Our startup is in the process of getting acquired and the buyer is promising a SPAC to happen at an unrealistic valuation

[andrew888]

@ivry321 There are and will be decent SPACs, too. It’s just another means of getting a company into public markets. But I agree that there has been a massive amount of SPACs that acquired trash companies that should’ve never been available to retail traders (or anybody for that matter) to be traded. The vast majority of SPACs and IPOs underperformed the market greatly in the past couple of months.

 

[zondaar39]

@enidan I've put 2 companies into SPAC type vehicles. All equity deals are normal, but usually you'd make the whole deal contingent on the SPAC transferring money, and you taking control of the board of the SPAC.

If you want detail, happy to chat thru.

 

[benjammin13]

@enidan Promises are great. Believe them when you have the money in your hand. If they're giving excuses as to why they can't give you the money, you're not going to get the money.

 

[cynthschatz]

@enidan Sounds like a scam

 

[christissovereign]

@sara50840 Right. This is a more common scenario. A three person company valued at $7 million considering a buyout likely isn't the type of company that's long for this world. If the salary is high enough, then you'll get more in salary over 2-3 years than the deal is worth and maybe cash out someday in the future.

 

[leandrocarvalho29]

@enidan I’d never give up my company for on paper valuation. This is too risky.

 

[emilycarter]

@enidan you guys have $120mil in revenue now? unless you're looking for an immediate exit it seems prudent to grow.

All of us are only getting shares in the acquiring company

ok when is your actual cash coming in though? that other company has to then be sold for you to cash out? seems easier to just sell your company once to someone else than twice to them

 

[markyboy2k15]

@enidan

When I asked their finance person this question, they mentioned that the company is making 120 million in revenue and an 11.6x valuation (1.4 B) is not unrealistic

It depends how fast a company is growing & their margins but in what world is a 11.6:1 revenue to market cap realistic?

Their margins and growth had better be insane to justify that.

Does a SPAC guarantee to raise 1.4 billion ? Or is this the valuation after they start trading or hope to achieve ?

No it does not. And it's probably an inflated valuation.

 

[kanandele]

@enidan I had something similar offered to us but we turned it down. The problem is that you lose your operational independence.

I didn't want to amalgamate with some other people that I didn't know and run a division.

 

[jeanbaptized]

@enidan I went through this. When you get nothing but promises, it usually ends up with getting nothing.

If you do decide to sign, make sure you have an escape clause. One line that says "in x years, if SPAC does not happen, this deal is null and void"

 

[613jono]

@enidan 11.6x revenue valuation for a fast growing fin tech or SaaS company is realistic. Look at some of the recent tech acquisitions and SPAC/IPOs.

SoFi for example, even after the recent dip is trading at $11.2B market cap with $870M Trailing twelve months of revenue.

Marqeta $MQ is trading at $6.4B with $449M TTM revenue.

 

[enidan]

@613jono Thank you. That’s reassuring

 

[pomegranate]

@enidan Keep in mind, this is all speculative.

Speculative equity value ≠ dollar value

Start with a dollar value of what you think your company is worth in cash today. Then add a risk adjustment based on the probability this SPAC succeeds or fails. Some SPACs succeed, some crash hard. The company has to pay a premium if they don’t pay in cash because they are adding risk.

Personally, I would be very skeptical about any prospective SPAC with the current pullback in equity markets.

 

[blessed15]

@enidan Hopefully you’re being compensated for the additional risk associated with the illiquid shares. What’s your company’s (the 3 person startup) last 12 months of revenue - and what’s it worth at a 12x multiple? Say your stake comes out to be worth 7mm using the aforementioned parameters. That’s 7mm of cash, but I’d argue you’re 7mm of illiquid stock isn’t worth 7mm, it’s worth less bc of illiquidity. So I’m that case, I’d want more.

You can run the above analysis with some other assumptions - might assume a lower multiple than 12x for the 3 person startup bc it’s smaller - but just trying to set up another analytical framework to consider.

 

[dswain3k]

@enidan A SPAC at an unrealistic valuation? You mean every SPAC to ever exist?

 

[petercm]

@enidan Can you wait for a better offer? What do you value your co at?

 

[christian8668]

@enidan Most spacs have not done well. After the company goes public via a SPAC you may be prevented from selling as an insider for some period of time. 6month or 1year (don't remember exactly). During this time the stock often slides, sometimes a lot. The 1.4B valuation could go up but it could also go down.

If you're doing an acquisition, ask for a % of the transaction in cash to hedge your bets.

 

[virious]

@enidan I'd be cautious of a non-cash deal, really depends on the size and reputation of the SPAC

Does a SPAC guarantee to raise 1.4 billion ? Or is this the valuation after they start trading or hope to achieve ?

Again, depends on the size and reputation of the SPAC. Have they had successful capital raises on that volume in the past?

For a 3 person startup it's very difficult to justify a >billion dollar startup, really depends on your income projections and similar comparables to understand a typical valuation multiple.

 

[cloakforsword]

@enidan My small, niche company, too, is on the verge of getting acquired for all stock. The thing is we're getting hired in executive positions with nice salaries and believe in the other founders who are way more experienced than us and have extremely valuable networks that we will be tapping into. Also, we're a long way from making real money on our own, and going it solo in our smaller market will be much harder for likely less payoff. You gotta look at total ROI for yourself. Is it worth you roughing it on your own and taking a large piece of a smaller pie? Or do you hitch a ride on a fast moving train and take a small piece of a much larger pie? Also, a win is a win. If you sell its an exit and that's serious credibility for any founder. But I think you have to really believe in the other founders and their business model/technology. You also have to look at how fast you're growing and be honest about your business prospects of going out alone. For us we're choosing them for the winning team, proprietary technology, and huge market. Oh yeah and nice salary, benefits, title are good for me in my life right now with two kids. Good luck to you!

 

[wantstoknowjesus]

@enidan If they don't have cash, you better have questions (and they better have good answers!)