Bradley Tusk has become known in recent years for his research into what's going to get hot, from his early consultations with Uber, to writing one of the first checks to insurance startup Lemonade, to promoting the idea that we who should employ the smart devices should choose our bags.
Often at the top, it was not surprising that Tusk, like a growing number of other investors, set up a $ 300 million SPAC or specialty acquisition firm that he and a partner are aiming to use to target companies in the US Leisure -, gaming and hospitality industries.
Since Tusk – a former political activist who ran the successful third mayoral campaign for Mike Bloomberg – seems adept at seeing around the corner, we called him late last week to ask if SPACs will stay here and how a Biden administration could affect the startup investing landscape, and how concerned (or not) big tech should be about that choice. You can hear the full conversation here. Due to the length, we are only showing the portion of our conversation that focused on SPACs.
TC: lemonade went public this summer and its $ 29 stock is now trading at $ 70.
BT: You are down today when I last checked. If you only check in once under a blue moon, say, "Hey, see how awesome this is". If you check me out every day like me, you say, "It's lost 4% where is." my money? & # 39;
We were really lucky; Lemonade was our second deal we made with our first fund, and the fact that the company went public within four years of the company's inception is pretty amazing.
TC: Is it amazing? I wonder what it says about the general complaint that the traditional IPO process is bad – is it just an excuse founders and investors use to keep a company private longer?
BT: (CEO) Daniel Schrieber was very clear that he and (co-founder) Shai Wininger had a strategy from day one to go public as soon as possible, because he believes going public should be a kind of beginning . It's the "Okay, we've proven that the product market fits, we've proven that there is customer demand. Now let's see what we can really do with this thing." And it's about hope and promise, future and Excitement go, and if you've been a private company for 10 years and worth tens of billions of dollars and your growth is already flattening out a bit, it's a lot less exciting for public investors.
The question for everyone in our business now is what will happen to Airbnb in a few weeks or whenever they (go public). Will this elf dust be there or will they have been around for so long that the market is somehow indifferent?
TC: Is that why we see so many SPACs? Some of that elven dust is gone. Nobody knows when the IPO window might be closed. Let's get some of these companies into the public market while we still can.
BT: No, I don't think so. I think SPACs have become a way to raise a ton of money very quickly. It took me two years to raise $ 37 million for my first venture fund, and three months was the whole process for me to raise $ 300 million for my SPAC. So it is a mechanism that is highly efficient and is currently so popular with public market investors that there are just many options and people take it. In fact, you are now hearing from people planning SPACs that they have to withdraw because there is a lot of competition going on right now.
Ultimately, the basics still prevail. If you're bringing a really bad company to the public through a SPAC, the SPAC's excitement may get you an early pop. However, unless the company has a good unit economy or high growth, there is no real reason to believe that it will be successful. And especially for the people at SPAC, where they have to hold on to it for a while, by the time the lockdown ends, the world has likely figured out that this isn't the biggest IPO ever. You can't give lipstick to a pig.
TC: You say you increased the SPAC very quickly. How does the investor profile differ from that of a typical venture fund investor?
BT: The investors for this SPAC – at least when I was doing the roadshow and I think I did 28 meetings over a couple of days – are mostly hedge funds and people who don't really invest in venture at all so there was no overlap between my (Venture Fund) LP base and the people who have invested in our SPAC that I know. These are public market investors who are used to moving very quickly. There is much more liquidity in a SPAC. We have two years to buy something, but ultimately it's public property so investors can get on and off as they please.
TC: So it is mainly hedge funds that receive management fees to use their capital in this comparatively safe manner and that also receive interest on the money invested while sitting in a trust while (the SPAC managers) are looking for a target company .
BT: Why it kind of makes sense for (supporting them) VCs is that they are basically making the bet of saying: Does this person running the SPAC have enough deal flow, enough public profile, enough going on for them going to hit the right target? And venture investors fit this profile in a lot of ways because we only look at so many companies before we invest capital.
TC: Do you need some kind of public market expertise to convince some of these investors that you know what it takes to get a company public and grow in the public markets?
BT: I think so. We raised the money so I passed the test. But I've been on Wall Street for a little less than two years. I started the Lehman Brothers lottery privatization group. And my partner (in SPAC), Christian Goode, has a lot of experience with big game companies. Overall, though, I think that as a venture investor with a lot of deal flow and a good track record but very little or no experience in the public market, I don't know that doing so will exclude you from scoring a SPAC.