The madness has led to trouble. Shares of Nikola, an electric car startup listed through SPAC in June, fell more than 80% after Hindenburg Research, an investment fund, accused the company in September of lying about Its technology, exaggerating business transactions and deceiving truck rolling down hill in product video. Trevor Milton, Nikola’s founder and chairman, resigned, and the Securities and Exchange Commission and the Justice Department began investigating the company.
The SEC has also opened requirements for Clover Health, a health insurance startup and Lordstown Motors, an electric truck startup, both of which have been made public through drum testing companies in recent months.
On March 10, the SEC warned that SPACs face distinct risks and potential conflicts of interest. The agency specifically criticized those supported by celebrities, concluding that “celebrities, like anyone else, could be lured into a venture capital investment.”
Currently, specialized vehicles are still stalking the targets.
Jedidiah Yueh, the chief executive of Delphix, a data infrastructure company in Redwood City, California, experienced this interest firsthand. Mr. Yueh, who founded Delphix 13 years ago, said SPACs started reaching out last summer when his business began to experience a pandemic. The company, which helps clients process and automates data, has recently been profitable and a candidate for publicity.
But Mr. Yueh said he has not yet decided whether Delphix will list its shares to the public through a traditional offering or another route, such as a “direct listing” or SPAC. As he flipped through the options, SPAC flooded his inbox with text messages almost every day. One person even sent a parcel to Delphix’s uninhabited office last year while everyone was working from home during the pandemic.
Mr. Yueh said he met some SPACs out of curiosity. But he quickly got a feeling that the sponsors were telling him whatever they thought he wanted to hear. When they know that Delphix is profitable, “they just need to switch gears and talk about how easy they are,” he said.
He said that he stopped reacting to cold throws and created a canned response to avoid others. The investors he meets are not the long-term supporters Delphix wants, he said. But nodding to the celebrity-backed SPAC trend, he added, “I’ll have a meeting with Shaq.”