Latest / Lab to Market Leadership with Chris Reichhelm / The Deep Tech Founder’s Guide to Going Public Through a SPAC

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The Deep Tech Founder’s Guide to Going Public Through a SPAC · Lab to Market Leadership with Chris Reichhelm

0:00
SPEAKER_01: China controls 95% of supply and refining.
0:04
SPEAKER_01: The US needs to support some of these critical enterprises.
0:07
SPEAKER_01: I still see a massive asymmetry of companies that want to go public versus the Mana Spax out there that traded up 70% from$10 a share to over$17 a share.
0:18
SPEAKER_01: Many years ago, I took a company called Hostess Public.
0:20
SPEAKER_01: They make Twinkies.
0:21
SPEAKER_01: That's the story that American ran.
0:24
SPEAKER_02: Welcome to the Lab to Market Leadership Podcast.
0:27
SPEAKER_02: Too many advanced science and engineering companies failed to deliver their innovations from the lab to the market.
0:34
SPEAKER_02: We're on a mission to change that.
0:36
SPEAKER_02: My name is Chris Reichhelm, and I'm the founder and CEO of Deep Tech Leaders.
0:40
SPEAKER_02: Each week we speak with some of the world's leading entrepreneurs, investors, corporates, and policymakers about what it takes to succeed on the lab-to-market journey.
0:51
SPEAKER_02: Join us.
0:54
SPEAKER_02: How do you finance a moonshot company?
0:58
SPEAKER_02: Deep Tech is a broad church, and we've said that many, many times on this podcast.
1:02
SPEAKER_02: And within that church, a large part of the congregation would qualify as moonshot.
1:08
SPEAKER_02: Okay.
1:09
SPEAKER_02: We're talking about things like fusion.
1:12
SPEAKER_02: We're talking about space.
1:13
SPEAKER_02: We're talking about some parts of the advanced materials universe.
1:17
SPEAKER_02: We're talking about quantum computing.
1:20
SPEAKER_02: And in the early years of these companies' development, there are answers to financing them, seed stage, equity investment, grant funding.
1:29
SPEAKER_02: We've got solutions there.
1:31
SPEAKER_02: But as they scale and as they mature, their capital requirements increase significantly, getting into the hundreds of millions of dollars required in order to properly scale.
1:43
SPEAKER_02: What are the answers then?
1:45
SPEAKER_02: That is the main question of today's lab to market leadership episode.
1:50
SPEAKER_02: Now, you may already know this, but a large number of deep tech companies are choosing to go public.
1:56
SPEAKER_02: Okay, but not via the traditional IPO, via something known as a SPAC, Rocket Lab, Quantumscape, Ocklo, just last month, general fusion.
2:07
SPEAKER_02: And in quantum computing, it's almost become the default route.
2:11
SPEAKER_02: INQ, Reggetti, D-Wave a few years ago, just this past year alone, Inflection, Xanadu, IQM out of Europe.
2:19
SPEAKER_02: That is a clear pattern.
2:21
SPEAKER_02: SPACs are becoming more popular for moonshot deep tech companies.
2:27
SPEAKER_02: Now, to help me understand why, I'm going to be joined by probably the best person I could hope to get.
2:33
SPEAKER_02: He's one of the world's leading bankers for SPAC IPOs.
2:37
SPEAKER_02: His name is Brandon Sun.
2:39
SPEAKER_02: He is head of SPAC Investment Banking at Conan Company Capital Markets out of New York.
2:45
SPEAKER_02: He's probably the longest-serving SPAC banker on Wall Street.
2:48
SPEAKER_02: And he's done well over a hundred SPAC IPOs and more D SPAC transactions than pretty much any banker alive.
2:56
SPEAKER_02: If you are a board member or a CEO considering late-stage deep tech financing, you're going to want to listen to this.
3:05
SPEAKER_02: Let's get into it.
3:06
SPEAKER_02: Brandon Sun, thank you so much for joining me.
3:09
SPEAKER_01: Chris, thank you so much for the opportunity.
3:11
SPEAKER_01: I'm super excited to have this stage to share my views.
3:14
SPEAKER_01: I do need to kind of preface up front that because of legal requirements, I do want to say, look, this isn't merely my own views and does not constitute any investment advice.
3:24
SPEAKER_02: I love it.
3:25
SPEAKER_02: Of the 62 episodes we've done, this is the first one to start out with a disclaimer.
3:31
SPEAKER_02: So you've heard it, everyone.
3:33
SPEAKER_02: This is not investment advice.
3:35
SPEAKER_02: Brandon's just merely going to outline some of his views and share some of his experience with us.
3:42
SPEAKER_02: Deep tech financing, particularly for moonshots, Brandon.
3:47
SPEAKER_02: And particularly at the later stage.
3:49
SPEAKER_02: So seed stage, we've got answers for.
3:52
SPEAKER_02: Even Series A, we have answers for.
3:54
SPEAKER_02: But increasingly, Series B investors are expecting much, much more now.
3:59
SPEAKER_02: And rather than go through the pain of that journey, a number of deep tech companies are considering going public, but not via the traditional route.
4:09
SPEAKER_02: They're considering going public via SPAC.
4:12
SPEAKER_02: I'm a deep tech founder.
4:14
SPEAKER_02: I've heard of SPACs, but I know absolutely nothing about them.
4:19
SPEAKER_02: Take me through it.
4:20
SPEAKER_02: Help me understand what these are.
4:23
SPEAKER_01: Yeah, no, I'd be happy to.
4:25
SPEAKER_01: So SPACs are these publicly traded vehicles on either the NASDAQ or NYSC listed in the US, right?
4:32
SPEAKER_01: There's 280 publicly listed SPACs with the express purpose of taking a great private company, one great private company, and taking them public, where it could accelerate its trajectory in the public markets.
4:45
SPEAKER_01: The SPAC, there's a couple of benefits.
4:47
SPEAKER_01: One is it's usually raised by a very blue chip premier founder who brings validation, who brings experience expertise, and on top of that, they're capital connections.
4:57
SPEAKER_01: The SPAC itself typically has cash in the trust, anywhere from$100 to$300 million of cash.
5:06
SPEAKER_02: Okay.
5:06
SPEAKER_02: So if I stop you there for a second, so the first feature of it is it's got this individual, a founder of the SPAC itself, who, as I understand it, is that the sponsor?
5:17
SPEAKER_01: That's the sponsor of the SPAC, yes.
5:19
SPEAKER_02: Okay.
5:19
SPEAKER_02: I think Chamath Papalaya, the ex-Facebook ex meta executive, is a well-known.
5:25
SPEAKER_02: Well, he was at one point.
5:26
SPEAKER_02: And there are many others who fit that brief too.
5:29
SPEAKER_02: But these are generally industrially experienced individuals with really good capital connections.
5:35
SPEAKER_02: Is that broadly right?
5:36
SPEAKER_01: Exactly.
5:37
SPEAKER_01: It's usually a premier founder with either financial or operational experience who has respect, who had the admiration of the public markets.
5:45
SPEAKER_01: So if they were to lender support credibility to a private company, it makes it all the easier for that company to go public.
5:53
SPEAKER_01: Because you're right at the outset, right?
5:54
SPEAKER_01: Some of these companies are a little earlier stage.
5:56
SPEAKER_01: Perhaps your business model is somewhat less proven, you do need an extra veneer of credibility, right?
6:04
SPEAKER_01: So think of that SPAC sponsor lending their reputation and adding a halo effect in your go public process.
6:10
SPEAKER_02: I got it.
6:11
SPEAKER_02: So you're kind of leveraging their credibility in order to get you attention, in order to get you your financing at that point.
6:19
SPEAKER_02: And so when they decide, okay, I want to put together a SPAC, you said they set up a trust.
6:26
SPEAKER_01: Yeah.
6:26
SPEAKER_01: So they set up a trust.
6:28
SPEAKER_01: So they raise typically a couple hundred million dollars of capital.
6:32
SPEAKER_01: It's in a lockbox, it's in a trust, right?
6:35
SPEAKER_01: That enables and also empowers public IPO investors to invest in a SPAC.
6:42
SPEAKER_01: That's why in the last two years, a SPAC market in the US has been white hot.
6:46
SPEAKER_01: There's been over 300 new IPOs of SPACs formed.
6:50
SPEAKER_01: And all these SPACs, once formed, they typically have two years.
6:54
SPEAKER_01: Two years to go find a great private company and take that company public.
6:58
SPEAKER_02: Okay.
6:59
SPEAKER_02: Okay, I get it.
7:00
SPEAKER_02: So they set aside this money.
7:02
SPEAKER_02: So they decide they're going to do the SPAC.
7:05
SPEAKER_02: They set aside the money in the trust.
7:07
SPEAKER_02: And that seems to be a fixed amount, just between 100 and 300 million.
7:12
SPEAKER_02: And then the clock starts, and they've got to find a company to do that transaction with, to partner with.
7:19
SPEAKER_01: Exactly.
7:20
SPEAKER_02: Just out of interest.
7:21
SPEAKER_02: If they don't find it, then what happens?
7:23
SPEAKER_01: If they don't find a target, the SPAC liquidates, right?
7:25
SPEAKER_01: All the money gets returned to the original IPO investors.
7:28
SPEAKER_01: And the nice feature is that original IPO investors get a hundred percent of money back, right?
7:34
SPEAKER_01: So for the IPO investors, it's a risk-free way of kind of betting on a great team to see if they can bring home a great target.
7:41
SPEAKER_01: If there's no target then in two years, they get their money back.
7:44
SPEAKER_02: Okay.
7:45
SPEAKER_02: And the IPO investors, are these going to be like the institutions?
7:48
SPEAKER_01: These are institutions.
7:50
SPEAKER_01: I would say it's probably 60% large multi-strategy US hedge funds, right?
7:55
SPEAKER_01: Hedge funds that manage five to sometimes$50 billion of assets under management.
8:00
SPEAKER_01: So they usually have a capital markets or cash bucket, right?
8:04
SPEAKER_01: They allocate towards SPACs.
8:06
SPEAKER_01: On top of hedge funds, you have some Canadian pension funds that ends, some family offices, right?
8:12
SPEAKER_01: It's a way to differentiate and diversify their holdings.
8:16
SPEAKER_01: And it's honestly like a pretty good investment because it's risk-free.
8:20
SPEAKER_01: As long as investors choose to redeem, they can actually get their money back.
8:24
SPEAKER_01: But for very exciting companies, the hope is that instead of redeeming, they keep the money in and they're supporting the next great American or international venture.
8:34
SPEAKER_02: But the institution is buying into the reputation of the sponsor in the early days.
8:40
SPEAKER_02: Is that right?
8:41
SPEAKER_02: And so does the sponsor give any indication as to what type of businesses they're going to go and find?
8:47
SPEAKER_01: Good question.
8:47
SPEAKER_01: And I would say half the SPACs out there are industry agnostic.
8:51
SPEAKER_01: They're going to look for targets in pretty much any sector, any geography.
8:55
SPEAKER_01: Some other SPACs will be geared towards a certain industry, sometimes energy, sometimes technology, sometimes healthcare.
9:02
SPEAKER_01: Just depends on who the sponsor is and the extent or his or her background.
9:07
SPEAKER_02: Okay.
9:08
SPEAKER_02: Gotcha.
9:08
SPEAKER_02: So what happens then?
9:10
SPEAKER_02: So the sponsor sets up the trust.
9:12
SPEAKER_02: They let institutions know.
9:14
SPEAKER_02: Are the institutions, by the way, are they putting the money into that trust as well?
9:19
SPEAKER_01: They are.
9:20
SPEAKER_01: They are.
9:20
SPEAKER_01: So they're actually investing anywhere from 10 to 20 million dollar checks to form the spAC trust.
9:26
SPEAKER_01: So the spAC trust is$200 million or$300 million.
9:30
SPEAKER_01: Cash is actually locked up in that trust.
9:32
SPEAKER_01: So the institution is actually fund and the money's there.
9:35
SPEAKER_02: Okay.
9:36
SPEAKER_02: Gotcha.
9:36
SPEAKER_02: And then the sponsor has to go and find the actual deal, has to find the target.
9:40
SPEAKER_02: And so what happens then?
9:41
SPEAKER_02: Let's say they zero in, they narrow on a target.
9:44
SPEAKER_02: What happens then?
9:46
SPEAKER_01: So then it's really MA negotiation, right?
9:49
SPEAKER_01: If the SPAC sponsor finds a great target, they start negotiating contours of a deal, right?
9:55
SPEAKER_01: If I were to take this great company X public, what valuation?
10:00
SPEAKER_01: What's the envisioned capital raise, right?
10:03
SPEAKER_01: And think of it really more as an MA process than an IPO, right?
10:08
SPEAKER_01: You construction really creative things.
10:10
SPEAKER_01: You can get the founder management team and earnout.
10:12
SPEAKER_01: You can do dual class voting control.
10:14
SPEAKER_01: It's really, really interesting the type of flexibility you have.
10:18
SPEAKER_01: I think the problem with a traditional IPO process is one, like the company needs to be a lot more proven, a lot larger in size and scale and scope.
10:27
SPEAKER_01: And two, like the company also loses a lot of control because you have certain gatekeepers, right?
10:32
SPEAKER_01: The IPO book owners, the Coleman Sachs, Morgan Stanley, the JP Morgan's of the world, right?
10:36
SPEAKER_01: A small fraternity of banks oftentimes determine who's good and who's not good enough to go public, right?
10:42
SPEAKER_01: The guy thing in a SPAC or public transaction, it's bilateral, right?
10:46
SPEAKER_01: A target's negotiating for Blue Chip Premier SPAC sponsor.
10:50
SPEAKER_01: If there is an understanding agreement to go public, the SPAC could basically take that company public and allow it to go public quickly and expeditiously.
10:59
SPEAKER_02: Yep.
11:00
SPEAKER_02: But then the institutions who've signed on, obviously, into the trust and they've given their 10 to 20 million dollar checks.
11:08
SPEAKER_02: What kind of expectations do they have of the target once that company is public?
11:15
SPEAKER_02: Do they have the same kind of expectations in terms of earnings, in terms of uh target revenues and so on, like you'd see in a traditional IPO?
11:23
SPEAKER_02: Yeah, no, 100%.
11:24
SPEAKER_01: Once you go public, the expectations are the same, right?
11:27
SPEAKER_01: You need to grow, you need to hit your milestones, you need to hit your goals and objectives, right?
11:33
SPEAKER_01: Sometimes a lot of these companies just simply need the venue to go public, right?
11:37
SPEAKER_01: And once they're public, they're gonna be in control of their own destiny, right?
11:41
SPEAKER_01: For them, if they can prove themselves, tell their story in the public markets, they can build a following with institutional investors and research analysts.
11:50
SPEAKER_01: So after a few months, a few quarters of going public, they have the credibility.
11:53
SPEAKER_01: So if they were to do a big follow in equity raise, investors can support them.
11:58
SPEAKER_01: So I think that's the most powerful feature of a SPAC, right?
12:02
SPEAKER_01: It empowers a lot of these private companies to take control of their own destinies and go public on their own terms.
12:08
SPEAKER_02: And a lot of that control, I guess, gets negotiated during that MA process that you outlined.
12:14
SPEAKER_02: And would it be safe to say that there can be different types of control granted depending on the negotiation, the sponsor and the target agree?
12:23
SPEAKER_01: Yeah, no, 100%.
12:24
SPEAKER_01: I think in a DSPAC, so a SPAC MA deal, we call it a D-SPAC process, right?
12:29
SPEAKER_01: It's a negotiation between a target, their shareholders, and a SPAC sponsor.
12:33
SPEAKER_01: So in terms of valuation, in terms of capital raise, in terms of timing, right?
12:37
SPEAKER_01: A lot of it is at the target's control.
12:40
SPEAKER_01: And this is where like SPACs potentially also run into danger because a target, especially if they're coveted and high profile, they can tie to multiple SPACs, right?
12:49
SPEAKER_01: They can extract the best terms, sometimes too good.
12:52
SPEAKER_02: So yeah, yeah.
12:54
SPEAKER_02: And this is still a new world for many, clearly not for you, but this is a new world for certainly many private companies out there and the boards of these private companies.
13:04
SPEAKER_02: And so I guess they need to figure out a little bit how ambitious they can get, what does a good deal look like, and how to manage themselves once they've completed the process.
13:14
SPEAKER_02: Although it sounds like the way they manage themselves isn't that different from any other public company.
13:20
SPEAKER_02: They need to build trust in the markets, they need to set their milestones, they need to achieve those milestones, et cetera.
13:25
SPEAKER_01: Yes, exactly.
13:26
SPEAKER_01: I think the good thing about a SPAC is for a lot of these companies, even through a little earlier stage, it gives them an avenue to go public.
13:33
SPEAKER_01: Otherwise, like if you look at kind of the four forms of going public, you could do a traditional IPO, you could go public through a SPAC, you could do a reverse merger from existing shell, or you could do a direct listing, right?
13:44
SPEAKER_01: I would say like for most established companies, a traditional IPO is the most proven, the most conventional route.
13:50
SPEAKER_01: But I'll be honest, like in this market where there's still a lot of market uncertainty, right?
13:56
SPEAKER_01: The traditional IPO route is just not available to 98% of companies, or even if it is available, the big banks will sign you up, sign you on, but not take you public until they feel ready, right?
14:08
SPEAKER_01: I've seen companies sometimes get delayed for quarters, sometimes even years, right?
14:13
SPEAKER_01: I took a company called Weeble Public.
14:15
SPEAKER_01: It's a$5 billion electronic trading platform.
14:18
SPEAKER_01: Goldman Sachs is their leftly bookrunner.
14:20
SPEAKER_01: Goldman delayed them quarter after quarter for three full years.
14:24
SPEAKER_01: And Weeble decided, look, Gold Public was of strategic importance for them and their shareholders.
14:29
SPEAKER_01: Is that to go public through a spec instead?
14:31
SPEAKER_02: Yes.
14:32
SPEAKER_02: Yeah.
14:32
SPEAKER_02: I can see how that's frustrating, particularly in the deep tech domain.
14:36
SPEAKER_02: I know you and I have spoken before about IQM in particular, which went public in June.
14:41
SPEAKER_02: And speaking to Yan, Jan Getz, who's also been on this show, was talking a little bit about the justification.
14:46
SPEAKER_02: And for many of these deep tech companies, they will be engaged with either defense organizations andor government andor military.
14:55
SPEAKER_02: And when you are at that level of engagement, you need a certain level of trust.
15:01
SPEAKER_02: You've got to operate in a particular way and going public and the going public process, regardless of the avenue or the instrument, actually helps to build that trust.
15:11
SPEAKER_02: If you want to engage at the top level with these top types of organizations, governments and military, you need to have that level of transparency.
15:20
SPEAKER_01: Yeah, no, 100%.
15:21
SPEAKER_01: I would say for a lot of these companies that really want to accelerate their growth, going public allows them to really play offense, right?
15:28
SPEAKER_01: By being public, it lends the credibility to strategics, defense agencies, right?
15:34
SPEAKER_01: By having a public currency, it better allows you to do MA.
15:38
SPEAKER_01: It better allows you to retain and hire great employees, right?
15:41
SPEAKER_01: So there's a lot of benefits.
15:43
SPEAKER_01: For a great company like IQM, also just opens up the universe of potential buyers.
15:48
SPEAKER_01: It's not just institutions, right?
15:50
SPEAKER_01: Once you're public, you have not just strategics and government agencies that can invest, like the Finnish pension fund for IQM, but you also have this wide swath of retail investors.
16:02
SPEAKER_01: I think that's one of the things that's really empowering about the SPAC process.
16:05
SPEAKER_01: It allows you to really level the playing field and allow retail investors to come in as well.
16:11
SPEAKER_02: Yes.
16:12
SPEAKER_02: Let's talk about it from the other side.
16:14
SPEAKER_02: What I'm getting from your answer here is you get speed, actually, you can get speed to market and you get a certain degree of certainty because the money is kind of raised.
16:24
SPEAKER_02: But what do you give up for that compared to, let's say, a traditional IPO?
16:28
SPEAKER_02: What do you think some of the things, if you were arguing the other case, what do you kind of give up for that?
16:32
SPEAKER_01: That's a very good question.
16:33
SPEAKER_01: So I think the benefits you laid out pretty clearly, right?
16:36
SPEAKER_01: It's almost a guaranteed way of going public on NASDAQ and YSC, right?
16:40
SPEAKER_01: You get to go public on your own terms, on your own speed.
16:44
SPEAKER_01: However, I do want to clarify the capital is not necessarily guaranteed in a DSPAC go public.
16:51
SPEAKER_01: Capital raising is on a best efforts basis, right?
16:54
SPEAKER_01: The money in the SPAC trust, whether it's 200 million or 300 million, the investors have what's called a redemption rate.
17:00
SPEAKER_01: They can actually withdraw the cash from the SPAC trust if they don't like the deal, right?
17:05
SPEAKER_01: It's the ultimate protection for SPAC investors, right?
17:08
SPEAKER_01: That's why there's so many SPACs out there, and that's why there's so much capital supporting SPACs.
17:12
SPEAKER_01: The investors could actually walk away.
17:14
SPEAKER_01: But the targets themselves, the companies going public, they can de-risk by raising capital in what's called a pipe.
17:22
SPEAKER_01: A pipe is guaranteed capital that supports these deals that cannot redeem, right?
17:28
SPEAKER_01: That's guaranteed to come in.
17:29
SPEAKER_01: So, for example, in IQM's case, before they publicly announced their DSMAC, they raised$134 million of proceeds from investors.
17:38
SPEAKER_01: So even if all the SPAC money were to redeem, they get$134 million no matter what.
17:44
SPEAKER_01: So that's the protection for targets.
17:46
SPEAKER_02: And that's a separate vehicle then.
17:48
SPEAKER_02: That pipe is a separate vehicle from the trust.
17:51
SPEAKER_01: Yeah, it is.
17:52
SPEAKER_01: It's an augmentation to the trust, right?
17:55
SPEAKER_01: To support the SPAC deal.
17:56
SPEAKER_01: Investors come in and subscribe to this new structure, this pipe.
18:00
SPEAKER_01: And this pipe could be also structured in a variety of ways.
18:04
SPEAKER_01: It could be common equity at$10, which is a typical SPAC price.
18:08
SPEAKER_01: It could be done at a discount, it could be raised in a convertible format.
18:11
SPEAKER_01: Again, that's the beauty of SPACs, right?
18:13
SPEAKER_01: You can be flexible with the capital formation.
18:16
SPEAKER_02: That's pretty wild that you've got that level of creativity.
18:19
SPEAKER_02: And what are some of the reasons why some of these institutions might want to redeem early?
18:26
SPEAKER_01: It's a really good question, right?
18:27
SPEAKER_01: I think if you look at kind of this point of market, right, it's in some ways the best of times, some ways the worst of times, right?
18:34
SPEAKER_01: On one hand, indices are all-time highs, right?
18:38
SPEAKER_01: The Magnificent 7, everything rises vertically, right?
18:41
SPEAKER_01: But on the other hand, if you look at the last couple of years, new issuances, companies going public for the first time, they tend to struggle, right?
18:48
SPEAKER_01: So whether it's regular company IPOs, companies going public through D SPACs, a lot of these companies struggle to necessarily hit all their milestones.
18:55
SPEAKER_01: If you're a big mutual fund, a big hedge fund, the natural play is look to buy the Magnificent 7 or large cap stock, right?
19:02
SPEAKER_01: The risk reward upside is not necessarily there for some of these earlier stage companies.
19:07
SPEAKER_01: So sometimes a safe play for a lot of these investors is to maybe redeem, right?
19:12
SPEAKER_01: Take their money back in a spec meal, monitor the company for a few quarters, few months.
19:16
SPEAKER_01: If they hit their milestones and do everything they say, they can always buy later.
19:20
SPEAKER_01: And I think that's an important thing for these companies.
19:22
SPEAKER_01: Going public is an important event because it allows you to build that credibility with investors.
19:29
SPEAKER_01: Until you go public, you can't really start doing that.
19:31
SPEAKER_02: I get it.
19:32
SPEAKER_02: Raises a couple of interesting points.
19:34
SPEAKER_02: And I want to kind of get to it via question, but I'm gonna go through some research that we prepared.
19:39
SPEAKER_02: Redemption rates over the last, if we look back, I guess three, four years, they've historically been quite high.
19:48
SPEAKER_02: I think they ran above 90% in 2023 and much of 2024.
19:54
SPEAKER_02: Recently, however, it looks like they have come down to as low as a 68% in the fourth quarter of last year.
20:03
SPEAKER_02: And so this goes to the certainty point that I was making earlier.
20:08
SPEAKER_02: But are you seeing a general trend of lower rates of redemption?
20:13
SPEAKER_02: Because the data would indicate that.
20:15
SPEAKER_02: And if so, what do you think is behind that?
20:17
SPEAKER_01: You're right.
20:18
SPEAKER_01: Like redemption rates have been high from 2021 to really, I would say mid-last year, right?
20:24
SPEAKER_01: You had this dynamic I talked about where institutional investors just were not sure of new issuances, right?
20:30
SPEAKER_01: I do think over the last couple quarters, companies that have gone public have been more exciting, more compelling, and they're just generally been doing well, right?
20:39
SPEAKER_01: So IQM, which you and I both worked on, perfect example, right?
20:43
SPEAKER_01: Out of uh a SPAC trust that had about$175 million, they kept$107 million of that SPAC cash.
20:51
SPEAKER_01: That 107 complemented the pipe capital raise already done that was fully committed, right?
20:56
SPEAKER_01: There was another quantum computing deal called inflection, which kept$420 million of cash and trust, 100% of money in trust, right?
21:04
SPEAKER_01: So you're starting to see green shoots in certain sectors where people are excited.
21:08
SPEAKER_01: People want to support these companies as part of go public.
21:12
SPEAKER_02: Yeah.
21:13
SPEAKER_02: I wonder if there's a correlation between the lower rates of redemption from my very basic analysis so far, but I wonder if there's a relationship between the lower rates of redemption and also the track record of some of the sponsors, too.
21:27
SPEAKER_02: And so I wonder how much of it is down to the sponsor, because some sponsors are thematic after a certain time.
21:33
SPEAKER_02: I was reading about one sponsor who's taken a few quantum things public now.
21:37
SPEAKER_02: And so that's quite interesting.
21:38
SPEAKER_02: And maybe the lower rates of redemption for him or for that company, or because actually the sponsor really knows what he's doing, and people want to get in and stay in versus someone who's completely new.
21:48
SPEAKER_02: And then obviously, you need the complement of a professionally run, high performing company that's going to meet its milestones.
21:54
SPEAKER_02: That's going to help.
21:55
SPEAKER_02: But is it that kind of combination, an experienced, successful sponsor?
22:00
SPEAKER_02: Plus the right target.
22:02
SPEAKER_01: That's a great observation.
22:04
SPEAKER_01: I would say it's probably 85% the company, right?
22:08
SPEAKER_01: The target, because investors coming in, they're supporting you, your track record, your ability to really compound growth, right?
22:15
SPEAKER_01: I do think there's an element where 15% of investment thesis is based on the quality of SPAC sponsor, right?
22:22
SPEAKER_01: Their ability to have done diligence, their ability to really, really add value in the long term.
22:26
SPEAKER_01: So, yeah, for example, one of the guys you mentioned is probably Harry E, right?
22:30
SPEAKER_01: He's taken a couple of these quantum computing companies public.
22:33
SPEAKER_01: He took Ion Q public.
22:34
SPEAKER_01: He then took Horizon software public.
22:37
SPEAKER_01: And look, if you look at his background, right, very storied, right?
22:40
SPEAKER_01: He's a lead director on Broadcom, former CFO of Oracle, right?
22:45
SPEAKER_01: Just a really, really well-known tech operator.
22:48
SPEAKER_01: So anything he touches, investors suddenly put a additional credibility because someone like him has done the work.
22:55
SPEAKER_01: Someone like him's not going to put his reputation on the line for a company that's not worthwhile.
23:00
SPEAKER_02: I get it.
23:01
SPEAKER_02: That makes a lot of sense.
23:02
SPEAKER_02: Let's talk a little bit about sectors within deep tech.
23:05
SPEAKER_02: Deep tech is not one sector, it's a broad church, lots of different domains.
23:09
SPEAKER_02: Are there certain types of deep tech companies that really belong in this space?
23:16
SPEAKER_02: And if so, what's the kind of profile?
23:18
SPEAKER_02: What do you look for?
23:19
SPEAKER_01: Yeah, what I ultimately look for is a public-private arbitrage, right?
23:24
SPEAKER_01: To put that simply, it's where the public comps, the public who trade appears, trade at a higher multiple, whether it's a revenue multiple, eat but the multiple, than if you were to stay private.
23:35
SPEAKER_01: If you trade at a higher multiple as a public company, that's the highest value she's gonna get, right?
23:40
SPEAKER_01: That's your cheapest source of financing.
23:42
SPEAKER_01: So you want to go public at all costs.
23:44
SPEAKER_01: Sometimes you want to go public as quickly as you can to capitalize on that arbitrage, right?
23:49
SPEAKER_01: I'll give you an example, right?
23:50
SPEAKER_01: Not deep tech necessarily, but many years ago, I took a company called Hostess Public.
23:54
SPEAKER_01: They make Twinkies.
23:55
SPEAKER_01: I know Hostess.
23:56
SPEAKER_01: I grew up with Hostess.
23:57
SPEAKER_01: Yeah, yeah.
23:58
SPEAKER_01: It's a stored American brand, right?
24:00
SPEAKER_01: At the time, Apollo and D.
24:02
SPEAKER_01: Metropolis owned Hostess.
24:03
SPEAKER_01: They ran an auction, went to like 70 private equity firms, right?
24:07
SPEAKER_01: The highest bet they got was eight times, nine times ZPITA, right?
24:10
SPEAKER_01: At the time, the publicly traded snacking peers were trading at 13 times ZPITA, 14 times ZPIT, right?
24:16
SPEAKER_01: So the play was to take it public.
24:18
SPEAKER_01: But in IPO were taking a long time, and in IPO, they couldn't take enough money off the table.
24:22
SPEAKER_01: So they decided to do a D SPAC.
24:24
SPEAKER_01: They went public at 10 times, higher than all the private bids they got, and it still left room for the upside, where because they went public at 10 times, a 10 port forward to be exact, they traded up to 11, 12 over time, right?
24:36
SPEAKER_01: And that's why the share price traded up.
24:38
SPEAKER_01: All them spec money stayed in, right?
24:40
SPEAKER_01: So taking a step back, that's where you're trying to take advantage of in terms of a great spAC deal, right?
24:47
SPEAKER_01: In the tech, there's certain sectors that kind of exhibit and benefit from this public-private arbitrage, right?
24:53
SPEAKER_01: Quantum computing is one sector, right?
24:56
SPEAKER_01: Space and satellite is another sector, right?
24:59
SPEAKER_01: If you look at the way SpaceX has changed the discourse, defense tech is another one.
25:04
SPEAKER_01: About a couple months ago, crypto digital assets was another one.
25:08
SPEAKER_01: Right now, ICE in some ways kind of considered as tech and deep tech, right?
25:12
SPEAKER_01: Also critical materials and the way critical materials are being exploited to capitalize and refine.
25:17
SPEAKER_01: Those sectors, you have this massive public-private arbitrage where simply by being public, you can trade on much higher valuation and capture a lot more capital, right?
25:28
SPEAKER_01: So if your sector is disrupted by those elements, then you have to go public.
25:33
SPEAKER_01: And you have to ask yourself, how quickly can I go public, right?
25:35
SPEAKER_01: And that's the power of a spec.
25:37
SPEAKER_02: But what stage does your business have to be in?
25:40
SPEAKER_02: Or does that matter less?
25:42
SPEAKER_02: I run a quantum computing company, let's say.
25:44
SPEAKER_02: I don't think we're ready to go public because we don't have a CFO, we don't have the right kind of board yet, we don't have the audit, but I see all of my peers going public.
25:52
SPEAKER_02: Should I be seriously thinking about going public?
25:55
SPEAKER_02: I would say it's sector dependent.
25:57
SPEAKER_01: Quantum computing is a perfect example.
26:00
SPEAKER_01: If your sector is getting disrupted and all your peers are going public, capturing the imagination of the public, driving eyeballs, retaining capital, right?
26:10
SPEAKER_01: You kind of have to go public or certainly explore, right?
26:14
SPEAKER_01: To not lack behind your peers, right?
26:16
SPEAKER_01: So on quantum computing land, there's 10 companies that have gone public.
26:20
SPEAKER_01: Nine have been via these packs, right?
26:23
SPEAKER_01: And every single, I think eight of the nine trade at a premium to$10 where they went public at.
26:28
SPEAKER_01: So if you're a private company, you certainly have to evaluate the option.
26:33
SPEAKER_01: There's other sectors too where sectors are being disrupted, right?
26:37
SPEAKER_01: Even if you're not truly ready, you have to make the determination of seeing if it makes sense.
26:44
SPEAKER_01: If it makes sense, I think it's worth exploring.
26:46
SPEAKER_01: Whether you're a CFO or not, whether public readiness is there or not, right?
26:50
SPEAKER_01: You can get there.
26:50
SPEAKER_01: You can get there in the course of a couple months of a go public process.
26:54
SPEAKER_02: Yep.
26:55
SPEAKER_02: But the fact that you're public means that the public is going to hold you accountable for all those milestones just as they would if you went via an IPO.
27:05
SPEAKER_02: I guess the difference is a little bit the price and how that price, by that I mean the valuation, is ultimately arrived at, and then the level of control that the company has after the event.
27:15
SPEAKER_02: And that's negotiated.
27:17
SPEAKER_02: And it sounds like that's what makes the SPAC process quite special because there are a variety of things that could happen with that, whereas in a traditional IPO, there's far more precedent in terms of what's expected afterwards.
27:27
SPEAKER_02: But it's not like a SPAC lets you off the hook if you're not performing, if you're not delivering against your milestones.
27:33
SPEAKER_02: Is that right?
27:34
SPEAKER_01: That's right.
27:35
SPEAKER_01: And I think the other thing that's really exciting is SPACs are giving birth to certain sectors, right?
27:39
SPEAKER_01: Quantum computing is the perfect example, right?
27:41
SPEAKER_01: INQ was a first of its kind, first mover, right?
27:45
SPEAKER_01: When they went public, there was no public quantum computing comps, right?
27:48
SPEAKER_01: Another sector that's been wildly successful is SMR nuclear, right?
27:52
SPEAKER_01: Nuclear.
27:53
SPEAKER_01: The first couple companies that went public were through SPATS, right?
27:56
SPEAKER_01: New skill were the first was the first to go public.
27:58
SPEAKER_01: It created a sector, right?
27:59
SPEAKER_01: It was the first mover that set the metrics, that kind of set the tone, right?
28:02
SPEAKER_01: Rare Earth is another one, right?
28:04
SPEAKER_01: MP materials, before that, there was no rare earth sector, right?
28:07
SPEAKER_01: So in terms of hitting your milestones, proving to public markets, in some ways is being written, right?
28:13
SPEAKER_01: So if you are going public as one of the early proponent, early movers, you get to tell the story.
28:18
SPEAKER_01: And I think that's the thing that's really exciting, right?
28:20
SPEAKER_02: That's interesting too.
28:22
SPEAKER_02: That's interesting.
28:23
SPEAKER_02: Let's take something like fusion as an example.
28:25
SPEAKER_02: So we know that nuclear fusion is scaling up, and it's scaling up via a variety of means.
28:30
SPEAKER_02: You can either scale up and have one big giant reactor, or as is the fashion these days, you can have these small modular reactors, which seem to be very popular.
28:39
SPEAKER_02: But revenue with fusion as a sector is still some ways away.
28:45
SPEAKER_02: And so, given the importance of earnings, given the importance of revenues and growth, how do you square that with being a public company?
28:54
SPEAKER_02: Or do you get to set new milestones?
28:58
SPEAKER_01: I think it's the latter, and that's what's really exciting, right?
29:01
SPEAKER_01: So we took the first pure play public fusion company, public, general fusion.
29:06
SPEAKER_01: We took that public a couple weeks ago.
29:07
SPEAKER_01: And it's a company that's dear to my heart.
29:09
SPEAKER_01: I grew up in Vancouver, and the company's based in Vancouver actually helped them raise a pipe during Christmas from their offices.
29:16
SPEAKER_01: It was the first company to go public.
29:18
SPEAKER_01: It's trading really, really well.
29:19
SPEAKER_01: And as part of the go public process, we actually raise them$130 million through the SVAC.
29:24
SPEAKER_01: So it's really kind of an early mover and it's kind of telling the story, segnometrics.
29:28
SPEAKER_01: And I think that's what's really exciting.
29:30
SPEAKER_01: There's really no public fusion companies.
29:32
SPEAKER_01: And through the process, through them going public, you're actually we're actually witnessing a couple other fusion companies all exploring the go public process, right?
29:40
SPEAKER_01: Just because of the fact that General Fusion trailblaze and proved to markets that there is capital, there is excitement around this entire theme.
29:48
SPEAKER_02: But if I continue with that thread, so a company like General Fusion, and I don't know what milestones they've sent.
29:54
SPEAKER_02: I haven't looked through their documentation, but they could say something like a key milestone for us is containing plasma in our SMR for a certain period of time, I don't know, a few seconds, or getting our reactor to a certain temperature.
30:11
SPEAKER_02: That's also quite a popular metric.
30:13
SPEAKER_02: Are those the kind of metrics that they could use?
30:15
SPEAKER_01: Exactly.
30:16
SPEAKER_01: Those metrics, they can come up with metrics and come up with things that are important.
30:20
SPEAKER_01: And public market investors, it's still kind of a developing theme, right?
30:24
SPEAKER_01: So whether it's SMR nuclear or fusion or quantum computing, it's still very exciting.
30:29
SPEAKER_01: And you're watching this entire investor fall and grow as a result.
30:33
SPEAKER_01: And I think the other thing that's really exciting about these themes, such as fusion or rare earth or critical materials or space and satellite, is the moment one of these companies go public, there's so much volume in supporting these companies.
30:47
SPEAKER_01: And a lot of that comes from retail investors, right?
30:50
SPEAKER_01: A lot of these companies that have an America first thesis, America first mandate, you're seeing a really strong bid to an average American public retail investor supporting these companies because they understand the geopolitical importance of potentially having energy sovereignty.
31:06
SPEAKER_01: So if a lot of these companies, if they have an exciting thesis, you'll actually see that the moment it go public.
31:11
SPEAKER_01: There's immense volumes, and a lot of that is through retail.
31:15
SPEAKER_01: Quantum computing, for example, right?
31:16
SPEAKER_01: Every single one of these quantum comms trade really, really well.
31:19
SPEAKER_01: 60, 70% of the flow is from retail investors.
31:22
SPEAKER_01: That's interesting.
31:23
SPEAKER_02: But some of the quantum computing companies, like our friends at IQM, I mean, they've got actual revenue.
31:28
SPEAKER_02: They've got proper revenue now.
31:29
SPEAKER_02: They're selling actual computers.
31:31
SPEAKER_02: And so you can almost judge them by the old-fashioned metrics to an extent.
31:35
SPEAKER_02: But a fusion company, unless they're going to start finding other commercialization avenues, which I know many of them are considering that and actively exploring that, you'll find less of that.
31:46
SPEAKER_02: And I can see how that can be interesting to retail investors because of geopolitical reasons.
31:52
SPEAKER_02: What about the analysts and the whole analyst and research community?
31:56
SPEAKER_02: Is it having to change?
31:58
SPEAKER_02: And are we having to grow new types of analysts, far more scientific or engineering backgrounds to kind of read through the literature and truly understand whether these milestones are the right ones and just how well a company's doing?
32:11
SPEAKER_01: Yeah, no, 100%.
32:13
SPEAKER_01: I think that's why when you kind of talk about deep tech, you can apply this deep tech lens to a lot of these companies, right?
32:18
SPEAKER_01: Whether it's kind of fusion or something as simple as Red Earth, right?
32:22
SPEAKER_01: There's a company I took public called USA Red Earth.
32:25
SPEAKER_01: Didn't really have revenues at the time.
32:27
SPEAKER_01: Since going public 18 months ago, it's done incredibly well.
32:30
SPEAKER_01: It's traded up 70% from$10 a share to over$17 a share, right?
32:35
SPEAKER_01: And since being public, it's raised$4 billion of capital in the public markets through a combination of equity and also debt.
32:42
SPEAKER_01: The way we curated the research analyst, the Southside analyst space, was looking at this more as a tech company, right?
32:50
SPEAKER_01: So in terms of analysts, we brought on, it was almost a tech focused group of analysts as opposed to traditional metals and mining guys.
32:58
SPEAKER_01: So I think that's another benefit of the go public process through a SPAC.
33:01
SPEAKER_01: Instead of an IPO, which you have a two-week window to nail right, the DSPAC process is multi-months.
33:08
SPEAKER_01: It allows you to really almost create a symphony of momentum, right?
33:12
SPEAKER_01: You have investor market on one hand of institutional investors.
33:15
SPEAKER_01: You can have a great IRPR effort, right?
33:17
SPEAKER_01: Telling the story in the public markets, retail markets, and also creating the right story with the research analyst, all the while the company hopefully has some exciting AKs and Calus to put out.
33:28
SPEAKER_01: If everything comes together and the symphony really jives, right, it really makes some of these stories really exciting.
33:35
SPEAKER_02: And so that coordination effort, as you're speaking there, I'm thinking about the level of coordination required then of the target, of the company itself.
33:43
SPEAKER_02: And that feels like a much bigger job.
33:45
SPEAKER_02: I mean, IPOs are big jobs anyway, requiring a ton of energy and activity and coordination.
33:51
SPEAKER_02: But this, especially given the ideally the longer-term window you've got, if the sponsor and target find each other early, then you've got more time to be able to do that.
34:01
SPEAKER_02: Who is generally driving that?
34:03
SPEAKER_02: Is that going to be a CEO?
34:05
SPEAKER_02: Is that going to be a CFO?
34:07
SPEAKER_02: It's probably going to be a team.
34:09
SPEAKER_02: But in your experience, who do you see generally taking the lead on that?
34:12
SPEAKER_01: It really is a team effort.
34:14
SPEAKER_01: I would say a lot of it's target driven, right?
34:16
SPEAKER_01: The company itself that wants to go public.
34:18
SPEAKER_01: The SPAC sponsored can add a lot of value as well.
34:21
SPEAKER_01: And all the bankers, right?
34:23
SPEAKER_01: The lawyers, the advisors around the team.
34:26
SPEAKER_01: The go public process through a SPAC typically lasts six to nine months, right?
34:30
SPEAKER_01: So through that six to nine months, you can do a lot, right?
34:33
SPEAKER_01: You could do a lot of marketing, you could do a lot of planning and prep.
34:37
SPEAKER_01: Yeah.
34:38
SPEAKER_02: Another stat from our research, there are roughly, and you may have different research.
34:43
SPEAKER_02: And if so, please correct me, but there apparently are roughly 250 specs currently searching for targets, with something like 47 billion sitting in trust.
34:55
SPEAKER_02: And sponsors are clearly under these deadlines, these two-year windows.
35:00
SPEAKER_02: What does that pressure do to the deal quality over the next 18 month to two-year window?
35:07
SPEAKER_02: Do you think, if anything?
35:09
SPEAKER_01: Yeah.
35:10
SPEAKER_01: I think that's a really good question in that.
35:12
SPEAKER_01: Look, this is where potentially SPACs could be led astray, right?
35:16
SPEAKER_01: A traditional IPO, it's genetically engineered to trade up, right?
35:19
SPEAKER_01: One of these big banks, unless they can raise a lot of money and make money for their investor base on the other side, right?
35:26
SPEAKER_01: You're just not going to take a company public.
35:27
SPEAKER_01: So that's why they tackled this traditional IPO pop, right?
35:30
SPEAKER_01: Everything's supposed to trade up 15, 20% in the near term, right?
35:33
SPEAKER_01: Well, for SPAC, because it's more of an MA process, it's more of a negotiation.
35:38
SPEAKER_01: A lot of targets, a lot of companies go public, they do have leverage, sometimes too much leverage, right?
35:43
SPEAKER_01: Sometimes they can overvalue themselves.
35:45
SPEAKER_01: And I think sometimes that's why SPACs have a bad name, right?
35:48
SPEAKER_01: A lot of these companies that go public are attention or sometimes meaningfully overvalued, right?
35:53
SPEAKER_01: So over time, as valuations normalize, they might trade down over time.
35:58
SPEAKER_01: I think that's really the biggest danger.
36:00
SPEAKER_01: But in terms of the 250 SPACs out there, I, as a banker, right, kind of in the middle of it, I'm still very, very bullish.
36:07
SPEAKER_01: Just because being the thick of things, I still see a massive asymmetry of companies that want to go public versus the amount of SPACs out there, right?
36:16
SPEAKER_01: There's close to a thousand companies right now that are trying to go public, right?
36:21
SPEAKER_01: Publicly filed S1s or confidentially filed S1s, right?
36:24
SPEAKER_01: And the big banks cannot IPO them all, right?
36:28
SPEAKER_01: I think with some of these really high profile IPOs, right, trading down or whiplashing like the SpaceX's, the furros, the continuums, the X Energies, I think it's still very, very hard for a company that's below$2 billion of market cap or value to IPO, right?
36:48
SPEAKER_01: As these companies realize if I need to go public for my own strategic reasons and I need to do it quickly, they're gonna decide to go public with a spec.
36:56
SPEAKER_01: Because of that, they still remain very, very bullish.
36:58
SPEAKER_02: Yeah, yeah.
36:59
SPEAKER_02: What separates a company that's ready from one that isn't, in your view?
37:03
SPEAKER_01: Honestly, just a laser focus from the CEO and management team.
37:06
SPEAKER_01: This company called USA Rare Earth, perfect example, right?
37:09
SPEAKER_01: They're the second biggest rare earth company.
37:12
SPEAKER_01: They really kind of set the market as the leading vertically integrated rare earth company in the world, right?
37:17
SPEAKER_01: When we took it public two years ago, when we announced the deal, right?
37:21
SPEAKER_01: They had no CEO.
37:22
SPEAKER_01: They had really no CFO.
37:24
SPEAKER_01: Their board was divided, right?
37:26
SPEAKER_01: But they got ready, right?
37:27
SPEAKER_01: They got ready quickly.
37:29
SPEAKER_01: And over the couple months ago, public process, they hired the right people, and now they're up 70% and they raised$4 billion of capital in the last 18 months.
37:37
SPEAKER_01: That's insane.
37:38
SPEAKER_01: So if there is a will, there is a way, right?
37:40
SPEAKER_01: So honestly, to go public, the requirements are actually pretty simple.
37:44
SPEAKER_01: In the US, you really need just two years of PCAOB audits, right?
37:49
SPEAKER_01: So what that means is two years of audits, right?
37:52
SPEAKER_01: Meeting the public company accounting standard, right?
37:55
SPEAKER_01: So that takes maybe a couple months in terms of C-suite, in terms of reporting, you can get them all hired and ready over the course of the GoPal process.
38:04
SPEAKER_02: Yep.
38:04
SPEAKER_02: And are there certain things you're looking for?
38:07
SPEAKER_02: Are there certain metrics or does revenue have to be above a particular line?
38:12
SPEAKER_02: Does the technology have to be proven beyond a particular technology readiness level?
38:16
SPEAKER_02: Do you have to have a certain confidence level in terms of scaling?
38:20
SPEAKER_02: Anything like this?
38:22
SPEAKER_01: Broadly speaking, you generally should be at least$500 million and market cap or more, right?
38:27
SPEAKER_01: To have the technical dynamics of size, float, liquidity, market cap for institutional investors cared.
38:33
SPEAKER_01: If you're below 500 million, it's probably a little too small, right?
38:36
SPEAKER_01: Just because if you're to go public, investors are hesitant to buy.
38:39
SPEAKER_01: Because even if they can come in at a good price, they might not be able to exit easily, right?
38:42
SPEAKER_01: So size is one, right?
38:44
SPEAKER_01: The other thing I look for, honestly, just a management team, sometimes a CEO who's laser focused, right?
38:50
SPEAKER_01: It sounds all try to say.
38:52
SPEAKER_01: Sometimes they're just a twinkle in their eyes when you talk about this go public, right?
38:56
SPEAKER_01: What I'm looking for is a team whose number one priority is to go public.
39:01
SPEAKER_01: Because the people who are exploring this as a free option, maybe if they can raise capital or not, right?
39:06
SPEAKER_01: Those are the ones that look, the moment times get tough, the moment the market's not there, they're gonna come with excuses, rationalized ways to kind of get out of it, right?
39:14
SPEAKER_01: Whereas the companies whose number one objective is to go public, they're gonna be able to do it through thick within.
39:21
SPEAKER_01: So sometimes it's also just kind of their motivations.
39:24
SPEAKER_02: How many founder CEOs are taking their companies public through spec?
39:29
SPEAKER_01: Quite a lot these days.
39:30
SPEAKER_01: I mean, if you look at 2021 till kind of mid-last year, right?
39:36
SPEAKER_01: During those four years, I think only 200 regular companies IPO regularly, right?
39:42
SPEAKER_01: It was as slow as four years in US IPO formation and decades, because you have this landscape we talked about where even though indices were all-time highs, right, new issues were really, really, really hard.
39:54
SPEAKER_01: So you have this massive backlog built.
39:56
SPEAKER_01: So you already have hundreds up to a thousand companies that want to go public.
40:00
SPEAKER_01: And I would say, look, maybe 200 can IPO over the next year if the markets are healthy.
40:05
SPEAKER_01: So the rest of them, if they want to go public, they're all gonna have to either go public through a SMAC or other means.
40:12
SPEAKER_01: Yep.
40:12
SPEAKER_02: But they've got founder CEOs, and I'm assuming founder CEOs who've never taken a company public before, for whom this may be their first executive experience generally.
40:22
SPEAKER_02: But your view is that they can definitely learn it, they can get the team around them, they can get the right board to support them.
40:28
SPEAKER_02: They can absolutely drive this.
40:30
SPEAKER_01: 100%.
40:31
SPEAKER_01: I mean, many years ago, for example, I took a company called Hems and Hers Public, right?
40:35
SPEAKER_01: They're a DTC company that sells health products online, right?
40:40
SPEAKER_01: It's doing really, really well.
40:41
SPEAKER_01: Last time I checked, it was trading significantly above share price.
40:45
SPEAKER_01: When Hems went public through a SPAC, the CEO, this guy Andrew Dudham, I think he was like 27 years old, maybe 29, right?
40:51
SPEAKER_01: Very, very young, inexperienced, right?
40:53
SPEAKER_01: But he went public through the oak tree spAC, right?
40:56
SPEAKER_01: Oak tree parachuted a team, handheld them, and shepherded them to the public markets.
41:00
SPEAKER_01: So I think that's the benefit, right?
41:02
SPEAKER_01: Even if a team is young and inexperienced, right, have not done it before.
41:06
SPEAKER_01: That's the benefit of having a SPAC sponsor, right?
41:09
SPEAKER_01: We talk about the outset of a call.
41:10
SPEAKER_01: It's someone usually who's very experienced in the public markets, right?
41:13
SPEAKER_01: Usually has a falling, maybe like a chamath, right?
41:16
SPEAKER_01: Maybe it's an ex-CEO who's run public companies for decades, right?
41:19
SPEAKER_01: They're guiding this private company to the public markets every step of the way.
41:24
SPEAKER_01: So that's the value to SPAC.
41:26
SPEAKER_02: Yeah.
41:27
SPEAKER_02: You mentioned before about valuation.
41:30
SPEAKER_02: The company's valuation is less than half a billion, it's probably not the right time.
41:34
SPEAKER_02: Are there any other reasons why you would say no to a company if they were to approach you with a view of going public?
41:40
SPEAKER_02: What other reasons would you say no?
41:42
SPEAKER_02: Or is that kind of the only one?
41:44
SPEAKER_01: I'd say that's probably the one of the most important.
41:47
SPEAKER_01: The second one is just making sure you have internal support, not just from the C-suite, right?
41:52
SPEAKER_01: But in terms of major shareholders and terms of their board.
41:54
SPEAKER_01: The other one we kind of talked about a little bit earlier was this concept of a public-private arbitrage, right?
42:01
SPEAKER_01: Do your public peers, do your peers in the public markets trade well at a healthy multiple, right?
42:06
SPEAKER_01: If they do, then it makes sense to go public.
42:09
SPEAKER_01: Sometimes in certain sectors, you actually don't have that dynamic.
42:13
SPEAKER_01: Private companies can actually trade higher because if you have a company, let's say with a lot of IPAT, right?
42:19
SPEAKER_01: A lot of growth, right?
42:20
SPEAKER_01: It might not trade well as a public company, but if a lot of IPA, a private equity firm could tack on a couple turns of leverage and actually pay more in a private context, right?
42:29
SPEAKER_01: So you just gotta make sure that dynamics there where by being public, you can trade higher, right?
42:34
SPEAKER_01: And really the underlying theme that drives that, I would say is growth, right?
42:38
SPEAKER_01: Any company, any sector that grows more than 30% top line, where the revenues grow at more than 30%, you're generally speaking gonna get a premium multiple because of outsized growth.
42:49
SPEAKER_01: So I think growth is a big factor.
42:51
SPEAKER_01: If you're going really, really fast, generally speaking, you're gonna be trading a lot better.
42:55
SPEAKER_02: Yeah.
42:56
SPEAKER_02: But top line growth is elusive for a lot of deep tech companies, a lot of which are pre-revenue, even at very advanced stages.
43:04
SPEAKER_02: And often, you know, if you think about when they're gonna start becoming truly commercial with big chunky revenues, it's not until the technology works at scale at a price point that a value chain can accept.
43:16
SPEAKER_02: And by introducing no risk to that value chain whatsoever.
43:20
SPEAKER_02: Now, in AI, we don't quite have that because there's little distribution cost involved.
43:25
SPEAKER_02: And so it tends to rhyme a lot with software and SaaS.
43:28
SPEAKER_02: But in areas like quantum, where you've got some seriously complex hardware, probably some of the most complex hardware in the world, and then you've got to convince companies to kind of use that and create an experience for them to use it, like a number of quantum computing companies have in certain areas of advanced materials.
43:46
SPEAKER_02: These are kind of decades long investments, potentially worth a lot, but it takes a very long time for them to prove themselves commercially and within value chains.
43:58
SPEAKER_02: So are these companies?
44:00
SPEAKER_02: Company is eligible for it as well if they don't have that top line growth.
44:04
SPEAKER_01: Yeah, 100%.
44:05
SPEAKER_02: But that goes back to the precedent you've established earlier on.
44:08
SPEAKER_02: If you get in early, you can set the milestones.
44:11
SPEAKER_02: You talked about that earlier.
44:12
SPEAKER_01: Exactly.
44:12
SPEAKER_01: You could set the milestones.
44:14
SPEAKER_01: You can basically guide people to a very exciting forward trajectory, right?
44:18
SPEAKER_01: And especially if you have a quality SPAC sponsor that's basically validating that vision, right?
44:24
SPEAKER_01: So it's either a company that has a lot of growth or potential to have really disruptive growth that could change the world one day, right?
44:30
SPEAKER_01: Like fusion.
44:31
SPEAKER_01: And I think the other dynamic that's really exciting, I've noticed, is governments coming in to support a lot of these companies, right?
44:38
SPEAKER_01: One of the reasons nuclear and fusion are doing so well is Trump, right?
44:42
SPEAKER_01: The US government, through the executive order, is supporting a lot of these industries, right?
44:47
SPEAKER_01: If you look at rare earth companies, critical materials, battery companies, right?
44:51
SPEAKER_01: Critical infrastructure in the US government is coming in to support larger kind of national champions, right?
44:57
SPEAKER_01: Because I think they realize as geopolitical tensions with China rise, and the rare earth is actually a perfect example where China controls 95% of supply and refining.
45:07
SPEAKER_01: The US needs to support some of these critical enterprises.
45:10
SPEAKER_01: Otherwise, it's just never gonna catch up, right?
45:13
SPEAKER_01: In quantum computing, you're seeing this firsthand, right?
45:16
SPEAKER_01: As companies go public, governments are supporting these, right?
45:20
SPEAKER_01: XANIDU went public, and it's effectively Canada's national champion.
45:24
SPEAKER_01: The Canadian government gave$390 million of debt financing, right?
45:28
SPEAKER_01: ICANN went public, it's Finland's national champion, right?
45:32
SPEAKER_01: There's an RDSPAC we're working on how Pascal, the French government, is supporting a company.
45:37
SPEAKER_01: It's France's national champion in quantum.
45:39
SPEAKER_01: So I think you're seeing that also across the board where nation states are supporting these companies, making sure they can thrive in the public markets and also provide whether it's energy or tech sovereignty.
45:52
SPEAKER_02: Yeah.
45:53
SPEAKER_02: What looks really exciting for you right now as you look out a year or two years from now, what kinds of big events do you anticipate?
46:02
SPEAKER_02: Obviously, you've had it in your disclaimer earlier, but what kinds of things are really exciting you?
46:08
SPEAKER_01: Some of the existing sectors we talked about, I think space and satellites one, we continue to be really bullish.
46:14
SPEAKER_01: I think robotics and physical AI as a theme will continue to be a thematic that investors are excited over, right?
46:21
SPEAKER_01: I do think digital assets and crypto will come back, right?
46:25
SPEAKER_01: It'll continue to be a thriving sector.
46:27
SPEAKER_01: A lot of sectors we kind of talked about, right?
46:29
SPEAKER_01: Whether it's quantum and critical materials, right?
46:32
SPEAKER_01: Those will remain hot, at least in the foreseeable few years.
46:36
SPEAKER_02: Yeah.
46:36
SPEAKER_02: Yeah, that's great.
46:37
SPEAKER_02: Brandon, thank you so much for your time.
46:41
SPEAKER_02: This morning, your time, this evening, my time.
46:44
SPEAKER_02: I know so much more now than I did at the start of our discussion.
46:48
SPEAKER_02: And I think our listeners will too.
46:50
SPEAKER_02: This has been great.
46:51
SPEAKER_02: Really, really super.
46:53
SPEAKER_02: And I didn't appreciate just how creative you can be, actually, as part of the SPAC process.
46:58
SPEAKER_02: And I think that's really exciting.
47:00
SPEAKER_02: I think a lot more companies are going to be considering this.
47:03
SPEAKER_02: It's clear that they already are within these domains, and it represents a genuine avenue for later stage financing for a lot of them.
47:12
SPEAKER_02: So if you're out there, if you're looking for deep tech financing, I'm going to actively promote Brandon's son.
47:18
SPEAKER_02: I hope you get in touch with him and ask for his advice.
47:22
SPEAKER_02: What he doesn't know about SPAC or DSPAC public offerings is probably not worth knowing.
47:27
SPEAKER_01: Chris, thank you again so much for your time and your podium and the ability to share my message.
47:32
SPEAKER_01: So I really, really appreciate it.
47:34
SPEAKER_02: My pleasure.
47:35
SPEAKER_02: Thank you.
47:36
SPEAKER_02: Thank you, Chris.
47:37
SPEAKER_02: You've been listening to the Lab to Market Leadership Podcast, brought to you by Deep Tech Leaders.
47:43
SPEAKER_02: You can find out more about us on LinkedIn, Spotify, Apple, or wherever you get your podcasts.