So what's to stop a VC firm from juicing the returns they provide their own limited partners by simply standing up a series of SPACs which they in turn use IPO proceeds to acquire some of their own poorly performing companies that couldn't get acquired or go public on their own, while also enjoying the 20% "promote" that sponsors get?
Nothing. Everything is a contract, you just need to get someone to agree to it. The regulator just makes sure information is disclosed, the investor is the one that has to be discerning.
In prior market conditions, people were not agreeing to SPAC contracts. In these market conditions they are.
In theory, the answer is that reputational risk disincentivizes this behavior. In practice, markets these days are pumped so full of easy money in need of somewhere to go that that seems a fairly remote concern. As to "is this all a game"--while I don't think it's good for society that this is the way things are, the extremely wealthy have been playing finance on easy mode for a while now, and so far there's no sign of that stopping.
There is not supposed to be any prior relationship between the SPAC's sponsors and the company being acquired. I believe it violates SEC rules. So the VC shouldn't be able to set up SPACs specifically for acquiring their own companies.
And yeah the SEC has input on the wording of the proposed target company vote. So they would eventually know.
But since VCs typically have single to low-double digit ownership of anything in their portfolio, it would probably pass muster just fine. Would just need to be disclosed.
I’ve seen SPAC investors approve buying newly formed companies, formed two months prior. So they’ll approve anything (except buzzfeed lol)
