WEBVTT - SEC’s Over-Regulation Hurting IPOs

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News. You're listening to Bloomberg

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<v Speaker 1>Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio.

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<v Speaker 1>There was a story I saw on Bloomberg News.

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<v Speaker 2>I think it was actually yesterday.

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<v Speaker 1>It noted that the price of new initial public offerings

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<v Speaker 1>in the formation of blank check vehicles, which we were

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<v Speaker 1>talking about.

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<v Speaker 2>I feel like, go back a couple of years.

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<v Speaker 3>They're very in vague.

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<v Speaker 2>Yes, have both.

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<v Speaker 1>Picked up amid a lukewarm market for non spac us

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<v Speaker 1>IPO SO a kidence of ten to fifteen new SPACs

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<v Speaker 1>per quarter, which strike a delicate balance offering an alternative

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<v Speaker 1>to traditional first time share sales without inviting comparisons to

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<v Speaker 1>the mania and the go go stretch from twenty twenty

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<v Speaker 1>to twenty twenty one.

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<v Speaker 2>Go back right off the pandemic.

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<v Speaker 1>It felt like everybody and anybody, many celebrities, everybody was

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<v Speaker 1>starting a spac, A lot of.

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<v Speaker 3>Spacks, a lot of people learning what the phrase means.

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<v Speaker 3>Our next guest has some thoughts on the IPO and

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<v Speaker 3>SPACK markets. Back with us is Spell Freedheim, the founder

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<v Speaker 3>and CEO of Athena. It's an all women led spack

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<v Speaker 3>platform to talk to us to why she thinks the

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<v Speaker 3>SEC is stifling the IPO come back. She's showing us

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<v Speaker 3>today from Lima.

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<v Speaker 2>Place Special Purpose Acquisition view.

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<v Speaker 3>Thank you so much. You better than I, Betty, I

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<v Speaker 3>should say, yeah, is well, just give us the lay

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<v Speaker 3>of the land here. I mean, interest rates are still

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<v Speaker 3>high relatively speaking. But our colleague Preston Brewer Bloomberg Law,

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<v Speaker 3>writing about how he thinks the ipo market has kind

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<v Speaker 3>of turned a corner here we are seeing more of them,

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<v Speaker 3>seeing larger ones. What's your read of sort of where

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<v Speaker 3>we are in the bounce back of the ipo market.

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<v Speaker 4>Thanks David. The ipo market is turning a corner. Indeed,

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<v Speaker 4>we have seen in the last few months a number

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<v Speaker 4>of high profile IPOs that have done decently well in

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<v Speaker 4>the market. But to your point, interest rates continue to

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<v Speaker 4>be high, as does inflation. So it is it is,

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<v Speaker 4>and hopefully it won't be the case that the Fed

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<v Speaker 4>wall turn change interest rates from in a pattern that

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<v Speaker 4>will go up and down, So we expect for now

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<v Speaker 4>interest rates to continue to be steady for the most part.

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<v Speaker 4>The ipo market itself is a reflection of investor sentiment,

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<v Speaker 4>and it has been the case in the last three years,

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<v Speaker 4>and to your point, has been to the detriment of SPACs.

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<v Speaker 4>Unfortunately that investors have taken a risk off posture when

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<v Speaker 4>it comes to making investments in companies that are cash burning,

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<v Speaker 4>companies that are high growth, typically tech or climate sectors.

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<v Speaker 4>So we're seeing less of those going public now or

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<v Speaker 4>going public respects, and we are seeing more companies that

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<v Speaker 4>are cash flow positive with industry tailwinds. But we're not

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<v Speaker 4>going to get there yet because there continues to be

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<v Speaker 4>a lot of volatility in the market, and I think

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<v Speaker 4>that will continue to be the case until the elections

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<v Speaker 4>and up until twenty five.

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<v Speaker 2>Is a bit.

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<v Speaker 1>I feel like we talk about SPACs, it's like it

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<v Speaker 1>just goes through these cycles where everybody kind of you know,

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<v Speaker 1>they start, we start talking about them, there's interest, everybody

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<v Speaker 1>plows into them, then everybody backs off because they don't perform.

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<v Speaker 1>So I don't know, how do you make sense of

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<v Speaker 1>Is there a healthy SPAC cycle?

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<v Speaker 4>Yeah, there is a healthy SPA. SPACs continue to play

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<v Speaker 4>a purpose in the market. There continue to be good

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<v Speaker 4>for some companies. There has been there have been abuses,

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<v Speaker 4>And to your prior question on the SEC, the SEC

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<v Speaker 4>was very quick to jump on SPACs because of the

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<v Speaker 4>amounts of capital that were flowing into SPAC products, which

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<v Speaker 4>frankly has never been the SEC's mandates. So the SEC,

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<v Speaker 4>broadly speaking and not that's not just true for SPACs,

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<v Speaker 4>it's true for other areas of the market as well.

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<v Speaker 4>It is in a way stifling companies' access to public

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<v Speaker 4>market by making it so difficult and so overregulated to

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<v Speaker 4>go public. And that's whether it's through a SPAC, through

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<v Speaker 4>an IPO, through a direct listing, and that's not new

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<v Speaker 4>the administration currently, the SEC administration has has made it worse.

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<v Speaker 4>Certainly in the last couple of years. It's not clear why,

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<v Speaker 4>frankly and whether they're addressing, but it has been twenty

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<v Speaker 4>years now that the regulatory environment in the US has

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<v Speaker 4>made it difficult and costly for companies to access to

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<v Speaker 4>public equity markets.

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<v Speaker 1>And yeah, you know, I'm going to say, David, you know,

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<v Speaker 1>I it felt like for many years that the reason

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<v Speaker 1>companies weren't going public is because they didn't need to.

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<v Speaker 1>There were so much money in the private markets that

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<v Speaker 1>they could stay private for an extended period of time,

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<v Speaker 1>and in some ways that creates I feel like healthier companies,

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<v Speaker 1>or some market observers would say that you stay private

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<v Speaker 1>for longer you do create a company that has a

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<v Speaker 1>sustainable business model.

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<v Speaker 3>A fascinating point. Go ahead, yeah, chip in.

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<v Speaker 4>When you have a strong private equity market short but

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<v Speaker 4>the venture capital industry exists because of exit opportunities that

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<v Speaker 4>can lead to private equity, but also primarily to the

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<v Speaker 4>public market. So not only is it difficult for companies

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<v Speaker 4>to access to public equity market. Remember the number of

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<v Speaker 4>publicly traded companies has consistently gone down now almost ninety

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<v Speaker 4>percent in the last thirty years, and there needs to

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<v Speaker 4>be a recovery. And that's the role That'spax played at

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<v Speaker 4>some point. But of course we've been operating in a

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<v Speaker 4>challenging market. But there needs to continue to be access

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<v Speaker 4>to capital beyond what the venture capital industry can offer

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<v Speaker 4>to technology companies to fond innovation, because capital is the

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<v Speaker 4>life blood of innovation. The United States has land for

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<v Speaker 4>many years in that respect, and in the absence of

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<v Speaker 4>exit opportunities, we're stifling access to capital, both in venture

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<v Speaker 4>capital and in the public equity markets, and access for

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<v Speaker 4>tech companies to the public equity markets. It's not just tech,

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<v Speaker 4>it's life sciences, climate companies that will solve tomorrow's challenges.

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<v Speaker 3>Is well, I want to ask you just about sort

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<v Speaker 3>of what regulators have said. And Gary Gensler is chief

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<v Speaker 3>among them, who's certainly singled out SPACs as a place

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<v Speaker 3>where he'd like to see the SEC do more. And

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<v Speaker 3>I think one area on which he's focused is disclosure

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<v Speaker 3>that investors don't know enough say about who's sponsoring a

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<v Speaker 3>particular one. Let me step back and ask you, what

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<v Speaker 3>do you think the regulatory framework should look like for SPACs?

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<v Speaker 3>And you've talked a bit about sort of the SEC's

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<v Speaker 3>role in the scrutiny that's applied to special purpose acquisition companies.

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<v Speaker 3>What would you what kind of touch, how light a touch,

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<v Speaker 3>or how have you touched do you think that the

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<v Speaker 3>SEC should have when it comes to these kind of offerings.

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<v Speaker 4>So remember that space exist because they've provided investors in

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<v Speaker 4>twenty nineteen, in twenty twenty with access to high growth companies.

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<v Speaker 4>Investments in those companies is challenging in the private market.

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<v Speaker 4>It's risk key, and spas, in a way, being publicly

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<v Speaker 4>treated companies and taking companies public makes for a much

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<v Speaker 4>less risky investment when you invest in the same company,

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<v Speaker 4>whether it is private in the venture market or as

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<v Speaker 4>a publicly traded company. Now, there were there was a

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<v Speaker 4>point in time when investors couldn't access yield in any

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<v Speaker 4>other product that high growth equities, and that's why they

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<v Speaker 4>piled into SPACs and into the promise of growth and yields.

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<v Speaker 4>Now the yields have shifted and they can be accessed

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<v Speaker 4>now through other products, especially debt right now by it.

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<v Speaker 4>But so there has been a pull back in a

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<v Speaker 4>national adjustment in and uh I would say in over correction,

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<v Speaker 4>but there has been a national adjustment that the SEC

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<v Speaker 4>has no business regulating frankly. I mean, the disclosures is

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<v Speaker 4>one thing to prevent fraud. But the disclosures are there,

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<v Speaker 4>and sure we could. I mean most facts these days

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<v Speaker 4>proactively disclose more information than is regularly than is required

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<v Speaker 4>by regulators, and those are important to protect retail investors

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<v Speaker 4>very much favorite disclosures.

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<v Speaker 1>It's about just got about forty five fifty seconds left here.

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<v Speaker 1>I mean, what is it that we get from for

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<v Speaker 1>companies or for investors, you know via a spack versus

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<v Speaker 1>angel investing or VC investing. And again, we don't have

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<v Speaker 1>a lot of time, unfortunately, you.

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<v Speaker 4>Get the transparency, you get the liquidity, you can sell

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<v Speaker 4>your shares so you cannot sell in an early stage company.

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<v Speaker 4>You again the access to pull disclosures to your point.

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<v Speaker 4>So that's that's taken care.

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<v Speaker 2>Of, all right, Gonna leave it on that note.

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<v Speaker 1>Listen, great to get some time something to think about

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<v Speaker 1>on this Friday, right, And we actually talked to I

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<v Speaker 1>think it was Art and Health yesterday at IPO. So

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<v Speaker 1>we are seeing some things happening in the IPO.

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<v Speaker 2>Market, you know.

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<v Speaker 3>I'm just going back to that article by our colleague

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<v Speaker 3>prest And Brewer at Bloomberg Law. He's saying, you know,

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<v Speaker 3>although they're not among the largest IPOs, biotech companies are

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<v Speaker 3>seeing a resurgence total capital race in the first half

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<v Speaker 3>of this year twenty one point two billion dollars. So

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<v Speaker 3>things directionally seems to be going in the right place.

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<v Speaker 3>But again, this conversation about regulation a royling one has

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<v Speaker 3>been for a few years. And as we talk about

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<v Speaker 3>the election, what might or might not change certainly something

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<v Speaker 3>I think a lot of that's on a lot of voters' minds.

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<v Speaker 2>Absolutely. Isabel Frett Freedheim.

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<v Speaker 1>She is the founder and CEO of Athena the all

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<v Speaker 1>women LEDs Back Platform, joining us from Lima, Peru.

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<v Speaker 2>All right, folks, you are listening and watching Bloomberg BusinessWeek.

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<v Speaker 2>This is Bloomberg