Last year was the year of the SPAC. At least, it was for CuriosityStream; we took the company public via a SPAC merger and public offering in October. SPACs, or Special Purpose Acquisition Companies, have been used as alternative investment vehicles for decades, but they have largely flown under the radar as a mechanism or path for going public. But thanks to well-known, established business leaders such as Bill Ackman and Richard Branson, SPAC deals have exploded, accounting for nearly 50% of U.S. IPO activity.
For CuriosityStream, going public via SPAC was attractive for several reasons. As a fast-growing company, we were looking for an accelerated path to public markets while mitigating risk from market volatility and choppy equity markets during a pandemic. We also had an obligation to register our Preferred A class of shares for sale on a public market within a certain period following initial issuance to those Preferred A investors. Instead of staring down a 6-to-12-month timeline typical for traditional IPOs, we were able to list on Nasdaq within three months of announcing our SPAC merger with the Software Acquisition Group (SWAG). That time compression translated into less strain on our management team throughout the process, allowing our leaders to focus on what we do best—growing the business. Going public via SPAC also enabled us to negotiate and obtain better price certainty when we listed. In addition, reduced administrative and regulatory burden made this listing process more cost effective than the traditional IPO route.
Here are some key insights for you to consider if you are weighing the SPAC path to public markets.
Pick the right partners
A SPAC merger is one of the most important events in a company’s journey. It is critical to pick the right partners, from the sponsor, to the bank, to legal advisors. Industry knowledge and domain expertise should top your must-have list. For example, sponsors should know your business, industry dynamics and have a deep understanding of your market opportunity. Ideally, sponsors should be backed by investors with real experience in your industry, understand your story and be able to add value. Your sponsor should also align from a management and company culture perspective. You are building a long-term partnership, so having these commonalities will go far in establishing a strong working relationship. CuriosityStream was approached by numerous SPACs about a potential combination. Ultimately, we decided to partner with a SPAC that had deep domain knowledge of our industry and who we knew and trusted.
You’ll likewise want to vet your prospective banks with a priority placed on their understanding of your business and relationships with fundamental investors. The right bank can introduce SPAC shareholders to fundamental investors who are ultimately going to be the long-term holders of your company’s stock. Having a bank that can introduce you to other companies that invest in companies like yours is also key. Finally, hire legal advisors who have experience in SPAC transactions, preferably in your industry.
Understand the time commitment
While SPACs offer a faster time to market and less strain on the management team overall, there remains a significant time commitment in a condensed timeframe. Make sure the management team understands this, and be sure they are able to carve out ample time to spend with investors. CuriosityStream completed its entire SPAC transaction during the pandemic, so our meetings and roadshows were virtual and therefore significantly less travel-intensive. While in general I would say there is no substitute for meeting potential business partners in person, video calls are the perfect platform for a roadshow, where you want to get in front of as many eligible parties as efficiently as possible. In fact, I predict that post-pandemic roadshows will capitalize on this learning.
Maximize transparency to communicate what’s possible
One of the most significant and substantive benefits of a SPAC transaction is the opportunity to market forward-looking projections. In contrast, investor communication in a traditional IPO is limited to providing historical results. The SPAC vehicle, however, offers the opportunity to communicate what is possible, showcase your management team’s ability to see around the corner, and discuss your vision in detail.
If you don’t already have a public relations function or firm, hire one to get the message out beyond investor audiences. Banks will be expecting a big PR push; use this to generate awareness of your company among key audiences. You can and should be speaking to the media to raise awareness.
Act like a public company before you are one
Don’t overlook the need to act like a public company before you are a public company. You’re on a fast track to public markets, so you need to be ready for it. Anticipate and shore up operations across the board. Set up the controls and procedures required under the strict regulatory environment for public companies. Practice your earnings calls presentations so you’re not learning in real time, on a public stage.
CuriosityStream’s fundraise and issuance of preferred shares to 144A and accredited private investors in 2018 gained us a half step that made for an easier transition. We were required to meet a more rigorous accounting standard for the 144A investors than we had been subject to as a privately-held company with one shareholder, so the step up to fully-audited statements prior to registering shares with the SEC was not as steep. We also conducted quarterly investor calls with Q&A after that initial fundraise, so there was only a gentle learning curve leading up to our first earnings call as a public company.
The advantages of using a SPAC as a vehicle for tapping public markets are significant: reduced cost, speed, deeper knowledge and longer-term commitment between shareholders and management.
But don’t underestimate the challenges that this smoother, faster route to IPO entails. Your management team will have to get up to speed more quickly, your controls and procedures will have to be up to the mark, and your relationships with a sponsor will be more tight-knit and intrusive.
None of these hurdles are showstoppers, but knowing ahead of time what to expect will allow you to maximize the advantages of utilizing a SPAC and avoid pitfalls in the process.
