Palihapitiya says PSPC slowdown has separated “wheat from chaff”

By Anirban Sen

(Reuters) – Venture capitalist Chamath Palihapitiya, whose huge bets on “blank” acquisition companies have earned him the nickname “SPAC King,” said he remains optimistic about health long term of these transactions despite a recent slowdown.

Palihapitiya has raised billions of dollars on the stock market through SPAC, or special purpose acquisition companies, set up to buy unspecified private companies. The objectives assume the listing of so-called blank check companies to become public limited companies.

The recent correction, after a boom that lasted for several quarters, was necessary to separate “the wheat from the chaff,” he told CNBC in an interview on Wednesday.

The US Securities and Exchange Commission should force SPAC sponsors to invest more venture capital to “have more skin in the game” and be better aligned with investors, said Palihapitiya, who has so far. now launched 10 PSPCs and supported several other agreements.

“The incentives are not aligned to create great results from the start of a SPAC to the end of a SPAC. And the most important thing we have to do is force the people who are the sponsors to have a lot more. of venture capital, “he said.

“So if I want to raise a billion dollar SPAC, I have to find 100 million dollars.”

PSPC managers are typically awarded warrants and founder’s shares which give them a much larger stake in the combined company than their investment would otherwise allow.

Palihapitiya’s latest comments on lopsided SPAC incentive structures come days after Elizabeth Warren and other Senate Democrats sent letters to a handful of SPAC sponsors, including him, Michael Klein and Tilman Fertitta, questioning incentive agreements.

Through its PSPCs, Palihapitiya has entered into deals with companies ranging from space tourism company Virgin Galactic Holdings Inc to door-to-door platform Opendoor Technologies Inc.

However, since the peak of the PSPC boom in March, investors have lost their enthusiasm due to poor financial performance and the scrutiny of lawmakers and regulators.

The story continues

One of Palihapitiya’s SPAC deals, Clover Health Investments Corp, has been accused by short-selling firm Hindenburg Research of covering up a US Department of Justice investigation into its activities.

“I’m going to have a lot of credit when things go up and I’m going to have a lot of blame when things go wrong,” he said.

“I think we all have to take a step back and say, we’re a year away from a pretty significant revolution in the capital markets that will take years to unfold.”

(Reporting by Anirban Sen in Bangalore; Editing by Richard Chang)