The more things change, the more things seem the same…

Back in the late 1970’s and early 1980’s, we were bringing to market a pretty revolutionary device.  It would be the size of a large toaster oven, and dispense purified (as in no dissolved solids and no microbes) water for drinking for the home.  This was also before folks filled up canteens full of drinking water to take with them.  Our goal was to satisfy the drinking needs of up to 6 folks in a home.  (We had a larger unit that would let folks fill up great reservoirs and for larger families.)

As our advisors were interviewing underwriters, we were approached by two or three folks who were running what were then called blind pools.  These direct participation or limited partnerships had nebulous goals- other than making money.  It raised money from investors, banking on the head of the pool to make the right decision to make the investors rich.  (These vehicles were also known as blank check underwriting or blank check offering.)

Why would we entertain such a vehicle?  The principals in our firm were all young; I was the oldest at then not quite 30.  Except for my business and academic background, none of us had the kind of background that would excite investors.  (This is way, way before startup mania took hold in America.)  Also, we were based in a backwater sort of region (Charlottesville, VA), which did not attract attention as hotbeds of innovation.

But, we were also noticing that a lot of these blind pools were…how does one say it?  A few cards short of a deck?  Not quite legitimate.  And, they were misleading investors.  So, we never went that route.  Even though it was intriguing.

By the early 1990’s, the concept of blind pools had run its course.  Too many were simply fleecing operations, getting money from investors who had no chance of ever recouping their investments.

Until now.

When the blind pool industry is now known as SPAC.  Special Purpose Acquisition Companies.  They are publicly traded firms that only owns cash- no business plan or operations.  They exist for similar reasons that the blind pools did- interest rates are virtually zero and many investors are chasing young companies.  So, the SPAC (once funded) can acquire a private firm (or two or three), rendering them a public company with very little oversight or hurdling the pitfalls of IPOs (initial public offerings).  (They typically have two years to acquire a firm or they must return the funds to the investors.)

With almost $ 100 million raised, they account for 70% of the firms that have gone public this year.  And, as far as we can tell, success is no more guaranteed that it was when they were called blind pools.  And, the pricing of the stock is pretty generic- $ 10 a share, since no one knows which company will be acquired.

And, once the SPAC has identified its target, then all sorts of inflated growth and prognoses abound.  Because, as opposed to traditional IPO’s, there are no regulations governing these operations.  Not surprisingly, the big winners in these schemes are the original sponsors- not the funding investors. And, once the merger is complete, there is a name change, to reflect the identity of the acquired entity.

They still scare me!

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