Primer on SPACs with Kevin Hartz and Troy Steckenrider of A* and AONE

Ben Gilbert (0:00)

Hello, Limited Partners. Today, we have a very requested episode, a primer on SPACs, or Special Purpose Acquisition Companies, with Kevin Hartz and Troy Steckenrider.

As folks who have been following the recent news know, Troy and Kevin have a SPAC of their own called One, that they just brought public last week. It's a $200 million SPAC. We won't do Kevin's full bio since you likely just heard it in the Eventbrite episode. But Kevin Hartz is a part of the PayPal mafia, having invested early in PayPal and also started Zoom with an X, a international payments company that IPO'd and would go on to sell to PayPal in 2013 He's the founder and first CEO, later succeeded by his wife Julia on Eventbrite, where he's now chairman of the board. He is also an investor and advisor to Pinterest, Uber, Airbnb, Trulia, Thumbtack, Gusto, and many more. And most relevant for this episode, of course, the recent proud father of one of the many SPACs that are out there. And I think we'll talk about how this landscape is quickly evolving.

Troy is Kevin's co-founder on their SPAC. One, Troy was most recently the COO at real estate startup Zero Down. It's a YC company and was the director of capital markets at Opendoor before that.

He has a former private equity and consulting background from Bain Capital and McKinsey.

Welcome both of you and thanks for joining us.

Troy Steckenrider (1:28)

Great to be here.

Ben Gilbert (1:29)

So the very first way that we're going to start this episode, other than talking about Kevin and Troy SPAC and sort of getting into a lot of the analysis of why this is happening right now, is we want to sort of deconstruct it and talk about the mechanics, because I think a lot of people have read things like blank check company, or you understand that there's a lot more of them now than there were before, or you might even understand it's a reverse merger and it's an easier way to go public.

Because the sort of empty shell SPAC merges with the company that has full-fledged operations, but like how the heck does that all happen? And the very first thing that I'll say is if this is interesting to you, we've put a link in the show notes. John Luttig has a substack piece that goes through the mechanics that I know both Troy and Kevin weighed in on and helped look over before publishing. So it's a great piece. If you want more after listening to this episode, you should go check it out.

So I thought a great place to start is to talk chronologically about a SPAC and then the steps that it will go through to eventually bring a currently private company public. So Kevin or Troy, I don't know which one of you wants to take this, but take us through sort of what's the very first thing that happens to form a SPAC.

Kevin Hartz (2:44)

Well, I'll let Troy take this because he's the professor.

He's really the SPAC professor and will give those kind of technical details and give them to you in a very simple and straightforward manner, which we all kind of scratch our head. What is the SPAC thing? So Troy, why don't you take it away?

Troy Steckenrider (3:00)

Sure. Happy to, Kevin. And I think you oversell my knowledge of this. Happy to explain it to those listening.

So the process of a SPAC begins with a sponsor team deciding to do it. It's actually relatively easy. You then hire your attorneys and your bankers. And those are kind of the biggest selection decisions to be made. Once you do that, you begin drafting an S1. That can take anywhere from two weeks to a month or longer. And then you submit that S1 to the SEC for review. Typically, because these are relatively formed documents, because at the end of the day, you're just raising a pool of money. You tend not to get too many comments or delays there.

Once the SEC is done with its review, you then publicly file it and you'll see those publicly filed S1s pop up more and more these days as different people announce their SPACs.

You then begin a roadshow and discuss it with investors. And then you start an IPO, very similar to traditional IPO. You build a book of investors and then look to fund it from those investors as they purchase into the SPAC. What's a little bit distinct here is unlike primary capital that would normally go to the company's balance sheet to be used for general working purposes, with a SPAC, the IPO proceeds all go into a trust account. And that trust account is held unaccessible to the sponsor management team for the future deal. With the closing of the IPO, the management team is put on the clock. Typically, it's two years to find and consummate a merger transaction.