Summary List Placement
The creation of new special purpose acquisition companies has had an unintended side-effect on the venture firms spawning them: The buzz has improved their access to late-stage companies that are raising funds, investors say.
Those startups are knocking on their doors because the venture firms now have a vehicle to take them public.
The increase in interest by founders (known as “deal flow” in the venture world) is a perk but was not the goal for Lux Capital, says founding partner Peter Hébert. Its SPAC started trading on the stock market last fall.
“It has brought us unique and differentiated opportunity flow that we wouldn’t have seen because we had previously told the rest of the world we’re only focused on early-stage,” Hébert recently told Insider.
Michael Jones, a cofounder and managing director of Science, which is focused on investing in consumer startups, says the access to late-stage deals was a primary motivation for forming the firm’s own blank-check company.
Science’s sweet spot is writing checks into startups before they have a product in the market, but the firm has been eager to break into later-stage investing, Jones said. That’s a crowded arena, with plenty of funds competing for a stake in more mature, fast-growing companies. Jones said he looked at SPACs as another way into those startups.
In January, Science’s blank-check company listed on the Nasdaq and raised $310 million in its debut, above a target of $270 million. The company plans to buy a direct-to-consumer business or something in mobile or entertainment.
The new fund offering hasn’t had a dramatic effect on the number of deals it sees, Jones said, but it could help the early-stage firm win deals where there’s no shortage of multibillion-dollar funds for companies to raise from.
“The SPAC maybe reinforces people’s excitement to work with us,” Jones said.
Science is part of a blitz of venture firms forming their own SPACs, including SoftBank, FirstMark Capital, General Catalyst, Lerer Hippeau, and, the first, Ribbit Capital, a fintech-focused firm with some big exits in the works.
Together, they have raised billions of dollars across more than a dozen SPACs, according to regulatory filings.
Now, those blank-check companies are on the prowl for private businesses to acquire.
Jones, who was CEO of MySpace until it sold in 2011, likes his firm’s prospects. He predicts a startup will sell to its blank-check company in order to access the all-star team of operators on its board, including two independent directors, Jennifer Rubio, who started luggage brand Away, and Jeff Kearl, a cofounder of socks company Stance.
The appeal is that those directors will stick around long after the merger closes. It’s typical for a director of a blank-check company to take a formal role in the business it acquires, either on the board or in the executive suite.
Science might not be as competitive as larger venture firms that are vying to invest in companies at late stages, but its leadership gives it a competitive advantage over other blank-check companies, according to Jones.
“As specialists in the consumer sector, we stand out,” Jones said.
Are you a startups insider with insight to share? Contact Melia Russell via email at firstname.lastname@example.org or on Signal at (603) 913-3085. Open DMs on Twitter @meliarobin.