Featured Article

Bidding adieu to the SPAC craze

A method for taking out the trash delivered garbage to many


Image Credits: Nigel Sussman (opens in a new window)

The implosion of the SPAC boom has proven a multiquarter process. We may be in the final throes of the experiment, at least from a startup perspective.

SPACs, or special purpose acquisition companies, gained popularity during the final years of the last economic bonanza, when capital was cheap and public markets were hot. In essence, SPACs are synthetic companies taken public with no real operations of their own. Later, they merge with a private company, taking their new partner public without much of the usual fuss.

Blank-check combinations are a hack to get around the traditional IPO process, allowing less-mature companies to raise capital and go public. It also seemed to be a great shortcut for SPAC promoters to make money. Retail investors, not so much. The results of recent SPAC deals have generally proved lackluster at best and disastrous at worst.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

Some companies that had considered SPAC combinations backed away from their proposed transactions. Consumer fintech startup Acorns pulled its blank-check deal in January of this year, leading this column to call the overall SPAC experiment a failure because it had not managed to clear any meaningful portion of the growing unicorn backlog. The pace at which traditional IPOs have been able to take billion-dollar startups public is far below the rate at which more unicorns are minted, and SPACs were unable to change that market reality.

But many companies did pursue SPAC combinations. Electric vehicle SPACs were particularly messy, as TechCrunch reported here. The traditional perspective that SPACs are best used for floating less-than-spectacular companies held true. And as a result, the post-combination performance of many SPAC deals has left retail investors holding the bag.

The damage continues to mount, with a SPAC’d EV company recently declaring bankruptcy. It turns out that those rosy projections were just that.

This morning, we’re running a short survey on the performance of venture-backed companies that went public via blank-check combinations. Then we’ll talk about impending regulatory changes, the growing trend of SPAC deals getting canned, and then look to the future. Some firms are holding to their plans to go public via SPAC. Are they bold, misguided or something else?

The damage done

BuzzFeed, a media company, was once a darling of the investing class. Crunchbase data shows that a16z led its $50 million Series E, while NBCUniversal led consecutive $200 million rounds. Other venture backers included New Enterprise Associates and RRE Ventures. BuzzFeed saw its private-market value scale to around $1.7 billion.

Then time passed, and BuzzFeed wound up taking the SPAC route to the public markets. Now it’s worth around $240 million, or about $1.78 per share. (SPACs are generally sold at $10 per share, the price at which they usually execute their combination.)

Latch, which sells hardware and software to apartment buildings, raised money from Techstars, Lux Capital and RRE, among other investors. PitchBook data indicates that it reached a $411.76 million valuation ahead of its SPAC combination, which pushed its valuation well above the $1 billion mark. Today, it’s worth $194 million, or $1.35 per share.

AppHarvest, an agtech company that grows crops indoors, raised more than $100 million before going public in a blank-check merger, Crunchbase data indicates. Its value also reached the $1 billion mark in its public debut, per PitchBook. Now, it’s worth $270 million, or $2.65 per share.

The list goes on and on. Consumer fintech lending service Dave reached a $1 billion valuation back in 2019. Then its value multiplied in its SPAC deal. Today, its valuation has been slashed by more than 90%, with its 89-cent share price today pushing the company’s worth to below $350 million.

It is not correct to say that a SPAC combo is a valuation kiss of death, but it is fair to note that the two are paired more often than is comfortable.

The public market question

Is it unfair to bring up the severely lacking performance of post-combination SPACs when other assets are selling off? No. The public markets are more regulated by design than, say, crypto or private markets. But thanks to some loose rules, companies got to project huge growth to entice investor demand and raise capital. Now that those projections are coming up dry, prices are often in free fall.

While public markets have sold from highs, many SPAC deals’ declines on the stock market have been a multiple worse than what’s happened with companies that took the traditional route to IPO. Finally, noting that crypto has also lost value in recent weeks and months is not the defense of SPAC deals that some think.

The scale of damage caused by what turned out to be over-hyped SPAC deals turned regulatory heads, and changes are coming. The U.S. Securities and Exchange Commission (SEC) proposed new rules for SPACs, including “additional disclosures about SPAC sponsors, conflicts of interest and sources of dilution,” along with “additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions.” Importantly, the SEC’s proposed rules would make SPAC projections more similar to “those required in registration statements for an initial public offering.”

No more infinite growth, in other words. The SEC’s rules went into a comment period that was extended and, per The Deal, closed yesterday. TechCrunch will have more on the rules when they are set.

The changes come too late for investors who bought into SPAC deals only to see their capital evaporate. But for SPACs that were still brewing when regulatory changes started to circulate, there was still one last option: smashing the eject button.

SPACs are getting yanked

The number of canceled SPAC merger plans keeps on rising.

On June 3, Axios counted that 19 companies had given up on SPAC exit plans since the beginning of the year — including the above-mentioned Acorns as well as Forbes and SeatGeek. According to rumors, Traveloka also joined the list that very day, with the Asian travel company now aiming for a traditional IPO on a U.S. stock exchange.

Looking further back, The Wall Street Journal referred to Dealogic data showing that “more than 35 SPAC mergers have been called off since the start of November, topping the total from the previous four years combined.”

Some withdrawals are also happening behind the scenes, with blank-check vehicles pulling their own IPO plans. For instance, Tiga Acquisition III and Freestone Acquisition recently did so.

And sometimes, it’s investors pulling the rug.

“It’s very rare for one of a SPAC’s early backers to end their involvement after it starts trading,” Bloomberg wrote. Yet, this is what happened with ex-Credit Suisse CEO Tidjane Thiam’s fintech SPAC, Freedom, which parted ways with asset management giant Pimco. While Pimco was replaced with Chinese entrepreneur Edward Zeng, whom Freedom described as a better fit, “Pimco’s move shows the sharp turnaround in sentiment from last year,” Bloomberg noted.

Not all SPAC mergers are being canceled. French music streaming company Deezer, for example, is still set to go public on Euronext Paris. However, SPAC regulations are very different in France than in the U.S. — a topic for another day, but one that explains why this exit model hasn’t as drastically fallen out of favor in Europe.

SPACs may have fallen out of favor for now, but they could rise again in the future if we see a similar set of rosy economic conditions. If and when that does happen, we’d all do well to remember this moment in time as a warning to future investors.

More TechCrunch

The U.K.’s self-proclaimed “world-leading” regulations for self-driving cars are now official, after the Automated Vehicles (AV) Act received royal assent — the final rubber stamp any legislation must go through…

UK’s autonomous vehicle legislation becomes law, paving the way for first driverless cars by 2026

ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. What started as a tool to hyper-charge productivity through writing essays and code with short text prompts has evolved…

ChatGPT: Everything you need to know about the AI-powered chatbot

SoLo Funds CEO Travis Holoway: “Regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”

Fintech lender Solo Funds is being sued again by the government over its lending practices

Hard tech startups generate a lot of buzz, but there’s a growing cohort of companies building digital tools squarely focused on making hard tech development faster, more efficient, and —…

Rollup wants to be the hardware engineer’s workhorse

TechCrunch Disrupt 2024 is not just about groundbreaking innovations, insightful panels, and visionary speakers — it’s also about listening to YOU, the audience, and what you feel is top of…

Disrupt Audience Choice vote closes Friday

Google says the new SDK would help Google expand on its core mission of connecting the right audience to the right content at the right time.

Google is launching a new Android feature to drive users back into their installed apps

Jolla has taken the official wraps off the first version of its personal server-based AI assistant in the making. The reborn startup is building a privacy-focused AI device — aka…

Jolla debuts privacy-focused AI hardware

OpenAI is removing one of the voices used by ChatGPT after users found that it sounded similar to Scarlett Johansson, the company announced on Monday. The voice, called Sky, is…

OpenAI to remove ChatGPT’s Scarlett Johansson-like voice

The ChatGPT mobile app’s net revenue first jumped 22% on the day of the GPT-4o launch and continued to grow in the following days.

ChatGPT’s mobile app revenue saw its biggest spike yet following GPT-4o launch

Dating app maker Bumble has acquired Geneva, an online platform built around forming real-world groups and clubs. The company said that the deal is designed to help it expand its…

Bumble buys community building app Geneva to expand further into friendships

CyberArk — one of the army of larger security companies founded out of Israel — is acquiring Venafi, a specialist in machine identity, for $1.54 billion. 

CyberArk snaps up Venafi for $1.54B to ramp up in machine-to-machine security

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

1 day ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets