To The Moon

Complete losses of some SPACs I own

In 2020/2021 SPACs (Special Purpose Acquisition Companies) were all the rage. Some of these SPACs were formed by top hedge fund manager, billionaires, corporate CEOs like MGM CEO Harry Sloan and popular names like billionaires Reid Hoffman (Paypal/LinkedIn founder), Chamath Palihapitiya (Facebook now Meta) all created their own SPACs. 

The purpose of a SPAC is to raise capital through an initial public offering (IPO) to acquire or merge with an existing private company. Essentially, a SPAC is a vehicle for taking a private company public, often acting as a faster and potentially less expensive alternative to a traditional IPO. 

Rocket Labs was taken public from SPAC merger with Vector Acquisition Corporation on August 2021

For those who just joined the markets in the recent few years may not know that $Rocket Lab USA, Inc.(RKLB)$ $HIMS $Oklo Inc.(OKLO)$  $Opendoor Technologies Inc(OPEN)$  just to name a few, were once private companies that merged with a SPAC to list on the stock exchange. 

When I first started out investing in the stock market, I was clueless. SPACs were all the rage then and they were bought like hotcakes. In my mind and in the minds of many thought, all these people are way smarter than me so they know better what they are doing. With underwriters from UBS, Cantor Fitzgeral, investment from well known sovereign and hedge funds, what could go wrong? These are the top financiers in the world and would surely know what they were doing. 

Boy, was I wrong! 

While some of the above mentioned companies are still around and some doing very well, they are many whom have gone completely bankrupted. It really depends on your "luck" if you bought into a company that wasn't doing the "fake it till you make it" thing. 

SPACs were not subject to the same degree of regulatory oversight as traditional IPOs. So even though many SPACs had celebrity sponsors, their disclosures left investors in the dark. 

Arrival, an EV company that wasn't ready to be a public company overhyped their product offering with marketing materials such as this

One of the biggest reason of the failed companies like $Arrival(ARVLF)$  $View, Inc.(VIEWQ)$ $Cazoo was this: They were not ready to be a public company. They did not have the operations knowhow, the management expertise, zero execution and no product fit. These were at most Series C or D companies in term of raising money. But instead of fund raising their next series, they took SPAC money because they their operations needed the cashflow. 

Arrival taken public by CIIG Merger Corp under CEO Peter Cuneo (whom is also the Chairman of Marvel Entertainment), decided that even though Arrival only had a few prototype vans, they could be ridiculously valued at $5.4B. Unbeknown retail investors, like myself, pushed the stock up even further, turning Arrival CEO Denis Sverdlov into a multi-billionaire ($11.7B) overnight. 

What possessed these companies to think they were ready to be under scrutiny and much more, deliver as a publicly listed company? Greed, of course. Perhaps impatience as well, but mostly greed. 

Bill Ackman was one of the few SPAC owners that returned investors their money because he could not find a suitable company to merge with. Respect, Bill! 

The fallout of many of these companies is a testament that people whom you think are smarter than you can be very wrong. Maybe they knew of the mess they were already in and used a SPAC merger for a quick exit. They often receive a significant stake in the SPAC for a relatively small investment, meaning they can profit handsomely from a successful merger, even if the company underperforms. 

Retail investors who buy into a overhyped SPAC before the merger are often at a disadvantage because they don't have the same access to information or negotiating power as institutional investors or the sponsors. Even if the company was close to bankruptcy, retail investors wouldn't know that. The majority would just trust that these SPAC owners have done enough due diligence and background checks. 

Every company that merged with a SPAC suffered the same fate as all stocks did in the bear market of 2021-2024, but the ones with impeccable leadership and execution not only survived - they thrived. So while not all SPACs are terrible, investing in them are a huge speculation especially when they merge with businesses like Cazoo that sells used cars or rocket companies that haven't even had one successful launch to date of their IPO. Even Richard Branson's Virgin Galactic, taken public by Chamath's SPAC, has not been spared. While Chamath made $350M selling at the top, other retail investors have not been so lucky since the stock has dropped significantly, requiring a reverse stock split in order to maintain the $1 price to stay listed on the mainboard. How did he know to sell at the top? Insider information, that no retail investor will have any access to. 

Virgin Galactic, ridiculously valued at $2.4B at merger, struggling to stay afloat. Seen here, the hype followed by the ruthless reality that most SPACs are doomed to.

What I would like to end off with is this: No one cares about your money more than you do. Not the top fund manager Bill Ackman, celebrity billionaire serial investors like Chamath or a random "genius" on Reddit telling you what to buy. While you can find good ideas and find others posting their due diligence on platforms like Reddit or X, always do your own before deciding to invest in a stock.

Companies that have no product fit, management expertise and technical knowhow all suffer the same fate

Many SPACs I own are now worthless having lost 95-100% of it's value and while my gains are still more than my losse, this was a hard lesson I had to learn. I hope that by sharing this, you are able to mitigate yourself from such "scams" and either avoid SPACs completely or do your down due diligence before deciding to invest in one. Again not all SPACs are bad, but it requires time on your part to filter the ones that have solid leadership at the helm, execute their plans and create a product that can potentially change the world.