Last week, home-rental company Airbnb went public at more than $100 billion.
In the flip of a switch, it’s now worth more than Hilton, Hyatt, and Marriot combined.
Not to be outdone, food delivery service DoorDash and software firm C3.a1 went public last week at valuations of $38.2 billion and $4.05 billion, respectively. They ended their first day of trading valued at more than $72 billion and $8.8 billion, respectively.
In one day, their combined market caps grew to exceed that of traditional names like grocery chain Kroger and tech firm Juniper Networks.
All three are part of a mad year-end rush of companies trying to go public before the calendar flips. Roblox, Affirm, and Wish plan to list this month with valuations in the tens of billions, too.
It’s a trend I identified as early as January. At the time, I predicted we’d see a huge IPO boom that could rival the ’90s tech boom.
During the dot-com boom, investors’ thirst for internet companies was unquenched. In 1999 alone, they raised $62 billion in capital for tech IPOs.
We saw companies like Amazon, eBay, and Nvidia go public during the dot-com boom. Today, they’re some of the biggest names in the world.
I knew there would be pent-up demand for private companies in 2020. So my thinking was Wall Street would meet that demand by bringing hundreds of them public this year.
And as I predicted, it’s been a record year…
As we close out 2020, 450 IPOs have been priced – almost a 95% bump from 2019. And $76.4 billion of total IPO proceeds have been raised – a 66.8% hike from this time last year.
The number of companies racing to go public this month leads me to believe 2021 will have an even bigger IPO boom than 2020.
But there’s a special type of IPO I believe will do even better next year. It’s a backdoor way for average investors to make life-changing gains in the IPO market.
And it’s an idea I want to put on your radar now…
A Simpler Way to Play the IPO Boom
The idea I’m talking about is called a SPAC. SPAC stands for Special Purpose Acquisition Company. It’s also called a “blank-check company” or “shell company.”
These shell companies go public and raise money for the sole purpose of acquiring an attractive private company with explosive upside, taking it public in the process.
Investors are betting management will deliver on its promise to find a compelling target and take it public by merger.
While they’ve been around for decades, SPACs aren’t nearly as well-known as traditional IPOs. Traditional IPOs are for more mature companies that have private investors who are looking for exits. SPACs, on the other hand, target companies in the earlier stages of their growth cycles. That means they can have even more upside potential than IPOs.
This SPAC route has opened the door for private companies to go public. Some high-profile names that have used SPACs include Nikola, DraftKings, and Virgin Galactic.
Just this year, 168 SPACs have raised over $57 billion. That’s 3x the number of SPACs − and almost 5x the proceeds − from last year. They’ve raised more proceeds this year than the last 13 years combined.
We saw a record number of SPACs in 2020. But I believe we’ll see even more in 2021.
The benefit of SPACs is they help private companies go public while avoiding the expensive, time-consuming, traditional IPO process.
From start to finish, it can take traditional IPOs years to go public. Plus, it’s expensive. Underwriters, regulators, accountants, attorneys, exchanges, and printing companies all collect fees. All in, the pricing process has cost about 7% of the total funds raised for traditional IPOs.
The SPAC process can take as little as 3−4 months. The underwriting commissions, legal fees, and operating expenses – average 3−4%. That’s about half the cost of a traditional IPO. And the private company negotiates an exact acquisition price. So it doesn’t leave any money on the table.
The reality is mom-and-pop investors don’t have easy access to pre-IPO deals. You have to be a celebrity, a top hedge fund manager, or part of the Wall Street elite to get an allocation to a private company before its IPO. Or you’d need to do tons of research on your own and build your own network of insiders to find the best pre-IPO deals.
However, SPACs give Main Street investors backdoor exposure to the pre-IPO market… and they don’t require you to be a millionaire or well-connected insider.
The SPAC phenomenon is reshaping the path for disruptive, high-growth private companies to hit the public markets in a big way.
And I believe the market for SPACs is just getting warmed up…
The Backdoor to Private Deals in 2021
SPACs have made a huge comeback in 2020. They’ve brought dozens of companies to the public markets that now have market caps in the billions.
Not only that, but the quality of deals has also improved… as well as the deal sponsors. Now, all-star investors like Bill Ackman, Chamath Palihapitiya, and Billy Beane sponsor their own SPACs.
And shares are moving higher much faster. Consider the VectoIQ deal that took electric vehicle startup and Tesla competitor Nikola public via a SPAC. Private investors saw returns as high as 4,360%.
That’s a fantastic, life-changing return. And it shows the power of getting in early. Compare those gains to what the earliest public investors in the same SPAC saw: 70%.
Don’t get me wrong… 70% is a solid return. But it’s a far cry from what pre-IPO SPAC investors notched. And that’s the difference between post-IPO investors turning $1,000 into $1,700 versus turning the same amount into $44,600.
Another example is Luminar, a company building the tech to power the autonomous driving revolution. It’s in the process of listing on a public exchange via a SPAC.
Private investors from the latest funding round in 2019 are already up 270%, with more gains to come.
And this company hasn’t even gone public yet. So as it gains momentum, its share price continues to climb higher pre-IPO and will likely shoot even higher after it goes public.
SPACs are the right play at the right time… They allow you to get in on the ground floor of some of the hottest private companies in the world – but with much less risk. They’ll be one of the biggest investment trends of 2021 and beyond.
I’ll be writing a lot more about SPACs in 2021. I look forward to sharing with you the do’s and don’ts of SPAC investing in a follow-up article.
In the meantime, if you’re looking to get into one of the best SPAC deals we’ve found this year, please check out the P.S. below.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. In December, my team and I made our first ever SPAC recommendation in Palm Beach Venture. It’s cashing in on a trend at a price that’s 75% below what the average Main Street investor normally pays.
It’s a technology play put together by a world-class team of business builders. They have found a backdoor way to acquire tech assets at an 80% discount to what California-based venture capitalist firms are paying.
In Palm Beach Venture, we use elite, hedge-fund caliber strategies to find the best private companies in the world. You can learn more about it right here…