Friday Letter: SPACs due to have their Cinderella moment, says IVP’s Liaw

The froth around SPACs may have slowed for now, but SPACs will be searching for target companies in the first half of next year as the two-year period nears the end.

SPACs have been one of the top venture-related stories of the past year.

They were also on the agenda for a ‘state of the market’ virtual event, held this week by IVP and attended by four news organizations, including Venture Capital Journal. Speaking for IVP were general partners Ajay Vashee, Cack Wilhelm and Eric Liaw.

Even though the stock market has cooled somewhat, the amount raised by US SPACs this year is still on track to about double that of 2020, according to SPAC Research.

There are other ways to access the public markets, of course, such as traditional IPOs or direct listings, but it seems SPACs are still getting the most attention.

And who better to comment on them and the public market than IVP? The late-stage investor, which raised $1.8 billion for its 17th and largest fund earlier this year, is no stranger to large IPOs. Its recent successful exits include Coinbase, Hims & Hers, The Honest Company, Robinhood and UiPath, among others. Portfolio company Amplitude is scheduled to go out via a direct listing later this month.

When asked what is the best exit route for companies, Vashee – who joined IVP in January and is the former CFO of Dropbox, which held an IPO in March 2018 – noted that businesses have options that did not exist two or three years ago. He added that it depended on the company and the circumstances.

“Back when I took Dropbox public, the only path was a traditional IPO,” he said. “The same week that we went public was when Spotify managed their direct listing. That was like the first direct listing of note, and of scale, and it opened up that option for companies that have a little bit more brand recognition and can generate the trading volume.”

Then Liaw, who has been with IVP since 2011, had the ‘mic drop’ moment of the event.

“SPACs are a little bit like Cinderella and the clock is going to strike 12 on some of these,” he said. Liaw was referring to the fact that SPACs, when initially formed, have a two-year deadline to close a deal for a reverse merger or else the cash is returned to shareholders.

“SPACs are not in vogue right now, but the capital has been raised and will have to go somewhere at some point,” he added.

Liaw said he expects to see a flurry of activity in 2022 because sponsors, which formed their SPAC vehicles last year, are not going to want to lose out.

“So there’s kind of a misalignment of incentives there as the clock starts to expire on some of these,” he said. “I predict in Q1 or Q2 it will be kind of the beginning of the end of the beginning for some of the first wave of SPACs, which will be at the end of that timeframe. So that’ll be fun to watch.”

In other words, the froth around SPACs may have slowed for now, but as the two-year deadline takes effect, look for the market to pick up. SPACs will be searching for target companies in the first half of next year because they don’t want to turn back into pumpkins.

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