Let’s look back at the internet bubble. A VC firm would IPO 4 million shares at $20, the stock would open at $50 and end the day at $100. Everyone chased it to get in. Then the brokers would upgrade it and the CEO would go on TV. With a 4 million share float, it was easy to manipulate the shares higher. Often, the newly IPO’d company would level out well north of $100 a few weeks later. It was a virtuous cycle and everyone played the game.
What was left unsaid was that there were another 46 million shares held by management and VCs and these shares would hit the market 180 days later. At first, the market absorbed the new supply so no one showed concern—then the market choked. I wrote about this when talking about the QS unlock. This process is about to repeat, but now with the odd nuances of SPACs.
A typical SPAC deal involves a few hundred million dollars raised for the SPAC trust—this is the only real float. Then a few hundred million more is raised for the PIPE—these guys are buying at $10 because they plan to flip for a gain as soon as the registration statement becomes effective—which is often a few weeks after the deal closes. When a company merges with a SPAC, billions in newly printed shares are given to the former owners—those shares start to unlock a few months later in various tranches. Finally, the promoters behind the SPAC get to sell.
I think the past few weeks are more than a simple pullback—the losses from the SPAC bubble are going to dent the Ponzi Sector psychologyPonzis Go Boom!!! | Wolf Street