Spencer Rascoff is aware of fairly a bit about taking an organization public. He helped launch Zillow in 2005 and led the Seattle actual property big by means of an IPO in 2011. Rascoff was on the board of Zulily when the web retailer went public in 2013, and is a board member at Palantir, which accomplished its IPO final month.
Now, the previous Zillow Group CEO is attempting his hand at one of many hottest traits in tech as we speak: SPACs, or particular goal acquisition firms.
Often known as “blank check” firms, SPACs sometimes should not have a longtime enterprise and are used to boost funds by way of public providing for a future merger or acquisition by a particular deadline.
Rascoff, together with a gaggle of veteran tech execs and buyers, simply raised $350 million for its SPAC: Supernova Partners Acquisition Company. There was excessive demand as the corporate elevated its preliminary providing by $50 million.
Extra firms resembling Zillow rival OpenDoor and DraftKings are utilizing the tactic as a substitute for the standard IPO course of. There have been 151 SPACs this 12 months, up from 59 final 12 months, in keeping with SPACInsider. The Wall Street Journal reported this week that “SPACs could be the bubble that never quite pops.”
Rascoff began the SPAC with Alexander Klabin, Robert Reid and Michael Clifton. Klabin previously led Senator Funding Group and can quickly turn into government chairman of Sotheby’s. Reid spent 21 years at Blackstone. Clifton was most lately a senior funding skilled at The Carlyle Group.
“We intend to partner with an advantaged growth company that benefits from thematic shifts and tech-enabled trends,” Supernova Companions Acquisition Firm wrote in its IPO filing. It’s firms within the broader tech sector valued at between $1 billion and $5 billion.
The corporate’s board members embrace Ken Fox, founding father of development fairness agency Stripes; Damien Hooper-Campbell, chief variety officer at Zoom; Jim Lanzone, CEO of Tinder; Gregg Renfrew, CEO of Beautycounter; and Raj Singh, CEO of Accolade.
Rascoff helped begin Zillow in 2005 after promoting Hotwire.com to Expedia. He was CEO for practically 10 years earlier than stepping down in early 2019. Rascoff resigned from the corporate’s board in April.
Final month he launched a new startup called Pacaso that goals to make it simpler for extra folks to personal a trip dwelling. Rascoff can also be chairman of dot.LA, a Los Angeles-based media venture he co-founded in January.
We caught up with Rascoff to be taught extra about Supernova and the benefits SPACs presents over the standard IPO route. The interview is edited for brevity and readability.
GeekWire: How did the thought for Supernova begin?
Spencer Rascoff: I’ve identified about SPACs for a very long time. My co-founder from Hotwire, Karl Peterson, returned to TPG after we offered Hotwire and have become their SPAC lead. So I’ve all the time realized about them and paid consideration to them as a result of he was my enterprise associate. Nevertheless it wasn’t till lately that very prime quality firms began contemplating going public by merging with SPACs. It’s beginning to create a virtuous cycle the place prime quality firms are attracting prime quality sponsor teams, prime quality sponsor teams are merging with prime quality firms, and one begets the opposite.
I began to see that pattern a couple of 12 months in the past. On the time, I reached out to my buddy Alex Klabin. We labored at Goldman Sachs as fellow analysts within the M&A division a few years in the past at our first job out of school. I advised Alex that what I saved listening to within the founder group and within the enterprise capital group is a rising curiosity on this third approach of taking an organization public. There’s the standard IPO itemizing course of. There’s the direct itemizing course of. And more and more entrepreneurs and enterprise capitalists have an interest on this third wave, a SPAC.
The rationale that there’s curiosity in it’s as a result of the standard itemizing course of is damaged. It has so many shortcomings, not the least of which is the truth that the standard tech IPO trades up 43% on common. The media normally misreports that as a hit; I have a look at that as failure. I have a look at that as having left an unlimited amount of cash on the desk. Solely lately did luminaries like Bill Gurley start to point out that the emperor has no garments, that the IPO course of, whereby shares commerce up wildly after the providing, represents an unlimited quantity of misplaced worth handed by the issuers on the tech firm over to the hedge fund group.
I’ve been a purchaser of SPACs as a public market investor for the final 10-plus years as a result of Alex ran a $10 billion hedge fund, Senator, for a few years. He had stepped down and retired, and we began speaking about what placing collectively a SPAC may appear to be. We shortly agreed that there was a 3rd lacking piece of this puzzle, and that was the non-public fairness expertise. At its core, a SPAC is an M&A train. A SPAC raises cash from the general public markets, places it in belief, after which goes and finds an organization to purchase and merges with that firm, thereby taking that firm public.
So it’s an M&A deal, a giant M&A deal. And no one’s higher at M&A than non-public fairness buyers who see lots of of firms and do dozens of offers over their profession. We partnered with Robert Reid, who ran tech non-public fairness at Blackstone and was there for 21 years, and with Mike Clifton from Carlyle — two of the perfect non-public fairness companies.
GeekWire: What will get you excited a couple of SPAC, versus the standard path, each for firms and buyers?
Rascoff: There are particular advantages. One is the mentoring and counsel that the merger firm will get from partnering with the SPAC. Two, it’s a a lot sooner approach to go public. A SPAC IPO merger will be accomplished in a matter of weeks, versus a conventional IPO course of which may take over a 12 months. Three, there’s worth discovery by means of a SPAC IPO course of. After we merge with the non-public firm, they’ll know precisely what their firm is price at the moment and there might be a negotiation. That’s in contrast with going public by means of a conventional IPO course of, the place they have an inclination to go away some huge cash on the desk. It’s a really inefficient approach to uncover the worth.
And 4, SPAC mergers enable for sharing of projections on the time of the SPAC merger, whereas a conventional IPO doesn’t. This is without doubt one of the explanation why you see some excessive development firms particularly drawn to the SPAC IPO course of. They will share their projections two, three, 5, seven years out, and permit buyers to have extra info and extra transparency with the intention to worth that firm. With a conventional IPO course of, they’ll solely give backward-looking outcomes, so it’s more durable for buyers to see the optimistic future that the corporate is attempting to convey.
GeekWire: Your IPO filings don’t reveal a lot about what sort of firm you’ll attempt to purchase. Are you able to share extra about that?
Rascoff: I’ll reply that simply by speaking about why I’m on this personally. As I look again on my profession, the one 12 months earlier than taking Zillow public and the a number of years after had been a number of the most attention-grabbing, difficult, enjoyable, dynamic instances of my profession there. I’m looking for the appropriate firm to assist recreate that cut-off date, the place I can add plenty of worth as they inflect throughout that development stage.
The kind of firm that we’re in search of is an organization that’s IPO-ready and would make an excellent public firm. It might be in numerous totally different sectors in tech — direct-to-consumer, e-commerce, advert tech, B2B software program, e-commerce marketplaces, actual property, journey. We deliberately saved this beautiful broad with the intention to forged our internet huge.
The corporate will in all probability be excessive development. It’ll in all probability have a administration group that thinks they might profit from having a player-coach like myself concerned within the firm. We’ve additionally assembled a very differentiated board. We’re going to be saying to a personal firm, ‘look, listed here are 4 folks in administration and 5 folks on the board. Listed here are 9 gifted folks — whose skillset do you assume could be most helpful for the challenges that lie forward? For a personal firm going public, a sponsored IPO — which is one other approach to describe a SPAC — presents a really engaging different to the standard itemizing course of.
GeekWire: Discuss extra about how your expertise at Zillow and different firms will come into play right here with the SPAC.
Rascoff: The transition from being non-public to public adjustments the extent of transparency at an organization. It might probably additionally current plenty of challenges and potential distractions for the staff. That’s one thing that we labored actually laborious on at Zillow, ensuring that the staff had been targeted on the long run and the staff didn’t get overly excited when the inventory went up and overly depressed when the inventory went down. Sustaining that view of the long-term horizon and staying unswayed by the brief time period vicissitudes of the inventory market is essential for any public firm, particularly a newly-public firm.
There are additionally plenty of learnings across the relationship that the administration group builds with the funding group in these first couple years as a public firm. On this regard, it’s not simply my perception, it’s additionally Alex’s perception from having been on the opposite aspect as a public market investor. It’s speaking to buyers what the important thing objectives of the corporate are, what the important thing methods are. It’s constructing the appropriate relationships with the appropriate shareholder base, curating the shareholder base so that you’ve the appropriate shareholders in the appropriate quantities to set the corporate up for stability and success.
Zillow Affords (Zillow’s home-buying arm) was additionally an space of monumental studying for me and can assist me be a player-coach to whichever firm we take public by means of our SPAC. That was an enormous enterprise pivot, switching from being a media firm that offered promoting to being a transactional firm that purchased and offered homes. It was just like the Netflix transfer from being a DVD-by-mail firm, from which they turned a streaming enterprise. And even what Disney is present process proper now, the place they’re constructing out Disney Plus as a direct-to-consumer enterprise.
Making that that change with Zillow Affords whereas publicly traded was a really heavy organizational elevate. We had to consider how we navigated that change with our relationship with the actual property trade, with our relationship with the investor group, and with our personal workers, amongst whom there was plenty of skepticism about that technique.
So whichever firm we find yourself taking public by means of Supernova, I can assist that administration group with no matter transition durations they undergo, whether or not it’s merely their non-public to public transition, or some extra existential problem that they face.
GeekWire: What’s up with the identify, Supernova? Any deep that means there?
Rascoff: We thought it sounded cool. It’s additionally the brightest assortment of stars within the sky, and we hope to let our merger associate burn vivid.
GeekWire: Lastly, what’s your tackle the tech trade proper now, going by means of this pandemic interval?
Rascoff: It’s clearly a really difficult time for the nation. Nevertheless it’s a really revolutionary and thrilling time for the know-how trade. What tends to occur in periods of serious change, is new alternatives come up. We noticed this in 2008 with the monetary disaster and we noticed this in 2001 following 9/11. All of the playing cards are thrown up within the air, and new winners often emerge by means of these durations of costs.
For instance, have a look at the adjustments in shopper habits of how they eat leisure. There’s been a radical shift in a really brief time period. We’re not going to reside leisure in stadiums or film theaters anymore; we’re consuming in-home leisure. That’s creating a brand new class of winners in streaming, it’s creating a brand new class of winners in social media.
Rascoff on the “hybrid workforce” of the long run: Look what’s occurring with firms round workplace area, and software program and worker engagement. Corporations have shrunk their workplace area to zero as most have shifted to do business from home. They’re going to begin opening places of work once more, and we’re going to begin having a hybrid workforce the place workers are there at some point per week or at some point each couple weeks.
Corporations are going to save lots of lots of of tens of millions of dollars in business actual property. I consider they’re going to show round and spend a few of that on software program to enhance worker engagement and worker morale and group effectiveness. So one in every of my private angel investing themes is HR tech, attempting to spend money on startups which are serving to with worker engagement and offering software program options to this new hybrid do business from home atmosphere.
By means of these durations of disaster, new winners emerge, and that’s why you see plenty of enterprise funding occurring. That’s why you see plenty of startups forming proper now, despite the fact that it’s such a difficult time for the nation total.