But transitioning from a startup to a publicly traded firm with more investors and increased scrutiny from Wall Street analysts and government regulators is not easy.
“There has been so much SPAC activity that the market was getting indigestion,” said Duncan Davidson, general partner with venture capital fund Bullpen Capital. “We need a pause.”
For private companies that have yet to go public, it may be time to think twice about how soon they want to get to Wall Street — and whether it might make more sense to do so through a traditional initial public offering instead of a SPAC.
Clay told CNN Business that SPACs still make sense for companies that face a longer road to profitability, such as life sciences firms and electric vehicle startups.
Not all SPACs are overvalued, but beware the ‘stupid’ ones
And despite the SEC’s concerns about SPACs and accounting, Clay thinks that quality deals will still get done, especially because the Federal Reserve is likely to keep interest rates near zero for the foreseeable future.
“The pandemic created an environment where the stock market went down sharply, but the resulting monetary policy response insured that there’s more oxygen for deals,” Clay said. “We’re not done yet. The bull market has years to go.”
“There are excesses in the SPAC world. There are already stupid SPACs,” he said. “But that’s normal in a boom. Some stocks will win big and others will lose. Investors have to play the field.”
Davidson said that for companies in emerging, aspirational industries like space exploration, electric vehicles and alternative, plant-based foods, it makes the most sense to go public through SPACs. Older while older tech firms are likely better off pursuing IPOs.
But buying a portfolio of new stocks that have gone public through a variety of methods can still make sense for investors, said Josef Schuster, the founder of IPOX Schuster LLC, which runs several IPO indexes.
Nothing wrong with investing in older, more mature companies
Schuster said he’s a little wary of the sky-high valuations for new tech companies, noting that the market is “saturated a bit” and that “there is no room for error with the pricings being as high as they are.”
He also warned investors to not get seduced by the big first-day pops when a new stock hits the market.
Typically, the average investor doesn’t benefit from that initial gain because they have to buy shares after the companies begin trading. Only insiders, hedge funds and other big institutional investors can cash in on the initial surge.
That’s why Schuster thinks there are better opportunities for investors to buy recently public stocks in more stable and mature industries.
Looking ahead, Schuster is also bullish on Latham Group, a 65-year old maker of in-ground swimming pools that is planning to go public later this week with the ticker symbol “SWIM.”
It just goes to show that a company doesn’t have to be high tech to make it on Wall Street.