[HN Gopher] The Pied Piper of SPACs
___________________________________________________________________
The Pied Piper of SPACs
Author : tareqak
Score : 38 points
Date : 2021-06-02 17:26 UTC (5 hours ago)
(HTM) web link (www.newyorker.com)
(TXT) w3m dump (www.newyorker.com)
| cs702 wrote:
| The term "pied piper" comes from an old German tale, "The Pied
| Piper of Hamelin," about a man with a magic pipe that comes to a
| town called Hamelin.[a] Without getting into details, the tale
| ends with the piper playing his magic pipe to hypnotize the
| town's children, who follow him out of town and into a dark cave,
| never to be seen again. (Like most old tales, this one is
| horrible.)
|
| The author of the article likely chose the term on purpose, all
| but saying that non-insiders who buy into SPACs are like little
| children being led into the dark cave, never to be seen again.
|
| --
|
| [a] https://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin
| gorner wrote:
| Putting aside the fact that headlines are usually chosen by
| editors, not writers - this is where it comes up in the article
| itself:
|
| > When the stock market was sky-high in January [...]
| Palihapitiya was tweeting, "Tell me what to buy tomorrow and if
| you convince me I'll throw a few 100 k's at it to start. Ride
| or die." [...]
|
| > Such peacocking, [financial historian Irene] Finel-Honigman
| told me, is fun to watch and potentially useful: "These kinds
| of scam artists are really important, because, though maybe
| they go too far, they're the ones who convince everyone else to
| start paying attention. They're Pied Pipers. They notice things
| other people miss." Then, as these fanciful tales are replaced
| with legal fine print, living happily ever after becomes having
| a 401(k).
| cinntaile wrote:
| So he's been promoting several SPACs for a while now and now
| he thinks they need more regulation. Quite the shift. https:/
| /mobile.twitter.com/chamath/status/139791065787435828...
| JumpCrisscross wrote:
| > _In the case of SPACs, who are the children being led into
| the dark cave, never to be seen again?_
|
| Anyone who isn't the sponsor, bankers, PIPE or pre-IPO
| investors (the ones who get a warrant and stock for $10).
| chrisgd wrote:
| The target gets a public stock, which is what they want and a
| valuation higher than they were before the deal
| cs702 wrote:
| Agree. I'd just finished editing my comment to say as much
| before you responded...
| dragontamer wrote:
| Investors give money to companies, with only some expectation
| that the money will be returned later.
|
| The "Pied Piper" will mislead investors into giving money into
| illegitimate causes: people who sell $1 for $0.80 under the
| name of growth, with no real plan on actually making a
| sustainable long-term business model.
|
| In the short term, investors are happy that other investors are
| piling on and buying the stock (increasing the stock price).
| But in the long term, when the company inevitably runs out of
| money, the investors will be left holding onto worthless
| shares.
|
| ----------
|
| This has already happened with MoviePass.
| rsj_hn wrote:
| > Without getting into details, the tale ends with the piper
| playing his magic pipe to hypnotize the town's children, who
| follow him out of town and into a dark cave, never to be seen
| again.
|
| Uh, you are omitting the important detail that the town hired
| the piper to get rid of rats during the black plague, and the
| piper played his tune and the rats followed him to their death.
| After the town refused to pay him for removing the rats, he
| took his own revenge, playing again but for the children. Hence
| the saying that one must "pay the piper", as a reference to
| needing to pay one's debts, the connotation being that a
| community that refuses to pay their debts is literally
| jeopardizing their children's future.
|
| In this case, we can therefore debate whether the piper is
| leading children or rats. As the followers are clearly
| investors, one can make a case for either interpretation.
| twic wrote:
| As a random aside, the German navy at one point had a
| minesweeper called the Hameln:
|
| https://www.flickr.com/photos/twic/14029282300
| neonate wrote:
| https://archive.is/y5MxT
| vmception wrote:
| I think people don't realize that SPAC creators make money in
| very different ways than the SPAC share/warrant chasers.
|
| Its the same with crypto, ICOs, and basically every financial
| service.
|
| The SPAC creators get a large percentage of the shares in almost
| every deal, just for showing up and getting an agreement with a
| target company. Depending on the contract they also get a
| percentage of the capital used to fund the SPAC. So even with
| Chamath's deals being "down" with the share prices tanking, he's
| made a ton of money for himself and his fund. Share prices tank
| probably because he is selling into liquidity.
|
| I do not find this controversial. I find the gap in knowledge to
| be peculiar.
| boringg wrote:
| Agreed - as with most things I am often shocked at the lack of
| knowledge people know about how things work. Especially in the
| stock market frenzy these days - people are just buying stock
| as if its a gamble (which it kind of is) but without any
| understanding of much of anything other than hype (which, to be
| fair, you can do well trading like that).
| vmception wrote:
| I'm still trying to reprogram myself to understand hype
| momentum trading.
|
| I'm just about ready to open small but meaningful positions
| in meme stock options and meme cryptos. I expect them to make
| a loss, but all the others tops were not tops and actual
| hedge funds and non profits (Mormon Church, for example) join
| the sentiment and trade too.
|
| All top indicators don't matter when the Federal Reserve and
| Congress are adding more money into the system. It doesn't
| matter if people that rarely have money to invest are talking
| about investing.
| 1vuio0pswjnm7 wrote:
| "I don't want to be a slave to money," he later told a reporter.
|
| It seems that is exactly what he is. If this article is any
| indication, that is all he talks about.
|
| The minute he stops talking money-related topics, he is
| irrelevant and incapable of holding anyone's attention.
|
| Forget the hype and tell us a truly interesting story. Can't do
| it. Telling.
| zwily wrote:
| I actually enjoy listening to him on the All-In podcast, even
| though I often disagree. In fact I get most bored when he talks
| finance. /shrug
| naruvimama wrote:
| SPACs are not such a bad idea as it is made out to be, especially
| at a time like this. Post covid, we are going to see the rise of
| new winners and segments.
|
| They offer an operating point between VC money and IPO in terms
| of price vs risk.
| dragontamer wrote:
| Most SPACs sign on "influencers" and "celebrities" who promote
| the hell out of the SPAC before the group has any clue what
| they're trying to buy.
|
| VC money goes into a company that the VC knows about. IPOs have
| strict public financial disclosures such that everyone knows
| how the company operates as it IPOs.
|
| A SPAC? You only know that its held by Shaq O'Neal and they're
| trying to raise money for something something something. And
| sure, maybe some of us know how to look up the history of the
| financial types who make up SPACs, but we all know that dumb
| retail money is just following the celebrities that they're a
| fan of.
|
| ----------
|
| All the people who bought "Current Forest Road" (aka: the Shaq-
| SPAC) had no idea that they were buying Mixology. They raised
| money first, and then bought Mixology later. You're pretty much
| buying the SPAC purely on celebrity presence. There's no
| fundamentals to analyze, no industry to speculate the future
| about. Its purely a "lets collect some money together and buy
| something later" vehicle.
| vmception wrote:
| Not a bad idea, but there absolutely are regulatory gaps in
| disclosure. I don't think fixing those gaps would make a
| difference because investors don't care.
| AlexandrB wrote:
| I think under normal circumstances this would be true. But VCs
| seem increasingly bad at picking winners vs. obvious scams (see
| latest failing SoftBank startup). In this environment, SPACs
| can be used as a way to dump garbage companies onto the public
| markets. Consider that WeWork would have probably been
| considered a great SPAC acquisition target (lots of hype, huge
| private valuation), while it failed to IPO using normal means
| because of dodgy financials.
| failwhaleshark wrote:
| Can someone enlighten me how SPACs differ from platforms like
| https://republic.co ?
|
| Edit: or https://wefunder.com
| gen3 wrote:
| Republic looks to be some form of VC funding. The whole point
| of a SPAC is to take a company public without filling for an
| IPO.
| failwhaleshark wrote:
| So it's a "stock market" bypassing public-trading so it
| doesn't have to abide by SEC, SOX, etc.?
| gen3 wrote:
| The SEC does have rules pertaining to privately traded
| investment. They are normally more lax than for publicly
| traded companies, and therefor normally require the
| investors be accredited. The investor is expected to
| preform more due diligence.
| https://www.investopedia.com/terms/a/accreditedinvestor.asp
|
| If you are confused about how SPACs work, and the OP
| article didn't help, the investopedia is good
| https://www.investopedia.com/terms/s/spac.asp
| runako wrote:
| SPACs take companies public. Once a SPAC merges with a private
| company like SoFi or Virgin Galactic, the combined entity's
| shares can be traded on the NYSE or Nasdaq like any other
| stock.
|
| With platforms like Wefunder and Republic, there is no
| mechanism to take a company public.
| [deleted]
| failwhaleshark wrote:
| Ooooh. So it's after angels, VC, REITs, pension funds,
| sovereign wealth funds pass to get to "IPO" crowdfunding-
| style.
|
| The platforms mentioned are like crowd angels.
| vmception wrote:
| No, its mutually exclusive.
|
| A SPAC can transform any private company into a public
| company.
|
| They take VC backed companies public, they take newly
| formed pre-revenue companies public, they take previously
| public companies public, they merge with public companies,
| it does not matter.
|
| Its just a reverse merger with a specific structure and
| formula.
| nickpinkston wrote:
| If you'd like to short SPACs, there's even ETFs coming out to
| help you do so:
|
| https://www.prnewswire.com/news-releases/first-pure-play-de-...
___________________________________________________________________
(page generated 2021-06-02 23:01 UTC)