Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / SPAC Warrants as a Second Liquidity Window
Transcript
- Lucas: So Luna, I've been digging into something that feels like a hidden gem for founders who took their company public via a SPAC. We've talked about lockups, earnouts, secondary sales — but there's one instrument that rarely gets the spotlight, and it's sitting right there in the merger documents. Luna: You're talking about warrants, right? The ones that come with the SPAC shell? I always thought they were just a throwaway for retail investors. Lucas: Exactly. But for founders, those warrants can be a second liquidity window, separate from the stock they hold. And with the market doing what it's doing — I mean, Coinbase is up, what, 23 percent this week? — warrants can become seriously valuable if you time it right. Luna: So what's the actual mechanics? A warrant gives you the right to buy shares at a fixed price, usually 11.50, right? Lucas: Yeah, 11.50 is the standard strike for SPAC warrants. But here's the thing founders often miss: there's a difference between public warrants, which trade on an exchange, and private warrants, which are issued to the sponsor and sometimes to the founding team. Private warrants can't be traded for the first year, and they have different terms. So if you're a founder, you need to know which bucket you're in. Luna: And when can you actually exercise them? Is it after the merger or is there a lockup? Lucas: Typically warrants become exercisable thirty days after the merger is complete. But there's a catch — the company can call them for redemption if the stock trades above, say, eighteen dollars for twenty out of thirty trading days. That forces you to exercise or sell before the deadline, or you lose them. That's the clock founders need to watch. Luna: So it's like a ticking clock that can accelerate. Have you seen founders actually use this as a liquidity event in practice? Lucas: Absolutely. I was looking at a case from a couple years back — a fintech that merged with a SPAC. The founder had a chunk of private warrants that weren't exercisable for a year. When the stock popped after the merger, he waited, and when the lockout expired, he exercised and immediately sold the shares. That gave him a second cash infusion, separate from his founder shares, which he used to seed his next startup. Luna: So it's like a second act funding source. That's clever. But what about the dilution angle? Every warrant you exercise adds new shares, which can hurt existing shareholders. Lucas: That's the trade-off. When you exercise, the company issues new shares, and that dilutes everyone else. But if the stock is trading well above the strike, it's still accretive to the company's cash position because you're paying in. Founders need to weigh that against their fiduciary duty to other shareholders. It's not just about personal liquidity; it's about signaling to the market that you're not trying to dump on retail. Luna: Speaking of retail — I've seen a ton of chatter on Reddit about SPAC warrants lately, especially with the volatility in names like Coinbase and Palantir. Do you think that's driving any weird behavior? Lucas: There's definitely a speculative crowd. But for founders, the smart play is to ignore the noise and focus on the warrant agreement's fine print. For example, some warrants have a cashless exercise option, which lets you convert to shares without paying the strike upfront — that's useful if you don't have the cash. Others have a 'net share settlement' that reduces your share count but avoids a big write-off. These details matter. Luna: And what about tax? I imagine exercising warrants is a taxable event. Lucas: Big time. When you exercise, you have to pay tax on the difference between the strike and the market price — that's a taxable gain. And if you sell immediately, you're looking at short-term capital gains rates, which are higher. Founders should work with a tax advisor to plan the timing. Some might hold for long-term treatment, but that's a gamble. Luna: So in the current environment — August 2026 — with tech stocks bouncing around, what should a founder who's pre-exit be doing right now? Lucas: First, read your warrant agreement now, not after the merger. Understand the exercise period, the redemption triggers, and whether you have cashless exercise. Second, model out different scenarios — if the stock trades at fifteen, eighteen, twenty-five, what's your warrant worth? Third, think about your post-exit plans. If you're going to raise a new fund or start another company, warrants might be your seed capital. Luna: And for the listener who's a founder considering a SPAC exit, is there a red flag to look for? Lucas: The biggest red flag is if the warrant agreement has a 'down round' clause that resets the strike price if the stock falls. That can create a situation where warrants become worthless, but that's actually to the benefit of the warrant holder. The real trap is the redemption call — if you're not paying attention, you could lose out on a huge gain. I've seen founders leave millions on the table because they missed the announcement. Luna: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. We don't run ads, so it's just listener support keeping the lights on. Lucas: Yeah, it's a small group and it makes a real difference. If you find these conversations useful for what you're building or running, you know where to find it. Now, back to warrants — there's another layer that founders often overlook: the interaction with lockups. Luna: Oh, right, because your founder shares are locked up for a while, but warrants might be exercisable earlier. That creates a window. Lucas: Exactly. So even if you can't sell your common shares for six months, you might be able to monetize your warrants almost immediately. That gives you some cash flow during the lockup period. But it also changes the optics — investors might see you cashing out early as a lack of confidence. You have to balance that with your personal needs. Luna: So what's the one takeaway you want our listeners to remember today? Lucas: Don't treat warrants as an afterthought. They're a legitimate liquidity tool with their own timing, tax, and signaling implications. Go read your warrant agreement today, and if you're not sure what you're looking at, get a lawyer who specializes in SPACs. In this market, a few weeks of planning could be worth a lot of money. Luna: And maybe keep an eye on those redemption notices. That's where the real action happens.