Serial tech entrepreneur Patrick Grove is on the hunt for an Aussie or Asian scale-up to take public in the US, through a newly listed special purpose acquisition company (SPAC) that’s reportedly raised US$300 million ($390 million) in its IPO.
Catcha Investments Corp has listed on the New York Stock Exchange, with a mandate to acquire a promising tech company and offer it a path to public trading.
Investors were reportedly intrigued by the vehicle’s specific mention of Australia as a target market. While SPAC’s have been trending up in popularity in the US over the past 12 months or so, this is the first to set its sights Down Under.
“May the next Elon Musk come from this part of the world,” Grove said in a comment on LinkedIn.
What is a SPAC?
A SPAC is a publicly listed entity that exists for the sole purpose of acquiring a business, offering an alternative path to listing on a stock exchange.
The SPAC will look for a high-growth target company to merge with, effectively meaning the mergee company will become publicly traded.
Notably, Australian listing rules mean this mechanism isn’t possible on the ASX.
Speaking to SmartCompany, Matt Allen, an Aussie angel investor, startup advisor and founder and of alternative funding venture Tractor Ventures, explains the shareholders of the mergee — the startup — will end up with about 70-80% of the listed company, plus the capital raised by the SPAC through the IPO.
“They get a bunch of money on the balance sheet, that they can spend to grow,” Allen says.
The people heading up — or sponsoring — the SPAC will usually have their shares tied up for at least 12 months, meaning they can’t merge with the business and immediately cash out. In fact, one person from the SPAC will typically join the board.
Time is of the essence, Allen explains.
A SPAC must find a company to invest in and merge with within two years of listing. And, it’s good practice is to get cracking sooner rather than later.
“[Groves] will be on a mission to find a high-growth, late-stage company to merge with ASAP.”
“You definitely don’t want to wait two years.”
Finally, although this may be an accelerated route to the US stock markets, it is still the US stock markets. Aussie companies must make sure they’re SEC complaint, and that they have their paperwork in order.
“You need to have all your governance- and compliance-ready to align with what’s expected of the exchange that you list on.”
What does it mean for Aussie startups?
Allen predicts we’ll be seeing more SPACs from the US targeting Australia, and that means more growth opportunities for Aussie scale-ups.
“A full roadshow to list in the US is a pretty big undertaking for a little Aussie or New Zealand company.”
The idea is to merge with a company that’s three to five times the value of the SPAC. In this case, that means the vehicle will likely be targeting a business worth $1–1.5 billion.
It’s likely such an opportunity would suit a mature scale-up that was thinking of going public anyway.
But, there will be trickle-down effects that will be almost immediate, Allen says.
“A lot of companies this size will have a bunch of early investors and early employees that are currently illiquid,” he explains.
When a company lists, and this is particularly true when they do so through a SPAC, it’s only the executives and founders that have their shares locked up.
For everyone else, there could be a considerable payday, bringing liquidity into the local ecosystem.
Allen would like to see more angel investors for him to invest alongside, but it could also be the cash early employees need to start their own ventures.
As a case in point, we’ve already seen startups emerge with former Atlassian employees at the helm.
Because SPACs by definition move quickly, this is something Allen could see having an impact in Australia within the next 12 months or so.
However, one Aussie founder — Render Networks chief Sam Pratt — says we may be getting “a little caught up in the hype” to assume Aussie startups are well-positioned to benefit from the increase in popularity of SPACs.
“There just aren’t that many unlisted companies in Australia with the required traction and US relevance to de-risk success,” he explains.
That said, he also points to momentum in this space that is only escalating, with high-profile billionaire investors such as Chamath Palihapitiya and Bill Ackman helping drive the trend.
“It’s unlikely to slow down,” he concedes.