According to Palihapitiya, the SPAC slowdown tallied 'wheat from chaff'

According to Palihapitiya, the SPAC slowdown tallied 'wheat from chaff' ...

Despite a recent slowdown, venture capitalist Chamath Palihapitiya, whose huge wagers on "blank check" acquisition firms earned him the nickname "SPAC King," said he remained bullish on the long-term health of such acquisitions.

Palihapitiya has raised billions of dollars in the stock market through SPACs, or special purpose acquisition firms that were created to acquire unidentified private companies. The objective is to make public enterprises by registering the so-called blank-check firms.

In an interview with CNBC on Wednesday, he stated that the recent correction, which resulted in a tumultuous recovery that lasted several quarters, was needed to separate the "the wheat from the chaff."

The Securities and Exchange Commission of America should make SPAC sponsors put up more at-risk capital to "have more skin in the game" and be better aligned with investors, according to Palihapitiya, who has thus opened 10 SCAPs and supported numerous other transactions.

"The incentives aren't aligned to produce significant outcomes from the beginning of a SPAC to the end of the SCAP." And the most important thing we must do is to force the people who are sponsoring to have much more money at risk," he added.

"I have to come up with $100 million if I want to raise a billion-dollar SPAC."

SPAC managers are typically granted warrants and founder shares by SCAP, which give them a much bigger share in the combined company than their investment would otherwise allow them.

Palihapitiya's newest comments on lopsided SPAC incentive structures come days after Elizabeth Warren and other Senate Democrats sent letters to a handful of SCAP sponsors, including him, Michael Klein, and Tilman Fertitta, questioning incentive arrangements. read more

Palihapitiya has signed agreements with companies ranging from space tourism firm Virgin Galactic Holdings Inc (SPCE.N) to home-selling platform Opendoor Technologies Inc. (OPEN.O).

However, since the start of the SPAC boom in March, investors have lost their enthusiasm owing to poor financial performance and scrutiny from lawmakers and regulators, especially because of poor regulatory performance.

Clover Health Investments Corp, one of Palihapitiya's SPAC ventures, was accused by short-selling firm Hindenburg Research of concealing a US Department of Justice inquiry into its business. read more

"I'm going to get a lot of credit when things go up, and I'll get lots of the blame when everything goes down," he added.

"I believe we must take a step back and say, we are one year in to rebirth in the capital markets, which will take years to complete."

You may also like: