Is joining a SPAC a no-brainer at the ASO / VP level?
Let's say you joined one of the myriad SPACs being formed these days at $10 / share and you bagged $200k in equity / $100k cash comp. The SPAC goes up to $30 / $40 share. In looking at current SPAC prices, and assuming a degree of discernment by the prospective SPAC-joiner, you're looking at 3-4x in a relatively short time frame, above what you can probably receive in fixed cash comp working at a stable UMM / MF PE job.
Now, you could end up at a SPAC that putters along for a couple years and doesn't close a deal, but assuming you do have the judgment to join somewhat of a winner, this seems like a great way to make a solid amount of money early on. From there, you can probably get back into PE, or do something else, but importantly, you have a strong base of wealth early on from which you can start to compound earlier in life.
I am too risk averse to leave my job for a SPAC, but it's an entertaining idea. Thoughts?
The issue is that you have lock-ups on your promote and warrants, even if the stock goes to $30 / $40 (which is truly a phenomenon of 2020 / 2021) you cannot sell until your lock-up provisions are satisfied. The true benefit of working at a SPAC is being able to invest in the sponsor vehicle, where you can compound wealth over time if you choose great targets.
Makes sense, I did not think about / know about that. Can you describe more how these typically work for SPACs?
Promote and warrants have a lock up that expire the earlier of 1) one year post-transaction or 2) stock trades at a certain VWAP premium for 20 days or so.
At the ASO/VP level your value add is most likely doing the heavy lifting of setting up the SPAC. Getting all the entities formed, bank accounts opened and linked, bookkeeper/auditor matters, handle the lawyers, etc. This also all happens on a compressed time frame because everyone wants to get their SPAC filed and priced before the market cools. It is a cool skill set to have as you basically get a crash course in setting up an operating business. You will also be responsible for constructing the marketing deck and assisting the bankers with the testing the waters and IPO process. Typically your underwriting bank will stay on to help you find deal flow, especially so if you give the underwriter a cut of the pie which is not unusual. A good banking relationship will help as they'll do a lot of the pre screening, but otherwise you will be chasing down deals in a super competitive market (depending on what your SPAC wants to target). Ideally your management team already has an idea of what they want to do, so they will do a fair amount of dialing their contacts, and board members are also useful for this purpose. I'd say its more likely your management team / board will be the source of your final deal as opposed to you screening stuff brought to you by the bankers.
Still, this is good experience and you'll learn a lot, especially if you are a one man associate / VP. Just keep in mind you're gonna do a lot of ops stuff. If you look at use of proceeds charts for SPACs you can see how they budget expenses. SPACs want to spend the least amount of actual cash as possible which is why your compensation will primarily come in as stock consideration. SPACs are super focused on spending the least amount as possible because it all has to come out of the founders pockets.
The warrants actually have a much shortly lock-up (assuming your not a control person) - usually 30 days post-closing after the registration statement is effective. If you invest in the sponsor vehicle you will be purchasing warrants at $1.50 / warrant (plus some allotment of founder shares for free / a nominal amount, depending on the deal that is struck with the founders).
Based on what I've seen, underwriters typically don't take a piece of your promote - unless you're referring to some of the smaller banks such as EB cap, etc. The BB firms usually only take an upfront UW fee and a backend fee on the de-SPAC.
Finally, you're not wrong regarding the ops work (assuming its a small team). If you join a more established SPAC platform with multiple SPACs, hopefully they have employees who are specifically dedicated to these types of activities so that the investment team can focus on deal execution.
You’re joining an ultra-competitive market that’s pushing valuations ever higher... some SPACs have obviously done well over the past year, but 18 months from now when you and 200 other recently-raised SPACs are all reaching the tail end of your lifecycles and bidding on the same assets, you better hope that there’s still investor enthusiasm to back you up
how is that any different from working at your current job and spending 100% of your bonus (and saved base) on 1-2 SPACs you really find interesting (or buying any stock for that matter)? If it works you make 3-4x and if you don't it goes to trust value (maybe slightly below) and you can sell if you don't like the deal vs look around for a new job
He would be paid in founder shares, not regular common shares. Founder shares are effectively purchased at $0.03 per share. If he was paid 25,000 founder shares then on the day 1 $10 IPO it would be worth $250,000
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