Palihapitiya says SPAC slowdown separated ‘wheat from chaff’

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Sep 29 (Businesshala) – Venture investor Chamath Palihapitiya, whose heavy bets on “blank check” acquisition companies earned him the nickname of the “SPAC King,” said he remains bullish on the long-term health of such deals despite the recent slowdown.

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Palihapitiya has raised billions of dollars in the stock market through SPACs, or Special Purpose Acquisition Companies, created to buy unspecified private companies. Targets anticipate listing so-called blank-check firms as public companies.

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The recent reform, after a boom that lasted several quarters, required “separating the wheat from the straw,” he told CNBC in an interview on Wednesday.

The U.S. Securities and Exchange Commission should allow SPAC sponsors to “put more skin in the game” to put more risk capital and better rapport with investors, said Palihapitiya, who has so far launched 10 SPACs and several other deals. has supported.

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“The incentives are not aligned to deliver great results from the beginning of SPAC to the end of SPAC. And the most important thing we need to do is force sponsor people to put more capital at risk,” he said .

“So if I want to raise a billion dollars of SPAC, I have to come up with $100 million.”

SPAC managers are typically awarded warrants and founder shares that give them a much larger stake in the combined company than their investment would otherwise allow.

Palihapitiya’s latest comments on unilateral SPAC stimulus structures come days after Elizabeth Warren and other Senate Democrats sent letters to a handful of SPAC sponsors, including her, Michael Klein and Tillman Fertitta, questioning the stimulus regime.

Through his SPAC, Palihapitiya has struck deals with companies ranging from space tourism firm Virgin Galactic Holdings Inc. to home-selling platform Opendoor Technologies Inc.

However, since the peak of the SPAC boom in March, investors have lost their enthusiasm due to poor financial performance and scrutiny from lawmakers and regulators.

One of Palihapitiya’s SPAC deals, Clover Health Investments Corp., was accused by short-selling firm Hindenburg Research of concealing a US Justice Department investigation into its business.

“When things go up I’m going to get a lot of credit and when things fall I’m going to get a lot of blame,” he said.

“I think we all have to take a step back and say, we are in for a very meaningful revolution in capital markets that will take years to play out.” (Reporting by Anirban Sen in Bengaluru; Editing by Richard Chang)

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