‘Spacs are for me the sign of a completely overheated market’

'Spacs are for me the sign of a completely overheated market'

The start-up world is in Spacs fever. In an interview, founder Nils Seebach explains why he would rather ban them altogether.

As a serial founder and consultant for digital strategies, there are many topics that keep Nils Seebach busy. With the new hype around Spacs, empty shell companies that help startups get on the trading floor, there has been another one for a few months now. Shortly before Easter the former investment banker took some time and sits in front of his laptop camera. His message to the start-up world: Keep your hands off the Spacs.

Mr. Seebach, the German startup community seems to be in absolute Spacs fever right now. They are not, why actually?

Spacs for me are the sign of a completely overheated market. We are currently living in a start-up world where it has never been easier to get money quickly. We currently have an oversupply of capital.

One or the other founder, especially with a view to Germany, might see this quite differently. How do you know?

Looking at Berlin alone, one financing round is chasing the next at present. Funding of more than 100 million euros used to be an absolute rarity, but now it's becoming more and more common. There is currently more capital than is actually needed chasing the supposedly big deals. Money now has to "go somewhere," so investors are building shell companies; they're putting it into financial products that don't actually make any sense at all. The Spacs volume is already so high – I don't even know which companies they all want to take over with it. It's not like there are a lot of well-positioned companies that are just waiting for a spac to go public.

You say that such shell companies have only disadvantages. What do you mean?

When a start-up goes public via a Spac, there is no reasonable review of the business model compared to a traditional IPO. It all happens much faster. One must nevertheless once question, why a Start UP takes this fast vehicle. Many companies are probably only doing this because they are not yet ready for a normal IPO. I assume that a lot of startups that go public via a spac are second class companies and they won't be successful afterwards either. The first to suffer from this are the private investors who entrusted their money to the Spac and, in the worst case, lost it. Subsequently, the start-up scene falls into disrepute. A downward spiral is developing.

Many players in the start-up scene don't seem to have your concerns at the moment. How do you explain that?

I don't get it either: if I can go to a growth investor who understands startups, brings his expertise to the table, why do I go for a spac instead?? Such an IPO only makes sense if I want that there is not quite so closely looked at. The chance that such a company will subsequently fail miserably is high. The only need I see is for startups that can't get money through a traditional financing round because their business idea goes against the investors' standards. That might be true for startups in the cannabis space, for example, or for young companies in the defense industry.

Behind the Spacs there are often famous investors, in the USA sometimes even a former politician. Why should they jeopardize their names by ending up taking on a "second-class company"?

For me these are often mainly the fortune seekers of the scene. Let's say I was a rich investor and didn't really know where to go with my money at the moment anyway – then I would also take some of it and build a SPAC. If it works out in the end, that's all the better. If it isn't, it doesn't matter. The problem I see behind this is more for small investors and stock market beginners who also entrust their money to them.

If a spac doesn't take over a startup within two years, investors get their money back. Why is this not a good protection in your eyes?

Because I assume that the spac manager will rather take over some company than give the investors back their money. There are a lot of people playing in the exchange who need to be protected because they are just not professionals. When a celebrity then also promotes a spac, it suggests to unsophisticated investors a security that simply isn't there.

If you were the financial regulator, what would you do?

I would ban Spacs altogether. And if I can't bring myself to do that, then I would at least regulate them so heavily that the same rules apply to them as to normally listed companies. The question for the financial regulator is whether it wants to protect small investors, in which case it can only do so with a ban – or whether it wants to protect the market as a whole, in which case it needs more regulation.

About the person: Nils Seebach (Jg. 1982) is a digital entrepreneur, investor, and supervisory board member. As a serial (co-)founder of two dozen companies. Consultant for digital strategies, he is actively working on the digitization of Germany. Today, he is primarily CFO of the strategic digital consultancy Etribes. As the founder of Wald& Wiese Holding.

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