there are these other either
Speaker 1: master or cheaper route it's going public. Well again, I
Speaker 1: do think that you should actually do a separate podcast
Speaker 1: just in that question. We can have you back if
Speaker 1: you want. We could just even the concept of cheaper
Speaker 1: is something you have to think about because you know,
Speaker 1: on a direct listing is an advisory fee that would
Speaker 1: be paid on the entire value of the company, whereas
Speaker 1: the I p O fee is only paid on the
Speaker 1: amount of shares that are sold in the marketplace. And
Speaker 1: so again I leave that to the academics, because I
Speaker 1: think there's an argument that at times the expenses are
Speaker 1: actually very similar. I think that the biggest issue I
Speaker 1: would just raise. I'll even add a fourth path that
Speaker 1: some companies will take, which is there's also reverse mergers.
Speaker 1: I've been around forever where a company ends are you know,
Speaker 1: bringing with them capital and buys an existing entity and
Speaker 1: now they go public that way, So listen, I think
Speaker 1: that the most important thing, and this is where I do.
Speaker 1: I may not agree with all the perspectives every loud
Speaker 1: investor might raise ab out direct listing versus this versus that,
Speaker 1: but I think that by having choices that a company
Speaker 1: can determine what they want with their boards, they make
Speaker 1: the most informed decisions for where they are. So companies,
Speaker 1: for example, that that are not necessarily going to be
Speaker 1: twenty billion dollar companies on day one, they know that
Speaker 1: they need to have a real following um As as
Speaker 1: I would have said back in my converbal bond days,
Speaker 1: you know where the bond needs to be sold. It's
Speaker 1: not just bought UM in those situations, lining up, you know,
Speaker 1: researching to really understand the story, having you know, a
Speaker 1: road a road show to meet with you know, dozens
Speaker 1: and dozens investors to build up that interest for that
Speaker 1: to have a successful launch as a public company. That's
Speaker 1: still true for most companies. Um. You know, the majority
Speaker 1: of companies that come public are not at ten billion
Speaker 1: dollar valuations. They are companies that maybe there are seven
Speaker 1: fifty or a billion or a billion and a half.
Speaker 1: And those companies require having significant interest in order for
Speaker 1: them to be able to be stable public companies. And
Speaker 1: so the I P O path or a variant of that,
Speaker 1: maybe with a spack where they have a pipe attached
Speaker 1: and they can do a deep road show with investors.
Speaker 1: I think that's still going to be with the majority
Speaker 1: of companies that want to go public come through. But
Speaker 1: the direct listings work for certain entities and and you know,
Speaker 1: again that's why there's chocolate and vanilla. The last thing
Speaker 1: I think that I'd want to share as part of
Speaker 1: a twenty look back in the capital markets is just
Speaker 1: I do think that and we you know, we talked
Speaker 1: about a little bit, We talked about some of the
Speaker 1: sustainable stories that came to market. I don't think we
Speaker 1: should overlook that. I think will be viewed for the
Speaker 1: capital markets as the year that sustainability or sustainable investments
Speaker 1: came to UH came to the market in a real way.
Speaker 1: And I think when we look back ten years now
Speaker 1: and say all the awful things about the pandemic and
Speaker 1: you know, the enormous challenges society faced on a lot
Speaker 1: of fronts, UM, one of the real positives will be
Speaker 1: that stories that were focused on solid thing, some of
Speaker 1: you know, the the the globe's biggest problems were abably
Speaker 1: get funded UM and that more and more investors end
Speaker 1: investors are looking to put capital to work in funds
Speaker 1: that invest in sustainable opportunities. And so it's not lost
Speaker 1: on me at least that two twenty was a year
Speaker 1: for that. And maybe it's because we got reminded of
Speaker 1: how interconnected we all are, but I think it's a
Speaker 1: great thing that stories that do everything from sustainable farming,
Speaker 1: too energy transition to solving lots of other problems around
Speaker 1: you know, the limited resources we have are getting funded
Speaker 1: in the private and the public market in a way
Speaker 1: that just wasn't happening in eighteen nineteen, in a deep way.
Speaker 1: And so I hope that, you know, we'll find that
Speaker 1: the twenties is a decade of these great ideas that
Speaker 1: hopefully will become key parts of becoming energy independent and
Speaker 1: all those things. Um, you know, uh that we'll look
Speaker 1: back at two twenty as the turning point for that. Larry,
Speaker 1: this is really appreciate you joining us. Maybe we'll do
Speaker 1: maybe we'll just have you back in a few weeks
Speaker 1: to talk about I P S. Or maybe maybe in
Speaker 1: a year or something. But you're you're you're sort of
Speaker 1: a breadth of knowledge on this and your insight super
Speaker 1: helpful and clearing up a lot of questions that I
Speaker 1: think both Tracy and I had. Well, it was my
Speaker 1: pleasure and hopefully we have a healthier two twenty one.
Speaker 1: Let's just say that since yeah, nothing, nothing's more in
Speaker 1: our mind than that and there so anyway, without question,
Speaker 1: all right, thanks Larry, Thanks thanks so much, Larry, Cheers Tracy.
Speaker 1: I found that super helpful. You know, I I do
Speaker 1: think that for a long time throughout last year. Still
Speaker 1: and I guess maybe still um a little bit like
Speaker 1: what's really the deal of like spacks, Like is it
Speaker 1: really a good vehicle? How much of it is just
Speaker 1: about getting that pop or finding some sexy story that
Speaker 1: you can flip to Robin Hood investors or whatever. But
Speaker 1: I'm starting to buy the idea that it is a
Speaker 1: reasonable um, a reasonable vehicle for a lot of companies.
Speaker 1: That's probably gonna be with us UH to stay for
Speaker 1: a while. I'm going to reserve judgment for at least
Speaker 1: one economic cycle and see what happens. I will say.
Speaker 1: I will say when bark box announced that it was
Speaker 1: going public through a spack, most of the commentary I
Speaker 1: saw about that just was talking about pets dot com
Speaker 1: and the sort of two thousand's Internet bubble. That was
Speaker 1: the first thing that people were talking about. But Larry
Speaker 1: did make this interesting point about how certain capital market
Speaker 1: structures tend to become trendy at certain times. And yeah,
Speaker 1: and I do you do see that in this idea
Speaker 1: of trying to escape market volatility or the uncertainty of
Speaker 1: an I P O process by going the spack rout.
Speaker 1: That's certainly the case. But I guess my question is
Speaker 1: as things start to normalize in our SPACs going to
Speaker 1: um not be as popular as they were last year, right?
Speaker 1: I mean, I think that was actually probably what helped
Speaker 1: me the most, because I still I was not satisfied
Speaker 1: or I still like it was like the why now
Speaker 1: question because it's like, Okay, you can lay out a
Speaker 1: list of arguments for why for a lot of companies
Speaker 1: the spack route makes sense. But I was still hung
Speaker 1: up for a long time. I was like, yeah, but
Speaker 1: why not? What was it about in particular that caused
Speaker 1: this to catch fire? And I think Larry did a
Speaker 1: good job and help me, at least to some extent,
Speaker 1: understand what it was about this moment. I mean, there
Speaker 1: was obviously a lot of appetite for sort of new technology,
Speaker 1: transformational tech. There was the market volatility of the moment
Speaker 1: that maybe made traditional I PR roads, I p O
Speaker 1: routes too risky or too long, too much of a
Speaker 1: long cycle. The need for public market liquidity, Uh, you
Speaker 1: know his analogy about you know, it's like when the
Speaker 1: public market gets a cold, the private market gets a fluid.
Speaker 1: So he just wanting to have that public market currency.
Speaker 1: So I can start to see from that conversation why
Speaker 1: a number of things sort of did come together in
Speaker 1: that moment to produce what turned out to be a
Speaker 1: pretty extraordinary year. Like I wouldn't have guessed it obviously
Speaker 1: going back in the spring, but there's enough sort of
Speaker 1: moving parts that I can say, Okay, I could sort
Speaker 1: of this makes sense. Why why it happened? Yeah, I
Speaker 1: guess the question is whether or not that experience of
Speaker 1: early is so ingrained that companies will always considers facts
Speaker 1: as a as a financing option, like one of the
Speaker 1: many things they can pull off the shelf, one of
Speaker 1: the many options forever, or or whether it's sort of
Speaker 1: like this one time thing. I guess it gets back
Speaker 1: to Larry's point about how capital decisions are. They should
Speaker 1: be strategic, right, but I think often, like people don't
Speaker 1: really sorry, I can't talk today, they should be strategic,
Speaker 1: but I think often people tend to make a shorter
Speaker 1: term decisions, so they might just be jumping on the
Speaker 1: back bandwagon rather than actually thinking it through. Basically, I'm
Speaker 1: saying I'm unsure whether or not um never mind cut.
Speaker 1: But basically I'm saying thing, but I get what you're saying.
Speaker 1: It makes a lot of sense, you know, I do
Speaker 1: think broadly, And this is a topic that we have
Speaker 1: to come back to, Like we have to talk about
Speaker 1: what is the future of the traditional I p O.
Speaker 1: Because there have been assailed by critics for a long time.
Speaker 1: Lots of critics of the pop and the implication that
Speaker 1: the company is leaving a lot of money on the
Speaker 1: table with this big gap, critics of the pricing, paying underwriters,
Speaker 1: paying underwriters. You know. I'm also curious um whether whether
Speaker 1: things like road show or educating analysts is as important
Speaker 1: in the world at which we have the Internet and
Speaker 1: can learn about companies through all different kinds of ways,
Speaker 1: and we have sort of amateur analysts on Twitter and
Speaker 1: then their newsletter who don't learn about a company through
Speaker 1: the traditional route. How much that could is intermediating the
Speaker 1: need for the traditional road road show. So I think
Speaker 1: there should be a big topic for us this year. Yeah,
Speaker 1: for sure. I I since the I P O series
Speaker 1: coming on. Oh yeah, I love that, and oh you know,
Speaker 1: also just uh the you know, we did that episode
Speaker 1: in the past about direct listings. They have since gotten approval,
Speaker 1: I think. So I think there's the total green light
Speaker 1: for direct listing with a capital raise. It'll be super
Speaker 1: interesting to see what companies when presented with that option,
Speaker 1: how many of them are go down that route and
Speaker 1: lots lots of talk about Yeah, I think there's definitely
Speaker 1: enough going on to have a series. All right, shall
Speaker 1: we leave it there. Let's see it there. This has
Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe Why Isn't Thal? You can follow me on
Speaker 1: Twitter at The Stalwart. Follow our producer Laura Carlson. She's
Speaker 1: at Laura M. Carlson. Follow the Bloomberg head of podcast,
Speaker 1: Francesco Levi at Francesca Today, and check out all of
Speaker 1: our podcasts under the handle at podcasts. Thanks for listening
Speaker 1: to