The median return of 2022's SPAC mergers: -82%

I&#x27;m always somewhat amazed that Chamath Palihapitiya doesn&#x27;t have a much worse reputation:<p>1. My understanding is that he was the primary initial architect of &quot;A&#x2F;B testing for engagement&quot; at Facebook that turned social media into a tribalistic, outrage generating machine (nothing engages like hate), and that the rest of SV essentially copied. I think this trajectory would have happened regardless, but he was first, so to speak.<p>2. He was the primary booster of selling the shit sandwiches known as SPACs as filet mignon. I&#x27;m sure he made out, any downstream investors not so much.

This is one of those things that was just totally obvious to professional market participants while it was happening. I was working as an investment analyst at a huge ($10b+ AUM) hedge fund at the time and couldn’t believe the insanity and greed that was being displayed daily by SPAC sponsors and “investors”.<p>Often the way this game worked was that if you were a large institutional investor who could be relied on to take a large allocation of the shares, you got special treatment and then could dump your shares on unsuspecting (and highly irrational) retail investors, at least while the insanity continued. It was fascinating to see how a bunch of professionals, who should have known better, each of whom were acting rationally (if not exactly ethically, although it was basically all totally legal), could nevertheless result in totally crazy malinvestment and capital destruction.<p>Of course, it was all possible only because of uninformed retail holding the bag of worthless companies like Virgin Galactic, or real companies that were valued at silly levels because they were SPACs. It was amazing too just how many times the big SPAC sponsors (like Chamath, but also Alec Gores, Michael Klein, etc.) &quot;went back to the well&quot; to do the same thing again and again. The most egregious of all of these that I&#x27;m aware of is David Hamamoto, who did the SPAC deal for Lordstown Motors, which was basically an outright fraud (I shorted this one to the bottom in size at the time).<p>Sadly, I doubt any of the people responsible for these huge losses by the public will ever be held accountable in any way, nor will the legions of professionals (lawyers, accountants, investment bankers, etc.) who enriched themselves while facilitating what they must have known were guaranteed duds for whomever would be left holding the bag (i.e., stupid retail investors losing their meager life savings.)

SPACs, in theory, democratized access to late-stage private markets, aiming to give retail investors an early seat at the table. but like many financial innovations, they&#x27;re tools that can be wielded wisely or poorly. the high failure rate suggests a misalignment of incentives: founders and sponsors capture immediate liquidity, while long-term outcomes get obfuscated by the structure.<p>I once had a chat with a founder who merged his startup with a SPAC. He mentioned that the allure wasn&#x27;t just the capital but the perceived simplicity of the process, compared to a traditional IPO. But looking back, he felt that the rigorous scrutiny of the traditional path might have forced his team to address underlying business challenges they&#x27;d later face.<p>in any event the real question here isn’t whether SPACs as a vehicle are intrinsically flawed, but if the market’s appetite for risk, combined with the allure of quick liquidity, blinded many to fundamentals during the 2020 bubble. With any financial innovation, there&#x27;s often a cycle: initial excitement, over-extension, contraction, and then matured understanding. Perhaps we&#x27;re in the contraction phase for spacs, but they might still find a place in a more judicious market

For some context, looking at traditional IPOs during the same year[1], the median return was 3.3%, the mean -22%. Like SPACs there were a couple outlier that gave high returns. Around 45% of IPOs gave small positive returns, while only 4% of SPACs did. Around 35% of IPOs lost half their value or more, while 80% of SPACs did.<p>[1] <a href="https:&#x2F;&#x2F;stockanalysis.com&#x2F;ipos&#x2F;2022&#x2F;" rel="nofollow noreferrer">https:&#x2F;&#x2F;stockanalysis.com&#x2F;ipos&#x2F;2022&#x2F;</a>

SPAC Boom was coincident with money supply and one the most inflationary times.<p>Median return of 2022 SPAC mergers was -82%, but so was pretty much all high P&#x2F;E ratio companies.<p>Cloudflare is down -72% from ATH in 2022.<p>Defending against the inevitable strawman: I am not saying <i>anything</i> about whether SPACs are good&#x2F;bad investments. But, in order to show the full strength of their &quot;badness&quot;, the author needs to tell us more about the <i>overall</i> market and contrast that with SPACs.

I&#x27;m new to the term SPAC and had to look it up. <a href="https:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;s&#x2F;spac.asp" rel="nofollow noreferrer">https:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;s&#x2F;spac.asp</a><p>Based on the definition, is it proper to call it a &quot;merger&quot;? It seems more like what SPACs do is &quot;acquire&quot;.

People don’t like IPOs because the share price often pops immediately, and you feel like you’ve left money on the table. SPACs have 100% solved that problem.

Yup. I generally enjoy some of the topics the guys on that podcast cover, but any time Chamath is on it&#x27;s fairly cringey.<p>I&#x27;ve seen enough scammy crap in my life, and unfortunately was part of briefly earlier in life, that when things like SPACs pop up the scams are fairly obvious.<p>If anyone tries to sell you on something that doesn&#x27;t make sense even after you spend some time researching it, it&#x27;s probably in the scam bucket.

Isn&#x27;t the goal of an SPAC to basically circumvent the IPO auditing and reporting rules to allow them to scam purchasers^w^w &quot;streamline listing the stock&quot;?

Wall Street banks made a lot of money off of that craze and that’s really the reason number one the Fed didn’t tighten its policy when inflation was flashing red. Never trust the Fed. They merely exist to facilitate monetary policies for Wall Street banks.

The suckers aren’t just investors, but also employees who work at companies that hinted&#x2F;promised liquidity via one of these transactions. I didn’t work at a company that failed to ipo via spac, but I almost did and although every technical interviewer felt earnest, something felt off about their lack of detail around business and the equity part of the comp.<p>Too much of it felt like hot air and I went elsewhere. This was two years ago, and indeed some BS press release from a year ago says their “deal” fell apart. Seemingly reputable investors too, wtf.<p>Keep your BS detectors on at all times.

&gt; So, eh, awkward, but maybe this SPAC stuff destroyed more value than it created?<p>The money didn’t disappear and those shares created were never worth anything.

Median? Who cares.<p>$1 bet. Roll a dice.<p>If you get 1,2 you get zero Otherwise $1.3<p>Median return is 30% plus prinicpal.

Yeah, you all can sit here and make jokes on HN, but you’re not the man in the arena.

I&#x27;m sure that they made tidy profits for the executives involved, though.

Inverse SPAC ETF when?

I don&#x27;t understand that why only 1% publicly available stock is allowed in the market. Scam. <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=37148125">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=37148125</a>