Public Markets • SPAC

A Look Inside VC Firms Joining The SPAC Rush

Sophia Kunthara
February 24, 2021
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This month’s batch of SPAC filings included its fair share of venture capital firms, with at least three firms filing S-1 documents with the U.S. Securities and Exchange Commission in February.

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Lerer Hippeau, Khosla Ventures and Advancit Capital all formed SPACs, according to SEC filings, with Khosla Ventures forming four blank-check companies. Forming a SPAC is another way for VC firms to allocate capital and serve their limited partners, Geoffrey Weinberg, senior managing director at D.F. King and Co., said in an interview.

“It’s definitely a trend,” Weinberg said of VC firms forming blank-check companies. “I think SPACs are going to stay, I think it’s a question of what level.”

SPACs have been cropping up at an unprecedented pace. So far this year, more than 160 SPACs have raised over $48 billion in gross proceeds. In comparison, last year — also a record year for SPACs — 248 blank-check companies raised $83 billion. SPAC activity has been so high that some believe SPACs will outpace traditional IPOs.

When a VC firm forms a SPAC, it’s essentially performing the role of an investment bank for a target company, according to Endurance Advisory Partners Managing Director Steven Patrick. The idea behind a VC firm forming a SPAC is that the firm has all the information that enables it to figure out the right structure for the IPO, and the firm is therefore better positioned to execute the IPO than an investment bank.

“A lot of the decision process from the (company) management perspective is: ‘Who do I know and trust to come up with the best structure to make sure I have a well-received public offering?’” Patrick said. “It used to be the investment bankers in that role of the trusted advisers … in the cases (of the venture capitalists) the people who know best are the VCs that are the management team of the SPAC.”

Having a VC firm form a SPAC and take a company public also has its drawbacks, according to Patrick. A VC firm will likely target its own portfolio companies to acquire, meaning they have a conflict of interest when it comes to allocating primary and secondary shares. 

The incentive for a VC firm to take a company public through a SPAC comes down to the money — the firm helps take their company public and typically gets about 20 percent of the SPAC value because it served as the SPAC management team. 

That hefty management fee and the money involved makes it possible that other investment firms, like private equity firms, will likely join the SPAC train as well, according to Patrick. SPACs, once looked down upon, have become mainstream and are no longer viewed in the “same kind of category as penny stocks and the  Wolf of Wall Street kind of behavior.”

“There is enough money in the SPAC world that almost anybody that’s approached to manage a SPAC would say, ‘sure I’d love to do that,’” Patrick said.

Below we look at the SPAC filings of venture capital firms for February.

Lerer Hippeau Acquisition Corp.

  • S-1 Filing Date: Feb. 12, 2021
  • Key Names:

Lerer Hippeau declined to comment about its SPAC, but some of the key players in the blank-check company include the firm’s founders and entrepreneur Arianna Huffington. Huffington and the founders of the firm have professional history — Kenneth Lerer is the co-founder of the Huffington Post and Eric Hippeau served as its CEO. Thrive Global, which was founded by Huffington, also counts Lerer Hippeau as an investor.

Khosla Ventures Acquisition Co.

Khosla Ventures Acquisition Co II

  • S-1 Filing Date: Feb. 12, 2021
  • Key Names:
    • Vinod Khosla, founder of Khosla Ventures
    • Samir Kaul, general partner at Khosla Ventures
    • Peter Buckland, partner, managing director and COO at Khosla Ventures

Khosla Ventures Acquisition Co III

  • S-1 Filing Date: Feb. 12, 2021
  • Key Names:
    • Vinod Khosla, founder of Khosla Ventures
    • Samir Kaul, general partner at Khosla Ventures
    • Peter Buckland, partner, managing director and COO at Khosla Ventures

Khosla Ventures Acquisition Co IV

  • S-1 Filing Date: Feb. 22, 2021
  • Key Names:
    • Vinod Khosla, founder of Khosla Ventures
    • Samir Kaul, general partner at Khosla Ventures
    • Peter Buckland, partner, managing director and COO at Khosla Ventures

Khosla Ventures declined to comment on its multiple SPACs. Among the names mentioned are Vinod Khosla, founder of the firm, and Derek Anthony West, better known as Tony West. West is the chief legal officer at Uber and also happens to be Vice President Kamala Harris’ brother-in-law. Oscar Health founder Mario Schlosser is also listed in the paperwork, and Oscar Health is a portfolio company of Khosla Ventures.

Advancit Acquisition Corp. I

Advancit Capital declined to comment. Among the expected players in the SPAC (management at Advancit Capital) is Troy Carter, the CEO of music tech company Q&A. Carter also founded Atom Factory where he worked with the likes of Lady Gaga and managed John Legend. Some of Advancit’s notable portfolio companies include Headspace and Public.com.

Not a VC firm, but wow

Although the following SPAC isn’t founded by a VC firm, we did a double-take when looking at the names behind it so wanted to include details anyway.

Forest Road Acquisition Corp. (Not a VC firm, but an interesting recent SPAC filing)

  • S-1 Filing Date: Feb. 18, 2021
  • Key Names:
    • Shaquille O’Neal, former NBA player
    • Kevin Mayer, former Disney exec and the brief CEO of TikTok
    • Martin Luther King III, human rights activist and son of Martin Luther King Jr.

This isn’t the first time we’ve seen some of these names in a SPAC filing. The first Forest Road Acquisition Corp., which involved much of the same management, agreed to merge with Beachbody and MYX Fitness, and now a second SPAC has been formed. Among the notable players are Shaq (pun intended), who also happens to be an early investor in Google, and Kevin Mayer, who was most recently the CEO of TikTok.

Illustration: Dom Guzman

 

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