SPAC activity may pause but it will be back
SAN FRANCISCO – The rate of space company mergers with special purpose acquisition corporations (SPACs) may be slowing, but the trend isn’t over, according to investors speaking at TechCrunch Sessions: Space 2021.
“Investors are still trying to understand and make heads or tails of stocks,” said Shaun Maguire, Sequoia Capital partner. “And a lot of the SPACs have underperformed. I think that will make it a little bit of a more difficult SPAC environment in 2022.”
Tess Hatch, partner at Bessemer Venture Partners agreed, adding that companies may struggle in the near term to raise money through the private investment in public entity (PIPE) deals that traditionally accompany SPACs.
“While we do have hundreds of SPACs still searching for a company to merge with, the PIPEs have become clogged,” Hatch said. “Maybe next year, they will unclog and we’ll have another trend.”
Still, “SPACs are here to stay,” said Lisa Rich, Hemisphere Ventures LLC founder and managing partners, and Xplore Inc. founder and chief operating officer.
About a dozen space companies have announced or completed SPAC mergers in the past year. Rich expects some of the companies that established SPACs and completed mergers to line up new deals.
“It’s a great vehicle and the ones that are getting proficient at it will have more [SPACs] in the future,” she said.
In the near term, though, there may be few space sector SPACs due to a lack of appropriate targets. Of the approximately 1,200 early-stage space companies, “how many of those are going to achieve the level of growth that’s required to be suitable for a SPAC and how long will that take,” Rich asked.
Through mergers and acquisitions, companies are expanding to reach sizes more appropriate for SPACs, Rich added.
SPACs are particularly well suited to space and other “deep tech” companies, Maguire said. “It’s often hard to tell long-term stories through the traditional initial public offering process, whereas it’s much easier with SPACs,” he added.
Overall, SPACs have been a boon to the space sector because they have provided liquidity for space startup investors. That example will be “helpful for the next generation of space companies following in the footsteps that Rocket Lab, Spire and the dozen other space companies paved this year,” Hatch said.