Understanding the SPAC Boom and What It Means for Founders

October 16, 2020 36 min
Business

Ryan Gilbert is General Partner at Propel Venture Partners, a Bay Area venture capital firm backed by BBVA. He is also as of very recently CEO of Olympus Acquisition Corp, a $750 million SPAC that listed on the Nasdaq in August.

In this conversation, we look at why SPACs are coming back in fashion, why a company would want to go public via a SPAC, pros and cons of SPACs versus traditional fundraising and listing routes, Ryan’s plans for the future of Olympus and more.

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Thank you very much for joining us today. Please welcome, Ryan Gilbert.

 

Full transcript:

Will Beeson:

Ryan Gilbert, welcome to Rebank.

Ryan Gilbert:

Thank you, Will. Great to hear your voice again.

Will Beeson:

Likewise. Likewise. I’ve been reminiscing all day about the wonderful face-to-face meetup we had so long ago. It feels so long ago. It was probably about a year and a half ago in your offices.

Ryan Gilbert:

In San Francisco.

Will Beeson:

Yeah, yeah. Which was great. And those are the things that we don’t do anymore. And I guess on the one hand it’s for COVID, and on the other hand, it’s because people are generally steering clear of California if they can [because of the wildfires]. And it sounds like you and those around you have been staying inside. Scary times.

Ryan Gilbert:

We have, and it’s remarkable though, that during a pandemic, when you lack the face-to-face interface, that the fundraising environment, particularly in things I’ve been involved with, can be very efficient if you do it over Zoom. So everything that we were very afraid of at the beginning of the pandemic, the inability to travel and do in-person meetings, I think we’ve adapted quite well. It’s quite exciting.

Will Beeson:

Well, that’s great. And just to jog everyone’s memories, you lead Propel, which is a largely FinTech focused venture firm, with a BBVA tie in. And you have an amazing entrepreneurial backstory yourself. You were on the podcast a year and a half ago, so people should definitely go back and check that out. And that continues to be your day job and the focus of, broadly speaking, your time and energy, right?

Ryan Gilbert:

Absolutel, Will. I consider myself to be an entrepreneur first. I think everything that I’ve done has been about building, including partnering up with Jay, and David, and Rohit to launch Propel in partnership with BBVA about five years ago. And I’m the type of guy who really enjoys building the furniture on day one. Going to IKEA and figuring out how to use the Allen key to build the desk, that’s what excites me. And the activities I’ve been involved in, particularly now with the new SPAC that we’ve taken out, has that day one feeling to it. Because we’re doing new things, we’re bringing new ideas, and are certainly helping to change very old established industries. So it’s exciting.

Will Beeson:

Yeah. Well, this is great and perfect lead-in to today’s conversation. So the reason I reached out to you, I guess what, last week at this point, was to pick up on this fantastically interesting piece of news around the SPAC, so the one you you just mentioned. And based on the news that I’ve come across, it sounds like a $750 million SPAC, which I believe was listed on NASDAQ at the end of August. And there’s just a phenomenal team around it. Yourself, you as the CEO, and then your chairwoman, who I believe is the founder of The Bancorp, one of the grandfathers of platform banking, infrastructure banking, that really kicked off so much of what we’re seeing in the world of FinTech in the US today. I wonder if you could just high-level tell us how this all came about?

Ryan Gilbert:

Thank you. So my partner with Olympus is Betsy Cohen, the founder and first CEO of The Bancorp. For those of us in the FinTech space, The Bancorp is the enabling platform. They were one of the first banks out there that really took the approach that they were going to enable the network software-based FinTech economy. And I think they’ve served well over 1,600, if not 2,000 companies. Many of the unicorns today are riding on The Bancorp rails. And they’ve, from the beginning, taken the approach that the bank is going to be disrupted, so why don’t we help the disruption and enable the challengers, which they’ve done phenomenally well.

Ryan Gilbert:

Over the past five years, since Betsy retired from active management of The Bancorp bank, she and her son, Daniel, and other partners, have been running investments out of Cohen & Company. And have, prior to the Olympus SPAC that we took public at the end of August, had done four others. Involved with two very successful combinations, and have had two recently announced combinations. One is Shift Motors, which those of us in the Bay Area know very well, a new way to buy cars online. Run by George Arison, a very well known entrepreneur. And also recently announced an acquisition, combination pending, with a payments company called Paya.

Ryan Gilbert:

And I’m just super excited to be partnering with a group of people that have transformed the SPAC world, and 20 years previously to that really kicked off the FinTech revolution. I’m learning every single day, and having Betsy as my partner and chair of the SPAC has really just allowed us to create a global network, not only a bi-coastal network, but a global network for Olympus, supported by a very, very strong board of directors, who we’ve invited in based on work and experience. And a 20-person strong advisory board, sitting everywhere from Taiwan, and Auckland, New Zealand, all the way through to San Francisco. So we’ve managed to really touch the planet. And that’s all going to help us in our search for the right partner for the SPAC.

Ryan Gilbert:

We’re looking to enter into a very, very scalable, beneficial relationship with entrepreneurs and investors, who are running a special company, somewhere on the planet. With a focus on continuing to grow, service customers well and continue the journey of transforming financial services.

Will Beeson:

Yep. All right. So for those of you, you and your colleagues in the Bay Area, the SPAC stuff must almost be starting to feel like some sort of new normal, to kind of parallel all these other new normals that it feels like we’re now living in. But for the rest of the world, myself included, this SPAC boom, or what feels like a SPAC boom, that’s really gathered steam over the past number of months, if not, maybe a year plus now, is kind of new. Or at least in the kind of venture context, circa 2020, it feels pretty new. It’s not a new financing concept.

Will Beeson:

Maybe we can just start at the beginning. Special Purpose Acquisition Company. It’s basically a shell company that’s listed on the stock market, that raises funds at the time of listing. And then has the mandate to go acquire, effectively, an operating business. And it’s an efficient way of taking an operating business public, with I’m sure all sorts of interesting benefits and incentives that we can perhaps get into. Is that a fair characterization? Is there anything you’d add?

Ryan Gilbert:

I think that’s great. I’d add a few things. The concept of the SPAC has significantly evolved over the past 12 to 10 years. If you look back a decade ago, SPAC was a four letter word. It wasn’t efficient. It didn’t really have alignment with insiders, and was perhaps more of a smart Wall Street mechanism for those with capital to extract high rents out of the transaction. Over the years, Betsy and other innovators have really focused on SPAC on being a vehicle to drive alignment with the partners at the partner company. Particularly alignment in so far as the promote that the sponsors get, to ensure that the promote only vests once enterprise value has been extended and expanded, much like carry in a traditional venture model. And that’s why I think there’s a lot of similarities between the concept of a venture capital fund and the SPAC.

Ryan Gilbert:

What the SPAC drives to the partner are three very important things, that I feel have only recently become understood by the Silicon Valley. Because of the work being done by real strong entrepreneurs and innovators, like Chamath Palihapitiya, with his three SPACS that he’s done, and I think a fourth’s on the way. And other VCs like me that have recently successfully IPOed SPACs. Folks like Kevin Hartz, the Eventbrite founder, who’s taken a SPAC out in the week or two before we did. And Micky Malka from Ribbit Capital, who recently took a SPAC public in the past couple of weeks. But more and more getting into it.

Ryan Gilbert:

And the three important things that a SPAC offers over other ways of going public come down to the following, flexible use of capital or proceeds, ability to use the capital from the SPAC trust for primary investments in the company, to have secondary outcomes and liquidity for insiders, and also to ensure that there’s a budget available for acquisitions to continue growth.

Ryan Gilbert:

The second point that I think is really important is the fact that when you combine with a SPAC, you are able, as the combined entity, to present forward-looking statements about what the combined business will be looking like. As opposed to a traditional IPO, where forward-looking statements are not allowed. And if you think about startups and the companies that we’re involved in our sector, it’s all about the future because we’ve been growing in the past, so the future does matter.

Ryan Gilbert:

Finally, there’s the concept of execution certainty. You don’t have to worry about IPO windows. You don’t have to worry about what’s going to happen the week before the election, and the week after the election, because the SPACs already public. So as long as the sponsors and the SPAC management team are able to secure the support of the unit holders in a vote, when a de-SPAC opportunity has been identified and when the proxies are filed, the deal mostly gets done. And the capital, the forward-looking statements, and the execution certainty go a very, very long way. And founders are really understanding this more than anything. We have had almost 100 conversations in the past couple of weeks with investors and founders, who have asked us to come in and do virtual lunch and learns with them and their teams.

Ryan Gilbert:

“What are SPACs about? Why should we consider SPACs? What should we be on the lookout [for] when identifying a SPAC? And why is your SPAC different?” And I think the ability to differentiate our SPAC from other SPACs is something that we put a lot of thought into during our IPO process, and now that we’re out there. And we focus on the essence of the partnership, that we’re looking to partner with the current founders and the team to help them be successful in their current work, to help them achieve and increase enterprise value by sharing the combination of wisdom and work that our board and advisors have, and to be there as good partners. Candidly stating, we don’t want their jobs. They’re the right people in the right seats, but we’re there to support them. And we have this empathy for that being founder and operators ourselves.

Will Beeson:

How is it different than a growth stage investment fund?

Ryan Gilbert:

Well, the most important thing with a SPAC is when you combine, you’re a publicly traded company. You have the ability to communicate with your shareholders. You have to be in compliance with federal securities laws. You will be submitting your quarterly financials. We encourage good following by Wall Street analysts, so that investors have an understanding of what’s going on in your business. We also encourage long-term fundamental investors to be part of the investor group, to be there to support the company through its growth stages. And there’s also the opportunity for liquidity. Quite different to just going through to taking another investment from a later stage fund. Because I do believe the SPAC, the IPO, is a stage in the financing journey, and it eventually comes, particularly with later stage venture.

Will Beeson:

Yeah. I don’t know if it’s public, but can you talk about how many capital providers into your SPAC there are?

Ryan Gilbert:

Well, the larger owners of any SPAC do file their ownership stakes or interests with the SEC, and we have double digit numbers. I don’t have that exact information available. It changes everyday.

Will Beeson:

Yeah. Okay. I mean, that’s interesting. It sounds like it’s kind of… At least in my mind, and help me clear up any misunderstandings or discrepancies as we go, but there’s an element of a VC investment. Because it seems like this is a route for, or at least in practice, for companies that maybe wouldn’t be at a maturity level to support an independent IPO to access public capital markets, and all the kind of visibility transparency that comes along with that. And… Go ahead, if you want to jump in there.

Ryan Gilbert:

Certainly, the obligations of being a public company are the same whether you go public through the traditional IPO, or through a direct listing, or a SPAC. Those are the table stakes, and compliance is key. What we do offer through a SPAC, SPACs generally, I think is a more cleaner, faster, reliable path to going public, with a lot more flexibility. And when I look at many of the recent IPOs, including today’s, the Snowflake IPO, I have to think about what very prominent venture investors like Bill Gurley have often said about the IPO processes. Where they’ve highlighted and lamented the significant amount of cash left on the table through an IPO. When you see companies go public and have day one pops of 100 or 200%, it makes me wonder why the stock was priced like that in the first place if there was such significant demand. So hopefully through most SPACs, you get better pricing accuracy. And insiders and sellers don’t think that they’re leaving too much money on the table.

Will Beeson:

Yeah. Does that play out in practice? I mean, the noteworthy SPAC deals that have happened, is there meaningful price movement in the publicly traded SPAC units once the deals are done?

Ryan Gilbert:

The objective, I think for many in the combination, is to ensure that the pricing is fair and accurate. And when the units move, they move because of keen market interest in the overall offering post the sale, as opposed to a significant discount with the objective of getting a first day pop.

Will Beeson:

Can you talk a little bit, maybe just to kind of round out the SPAC 101 conversation, about the actual combination, or the, quote unquote, acquisition, and how SPACs generally think about that? Because it’s not kind of one-to-one, use our capital to buy a company. There’s generally a leverage component, I’m sure like virtually every private equity type transaction. Can you just talk a little bit about that? And maybe using your SPAC as an example, I think you raised $750 million, what would a target acquisition value be?

Ryan Gilbert:

We are flexible as far as that’s concerned. I do think if you just think about the common math, with our trust of $750m and everyone’s ability, perhaps with respect also to a PIPE, we’d be looking at a larger size company. I think the size of the business could be in the range north of a billion, billion-and-a-half dollars, upwards. So there is a lot of flexibility. And Betsy often refers to the SPAC as being an accordion in financing terms. You can stretch it out, or you can contract it in order to find the right deal. It’s a very, very flexible model.

Will Beeson:

I imagine because it’s a flexible model, they’re kind of flexible, or rather, you would have a bit more flexibility into the type of deal that you might pursue. But is there a natural preference for buy and hold an early company that investors expected would have 10 years of continued hockey stick growth? Or is it buy something a bit more mature with maybe cash flow? How do the incentives encourage SPAC management teams to think about that?

Ryan Gilbert:

I think the predictability of future revenues is very important, because there is this emphasis on the forward-looking statements. So I think everybody involved in any SPAC wants to be able to represent, to the best of their ability, what the future may look like. So if a company doesn’t have any revenues today and hasn’t launched a product, that’s certainly way too early. I’m fascinated by businesses that have a strong foundation today, with very loyal customers, and are in a position to grow forward.

Ryan Gilbert:

If we’re going to make a comparison to early stage venture. Whenever I do an early stage deal, I think about the four Ts: team, tech, TAM and timing. And a while team, tech and TAM are consistent across any business, timing’s very, very critical in the SPAC world. Because the company needs to feel ready to be a publicly traded company. That’s a cultural element. It also tells you about the mindset of the owners and operators. Do they want to deal with the requirements of publicly reporting? Do they want to be SOX compliant right now and go through that exercise? Are they ready to comply with the various board regulations, which are in place? And to be a member of a national stock exchange? So that’s why the timing is quite critical.

Will Beeson:

If you look at other deals that have been done over the past, I guess just a couple of years, I think you mentioned some examples of successful SPACs. It feels like it’s everything from good blocking and tackling, just SPACs doing what they’re supposed to do, buying good companies, maybe some cash flow, and then letting them run public. There are other instances, I think, Nikola, right? The kind of Tesla competitor, which seems like it’s little more than a concept, was taken public via SPAC acquisition. And then I believe there was another example, not maybe too, too long ago, but a couple of years ago now, of a SPAC eventually buying a minority stake in Virgin Galactic or some sort of frontier technology type company. So not even a full acquisition.

Will Beeson:

Are those examples representations of how much flexibility SPACs have, or is there something else to read into that?

Ryan Gilbert:

Well, I think it is an indication of the flexibility that SPACs can have. And I repeat that analogy or that description of a SPAC being much like an accordion. What music do you want to play with the accordion? And it’s subject to the sponsors and organizers of the SPAC, together with the owners and operators of the target company, to ensure that the music is one that is a pleasing to listen to. In the context of Virgin Galactic, which is Chamath Palihapitiya’s SPAC, I think the first one he did. Here you have a very well-known Silicon Valley venture investor, who was probably the first of our types to get into the SPAC space, doing Virgin Galactic. Virgin Galactic was not a Silicon Valley startup by any stretch of the imagination. It was run by Sir Richard Branson and other partners.

Ryan Gilbert:

But I think what Chamath realized is that the SPAC was the right vehicle to bring that company public. It had a big story, there was the ability to get both fundamental investor support, long term investor support and retail investors into the deal, and that made sense for them. Other SPACs have gone into deep verticals, like real estate and hospitality, travel, insurance sectors, security. Focusing on broader financial services, the intersection of finance and technology. So the best way that I always think about a SPAC is it’s an instrument. And call it a musical instrument or a financial instrument, but hopefully everybody likes what they hear at the end of the day.

Will Beeson:

So if you, now VC for years, end up sitting across the table from a founder or a founding team, and some of your VC peers who have provided Seed, A, B, C, whatever it is, stage funding to your potential target company, are they happy to be talking to you as the SPAC CEO? Would they rather be talking to you as a growth equity investor? Would they rather be talking to you as an institutional, long-only money manager, who’s traditionally buying on the public markets? Does it benefit them in any way, and maybe it’s back to your point about flexibility, to sell to a SPAC versus pursue either growth stage funding or an IPO on their own?

Ryan Gilbert:

Yeah. I would bet that anyone who’s talking to me today is firstly talking to me and my partners, because they’re marginally interested in understanding what we’re doing. So there’s a bit of a SPAC 101 that goes along with any conversation. Instead of reading it in the newspaper, you can hear it live. Very interested in hearing why we think SPACs are right for their business, so that they can take that feedback and discuss it with their advisors and at their boards. And genuinely intrigued by having another option on the table.

Ryan Gilbert:

There’s been an evolution in the financing journey. It’s pretty much moving from a one lane highway to a two lane highway, to now a three lane highway. And the number of lanes on the highway is going to expand because the stock exchanges, particularly the New York Stock Exchange and the NASDAQ, are now allowing direct listings together with capital raising at the same time. So that was a stock exchange response to the surge in the SPAC market. And I think first and foremost, we’re acting in an educational capacity, and by learning, people will do so. So we’re going to hear a lot of people talking about accordions. I’m sure about that.

Will Beeson:

Well, we’ll know who they’re quoting.

Ryan Gilbert:

Betsy Cohen, she takes the credit for that one.

Will Beeson:

Besty? All right. All right. So then from your standpoint, as the CEO and one of the decision makers for this SPAC, how were you thinking about the universe of investment opportunities? What’s looking like an attractive place to seek?

Ryan Gilbert:

Well, The FinTech ecosystem has been one that’s been very fertile, touching all aspects of payments, savings, credit, wealth management. And I think there’s a lot of opportunities in that vertical. There’s also a number of opportunities to look horizontally in that vertical, to think about all the enabling technologies that have made the financial services industry grow and thrive, but also service other industries, ranging from security, to database management and CRM, just as some examples. And it’s our job to look at a number of opportunities, and to assess them from the perspective of, “is it the right fit for a SPAC like ours?” Starting with the people, looking at the technology, putting a lot of emphasis into what the market is about and underwriting. And then considering the timing question, is it the right thing?

Ryan Gilbert:

And it’s much like venture capital in that regard, because we have an opportunity, we have a two-year window to review a significant amount of the opportunities, get to know the people and be sure that the fit is the right one for the time. It’s very, very exciting to be in the space. And it’s also exciting to be amongst the first from the venture community, and particularly the Bay Area technology and FinTech community, to be involved in the space. I think there are going to be many, many SPACs that get IPOed in the next couple of months, by folks who we know well from the Bay Area, and from other technology centers. I think we’re going to see SPACs go public globally. The first SPAC got filed in London today by a very well known SPAC originator from the United States. I know that in Southeast Asia and other global markets the stock exchanges are looking at the SPAC world themselves as well. But I see for the foreseeable future, the United States will be the SPAC leader, and hopefully we’ll see great results to support the leadership position.

Will Beeson:

Is there anything about right now, COVID times or whatever it is, that might be driving any of this interest in SPACs? I mean, does it have anything to do with fundraising environment, with roadshows with… On down the list.

Ryan Gilbert:

The fundraising environment changed overnight. We went through our process with about 46 hours of Zoom calls. That’s a lot of Zoom time, but it certainly was preferable, if we were to compare what we have done outside of the pandemic, flying around the country, and having a process that would have taken a lot longer. We were able to cram these calls into about a week, week-and-a-half. It’s impossible to have achieved the same reach and education in an in-person environment.

Ryan Gilbert:

I don’t think that SPACs in particular have been benefited by this. What I do think has put a lot of interest in SPACs is the popularization of the opportunity based on proven success. The corporate operators and founders and investors, hedge fund investors, fundamental investors, as well as a broad range of sponsors, have seen the work that people like Betsy Cohen have done in the past. And they’ve recognized that the pace has been set. They also believe in the capabilities, and feel, “Well, if Ryan Gilbert can do this, so can I.” And I think that’s great. We’ve given folks something to reach for. And I think they’re going to be many, many successful ones, because you don’t need to be a Nobel physicist to get SPACs operating, but you do have to have respect for the process, respect for the law, and most importantly, respect for the people involved. The process of running a SPAC, leading a SPAC, and then going through the de-SPAC process is all about listening, and having a deep respect for everyone involved.

Will Beeson:

So if one of your Propel portfolio companies called you up, and said, “Hey Ryan, we got approached by a SPAC.” Now, I’m sure you would start by saying, “We should talk, because, by the way, I have one.” But that aside, what questions would you suggest they asked to the SPAC management team? How would you advise a potential acquisition to interact with the SPAC, versus potential other providers of capital?

Ryan Gilbert:

I would say first and foremost, get to know the team. It is the human capital part of venture capital, whether early stage or late stage, that matters. Secondly, understand the structure of the SPAC. All SPACs are publicly traded. You’re able to go to the SEC website, and pull all the fund documents, and get good counsel to explain to you how the SPAC works and operates. Ensure alignment with the SPAC sponsors and management team about what the goals of the combined company would be, and understand your role in that combination. And then ask the question, “Are you ready to be a publicly traded company?”

Will Beeson:

So you talk about the roles of the sponsors, SPAC management team, and entrepreneurs or management of the target. Can you just unpack that a little bit? I mean, do the SPAC managers stay after the tie up? Or did they just kind of go away, and it’s as if the acquired company is just an independently listed company?

Ryan Gilbert:

Post combination, in most circumstances, the partner target’s management team continues to run the business, because that’s what they want to do, and that’s what we’d like them to do. Where appropriate, the team will be supplemented and enhanced with new members, that we could help recruit in. Sometimes, there are additions to a board of directors. But the SPAC management team or the sponsor team that exists pre-combination is not involved largely in the day-to-day operations of the business. The role of the team becomes one of an investor in the business for a long-term.

Will Beeson:

Got it. And did you say before that the structure, the incentive structure for your SPAC specifically, was one that you expected to drive good long-term results, rather than kind of opportunistic short-termism?

Ryan Gilbert:

It certainly is common, Will, for modern SPACs to ensure that the earn-out tied to the sponsor promote, is tied to the results. And with a publicly traded company, the stock price is often the best mirror of results. So as that price goes up, more and more a sponsor promote vests. And the recent IPOs, particularly those driven by those of us from the venture community, have all taken different approaches to achieving the same outcome. Long-term partnership, ability to monetize when results are achieved. And that’s really what alignment is all about.

Will Beeson:

In a traditional IPO, you will know infinitely more about this than me, but there are lockups for founders, for employee shareholders, for investor shareholders, post-IPO. Do the same sorts of lockups or any similar lockups exist post-SPAC acquisition?

Ryan Gilbert:

Yes. The same lockups do exist. These are are SEC-related lockups. And in certain instances, there could be lockups that get agreed by the various parties to the transaction, in order to ensure commitment of all parties across the board. Yeah. Nothing different in that regard.

Will Beeson:

All right, Ryan. So we’ve covered a lot of material there. And I think we’ve ticked through a lot of the things that I was hoping to get a little insight into. Last question I have for you is more of a personal one. How do you manage all this? Continuing to lead Propel, and now CEO of the SPAC. I would imagine there’s some interesting potential overlaps between the two.

Ryan Gilbert:

I’m certainly excited by the overlap of opportunity and networks from my role as a founder and early stage investor, through to my role in the SPAC world. So many of the men and women that I’ve been able to partner with and work with over the years are now running very exciting, substantial companies in the broader financial services space. They’ve grown, I’ve grown. And I think together, we’re ready to take the companies public. So it’s a natural evolution, both of our careers and our companies that we are here today. And the fact that we all know each other so well, I think will make for some very, very interesting deals.

Ryan Gilbert:

In my work the past couple of weeks, the reach outs that we’ve had with insiders and the operators, haven’t had to be facilitated by any outsiders. This is a matter of emailing or picking up the phone, to have a combination conversation with people that we know well, that we used to hang out with at Money 20/20, and other conferences that aren’t happening this year. But at least the SPAC conversation gives us a reason to get on a Zoom and have another chat.

Will Beeson:

There you go. I’m sure there are plenty of people in your network who would be more than happy to sell you a company for more than a-billion-and-a-half dollars.

Ryan Gilbert:

I look forward to meeting them, Will. And send them our way, and let them know that SPAC isn’t a four letter word, but it’s a very interesting financing instrument on the journey of a venture-backed company.

Will Beeson:

Excellent. Excellent. Ryan, great to connect. Thanks for all the insight, super interesting. Ryan Gilbert, thank you very much for joining us today.

Ryan Gilbert:

My pleasure, always. Thank you so much.