The Great SPAC Scam: Why SPACs Are Terrible for Most Investors

well to many leftist they might think tax break or LBO is a scam, so I am slightly surprised there is a strong video about SPAC is created (despite I do frown upon it, being more a traditional M&A guy)

SPACs are designed to transfer wealth from investor to the SPACs promoter. 20% of the assets are transferred to the promoter on the day SPACs acquire a company.

Hey so how does a hedge fund invest/trade SPACs??

Hey Brian, I hope you’re well. I’m a first year in London who just done a spring recently who failed to convert. I follow you immensely and I’m honestly kind of desperate to talk to someone - do you have like a support service that you do? I won’t mind paying

Aren't the majority of SPAC investors hedge funds who leverage money put into SPACs not gullible public investors?

Honestly, I don't get the comparision with the IPO, since they're not the same thing. In an IPO you invest in the belief that the company will perform well; investing in a SPAC is investing in the team to perform well in acquiring companies. What am I missing here, other than you don't approve of bad investing?

these spacs are worthless, they dont make any money or provide any services- total scam to create value out of nothing

Should be illegal

Great Content! Confused when you say that the "Sponsor" gets a huge % for putting up nothing but in your excel you reference that they put up $6M to get $48M

Scamath the mark 2 naveen jain absolute scrub of a human being no surprises from an Ex Facebook executive.

Question Do you know anything about Paul Pelosi's SPAC IPO at $200,000,000 which is EXACTLY the same amount Biden gave to Nancy Pelosi "for park maintenance" in the trillion dollar spending almost TO THE DAY the bill passed!? Coincidence?

Damn lol this is such a good contrarian view that aged so well. If Brian were a HF manager he'd make a killing with his foresights. Why's this guy so smart

Aged really well !

Aasome Bro respect

All SPACs destined to go below $10 post merger

Sponsor gets 20% of shares? don't they get shares based on the proportion they contribute? How does it work?

Thank you so much
Such quality content.

ThIs is an excellent presentation. Kudos!!!

I wish I watched your video year
Early🥲😭😭

I love how every usual video on this channel is serous af but when it comes done to SPAC’s it feels like this is some sort of Reddit forum

One thing I haven't seen addressed in the SPAC mechanism is the repricing of warrants after listing. What are the implications of a reprice of warrants. I recently saw a filing where an initial investor's warrants were repriced at 50% of the original price. Since one of your points is that sponsors/initial investors get an outsized return for minimized risk, doesn't this exacerbate this issue?

I agree. But it is still better than ICOs which don't even give the investor any direct ownership in the company

SPAC can use $300 million of cash to purchase the private target. Those $300M cash goes to the target company's existing shareholders?

Great content ! Very well reseached & put together with a nice flow to it. Absolutely loved it ! The best 👌 & most informative video on SPACs !

We just subscribed to your channel. Great content! I understand SPAC may not necessarility be a great deal for retail investors but how about new company seeking easy funding? We are a new company considering being acquired in a SPAC deal. In your opinion what are the pitfalls (or plus) of being acquired through a SPAC? For us giving up 20% equity to a venture firm or a sponsor to raise capital does not make a big difference unless I am not comprehending fully what is at stake.

So SPAC is the subprime mortgage product sold to clueless retail investors in this overvalued market and the reason a company goes through a SPAC is because they would get listed as a penny stock due to IPO protections which are missing in a SPAC

QuantumScape in a nutshell

Great video. My view on the EV of the SPAC post-IPO is that this represents the option value of what the SPAC and sponsor can do. As you point out, this option value is not there in the traditional IPO. Is it a great deal for the sponsors? Yes. These are the same investors who would get early access on a final private round or IPO. Is a SPAC a good investment for a retail investor? Maybe. I view it as an asset class itself, and it is entirely dependent on the strength of the sponsor. Over the past 40 years investing, I've seen lots of deals anchored by the participation of celebs. The people behind those deals determine their success, not the participation of X celeb.

I'm. humble and. appropriate .of .all you've .done for .my school .bill this .flip really. goes .along q5cyber on .Instagram you're. the .best

Very good and insightful video and I completely agree that there is a risk with SPAC setup compared to traditional IPO. But if you look at the essence, the investor wish to get return of their investments as soon as possible. Even though that SPAC may deliver smaller yied than traditional IPO, it takes less time to setup SPAC up and go public which mean less time for investors to wait for their return. SPAC has a commitment to deliver the promised return to it's investors and sponsors within s 2 years period. And if you as investor know that the sponsor has a trackrecord of success in other businesses, most likely might put your bet in that basket. For example, if Elon Musk would go SPAC with his next venture, would you invest? If not, why?

A quick question on your model: Why do you model the SPAC merger so that the Target Company Shareholders only receive 130M shares instead of 160M. At the end of the day, the pre-money value of the target is USD1,600M (and therefore target shareholders would request 160M shares) and the "value" that is brought in by the SPAC and PIPE is USD300M (but 35M shares). So USD2,000M (minus transaction costs) should be the size of the pizza and 195M shares is how you distribute it. The question now is who implicitly pays for the founder shares (which essentially is everyone who brings something of value (i.e. cash or target shares)), correct?
[EDIT: It should be USD 1,900M instead of USD 2,000]

TRUE & AGREED!

Surely there is more going on there then someone putting 25,000 in and somehow 2 years later their promote being worth 400million? someone please give some more insight...they must have put in some more money at some point. Does the promote include warrants they may have paid for along the way?.....I find it hard to believe 25,000 to 400million in 3 years is possible unless its some ridiculous crypto currency?
thats a 16,000x on their money?

What do you think of NGA (Lion Electric)? Real company but down with the SPACS

Thanks for raising awareness to everyone in this subject and sharing your knowledge. Enjoyed your presentation.

People taking short cuts typically have something to hide. Companies going public with SPAC is the same.

Do you have an idea of how this would look like with over-allocation option exercised by the IPO underwriter assuming that founder / promote is forfeited?

Beautifully done! This video is timeless, thank you for making it.

Great content, very insightful! Could you comment on the "SPAC pop" vs "IPO Pop"? SPACs should provide target companies with a fair-er valuation?

This is the best technical explanation of SPACs! Hope you dont mind if we translate this video into Russian and make an article out of it (references saved) to show it to the audience

Great video!
Would a potential Forward Agreement work similarly as the PIPE?

Thank you for your work! I have a small off topic question. What the tool do you always use to highlight the screen area in excel and pdf files (by blue squares)? It looks extremely useful to present any ideas or calculation's logic especially during distant work.

I already made a good amount of money on warrants. but, have some now that I worry about because spacs are taking a hit right now. Know anything about BLUWW, HZACWS, PRPBWS, GNPKWS, So, far I have made money from buying and selling warrants.

I believe the entire drama is around the ability to participate in IPO vs be able to buy spac before merger to get the gains on the merger news. I enjoyed your analysis of the Risks of the SPACs.

Could you do the same for PSTH it's kinda unique. I'd like to hear your thoughts

Hi Biran,
Love your videos. Just wanted to point something out I noticed playing around with your model. If you change the size of the SPAC deal, to something like $300mm, the Enterprise Value of "How it Should Be" doesn't actually = 0 anymore. If you change the primary share issued to 30mm such that the new IPO dollar value = $300mm, the Enterprise Value increases from 0 to 3mm.

Maybe it only = 0 for a $200mm deal because that's how the algebra worked out. Interested in what you think.

Great video! Deserves a million views. Kind of like the crypto ICOs with celebrity sponsors. There seems to be too much money, now chasing after even bad investments.

This is such trash. You haven’t taken time to learn about many great companies of future coming public via SPAC.