Virgin Galactic dealmaker seeks second and third act
Chamath Palihapitiya wants to invest in private tech companies and take them public by the back door
Virgin Galactic has captured the imagination of investors by storm. Despite the fear of the outbreak of the coronavirus, the stock price has literally “skyrocketed” since going public in October 2019.
Chamath Palihapitiya, a former Facebook executive and venture capital investor of Social Capital, helped Richard Branson’s Virgin Galactic (SPCE) to enter the public markets in an unconventional way via a special purchase acquisition company, known as a SPAC.
More common outside of the tech industry, these blank-check companies are specifically designed to buy private companies and bring them public without going through the traditional IPO process.
Chamath seeks to repeat this act twice. His holding company Social Capital Hedosophia laid out plans for a second and third version on Friday, February 28th, in a regulatory filing to the SEC. One of the vehicles is seeking to raise $345m for a US acquisition, while the other aims to secure $690m for an international target, according to filings.
“Our mission is to create an alternative path to a traditional IPO for disruptive and agile technology companies to achieve their long-term objectives and overcome key deterrents to becoming public,” Social Capital Hedosophia wrote in the filing.
When asked what is the advantage of a SPAC in comparison to an IPO or Direct Listing, Chamath responded the following on Twitter:
“A few things:
You can still raise money (not possible in a DL)
It’s a merger vs an IPO so SEC process is different, simpler and faster (3m vs 12+)
My team handles a lot of it so distraction to CEO is minimal.
More time to build buy-side owners vs fast money…” (Chamath Palihapitiya)
SPACs are considered to be risky as you have to rely on the dealmaking capabilities of its top executives. Chamath, his business partner, Hedosophia’s Ian Osborne, and their teams have a tremendous track record of successful investments so far. They plan to begin a roadshow marketing the vehicles in mid-March and price shares near the end of the month, people familiar with the plans said. The companies would go public on the same day and would have two years to find acquisitions or return money to investors.
While it’s true that tech companies can skip an investor roadshow and they won’t have to deal with bankers picking what’s often a suboptimal IPO price, expedite things, but companies aren’t going to go public until they are ready to sell their vision to the stock market.
But ultimately, this concept will make the “process much more efficient,” claims Chamath.