Will This Old Financial Tool Transform Tech Investing?; Going Public Circa 2020; Door #3: The SPAC; The Millionaire Who Gave Moderna a Shot; My Volvo saved me from a car accident yesterday

By Whitney Tilson

Tuesday, October 6, 2020

1) In anticipation of my colleague Enrique Abeyta’s SPAC Investment Summit, which will take place on Thursday at 8 p.m. Eastern time (you can register to attend right here – it’s free to attend!), I’ve been collecting a number of insightful articles about the sector, which I’ll be sharing over the next few days.

As a starting point, here’s New York Times tech columnist Kara Swisher… She’s very bullish on SPACs: Will This Old Financial Tool Transform Tech Investing? Excerpt:

While this investment instrument has been around for a long time, it has suddenly become the hottest way to raise capital, especially in tech. More than $30 billion has been raised so far this year through 75 SPACs. That’s more than double last year, with more to come in 2020.

It’s a good sign, since SPACS offer smaller, innovative and big-idea companies – like electric-transportation start-ups, savvy health care firms and space-exploration companies – a way to get enough capital to evade the tractor beams of bigger companies and reach escape velocity as independent businesses.

SPACs are essentially a back door to taking a start-up public, an alternative to a traditional IPO. An acquisition fund is formed – the SPAC – with a so-called blank check: Its goal is to acquire an unspecified company within two years. The target company becomes public through the merger.

Once used mostly by distressed companies in need of cash, SPACs are now seen by many forward-leaning companies as a way to go public with a lot less scrutiny and a lot more speed.

2) In her article, Swisher links to this insightful blog post by influential venture capitalist Bill Gurley: Going Public Circa 2020; Door #3: The SPAC.

Gurley discusses the pros and cons of the other two methods by which companies can go public, the traditional IPO and a direct listing, and then concludes by writing this about SPACs:

So what are the benefits to choosing Door #3 and using a SPAC to enter the public market?

  1. SPACs have a much lower cost of capital versus a standard IPO. Even before negotiating terms, the SPAC is a cheaper way to go public (because of systematic underpricing). When you are able to improve the terms it becomes a clear no-brainer.
  2. SPACs have access to primary capital which is an advantage versus today’s version of a Direct Listing.
  3. With a SPAC the company has much, much more control. The company negotiates the company value/price directly with the single Sponsor (as well as many other aspects of the transaction). If you like being in control, this is a good way to go. As I mention above, watch out for the PIPE as this has the potential to recreate the oligopoly power of the large institutional investors (and will likely lead to price reduction).
  4. SPACS are a much faster way to become a public company. The SPAC door is much faster than an IPO or a Direct Listing, which will both take 6-7 months from beginning to end. With a SPAC you could be public in two-months from when you start the process (assuming you have your house in order). This time window may or may not matter to you.

The bottom line is that SPACs are a very legitimate path to the public markets. They have a lower cost of capital vs a traditional IPO. That cost of capital is falling due to market pressure, whereas it is rising for the IPO. The SPAC has fresh capital whereas the Direct Listing does not (yet), and the SPAC is clearly the fastest path to the public markets (which is a form of risk reduction). I fully expect to see high profile companies walk through Door #3.

3) What a great story in the Wall Street Journal! The Millionaire Who Gave Moderna a Shot. Excerpt:

The first time hedge-fund manager Patrick Degorce met with biotech company Moderna (MRNA), it was a hail-Mary effort to find a cure for his wife.

It was 2011 and the woman who was his high-school sweetheart before marrying him had recently been diagnosed with stage 4 lung cancer. Mr. Degorce enlisted several friends in his search for treatments, including experts in cancer and thoracic surgery. One had told him he should meet with Moderna, then a startup near Boston that had about 10 employees.

He was so intrigued by what he heard that he began personally investing in the company starting in 2012. He also gave a $500,000 grant to fund Moderna’s initial expansion into cancer research, including the hiring of its first two oncology scientists.

Nearly a decade later Moderna is one of the hottest bets in the biotech world. Moderna’s stock price surged 252% this year while the company emerged as a front-runner in the global hunt for a coronavirus vaccine. It is one of roughly 10 vaccines world-wide in Phase 3 studies, and Moderna’s study should yield a preliminary answer about whether the shot works before the end of the year, its chief executive has said.

Few investors are better positioned to benefit from Moderna’s rise than the 51-year-old Mr. Degorce and his $2.5 billion London hedge fund Theleme Partners LLP, which had a quarter of its fund in Moderna earlier this year and is one of the company’s 10 largest shareholders. It now has a roughly 20% position.

When Mr. Degorce started investing in Moderna, it was valued at around $125 million. Now the company is worth more than $27 billion, more than many drugmakers with medicines already on the market, even though it has no product revenue.

4) As I was driving home last night, I was in the middle lane of a three-lane highway. My exit was coming up, so I put on my blinker and started to move into the right lane – but didn’t see a small black car in my blind spot, passing me on the right!

I likely would have side-swiped the other driver… but the sensors in my car, a 2018 Volvo XC60 (the safest car in the world, according to this study), detected the other car and literally jerked my steering wheel to the left, avoiding the collision. Phew!

I knew about my car’s orange blind-spot warning lights in both of my side-view mirrors, as well as a frontal collision avoidance system (which has saved me from rear-ending other cars on a few occasions), but I didn’t know that it also has a side collision avoidance system!

This reminds me of something one of my readers, Andy C., e-mailed me a while ago:

I’ve been a subscriber for a long while. I have finally taken your advice and bought a new car with all the safety features that you pointed out were so important.

I got a BMW X1. Interestingly, at least as far as Europe is concerned, the many safety features like lane assist and emergency breaking, etc., are NOT standard. I had to pay extra to get them, but based on your prompting, I think it was well worth it!

I have very strong feelings about this.

As background, until just a few years ago, I can’t recall even one serious car accident involving me or anyone I know. But just in the past two years, my wife, two cousins, and three friends have been in six accidents in which their cars were totaled, resulting in multiple concussions and, tragically, two deaths.

This has affected me deeply, and it led me to do a lot of research on car safety. There’s both good and bad news…

Regarding the latter, the U.S. has more fatal accidents per mile driven than any other industrialized country. But it wasn’t always this way. In 1990, the U.S. had 10% fewer fatalities per mile than Australia or Canada, but now has 40% more.

Over the past three decades, we’ve improved a little, while those other countries improved a lot thanks to aggressively tackling two of the biggest causes of fatal accidents: high speed and being under the influence of even moderate amounts of alcohol. Had the U.S. kept pace, 10,000 fewer people would be dying on our roads each year (car accidents in 2019 killed 38,800 Americans).

The good news is that U.S. fatalities per mile driven have declined 4% in the past two years, after rising 13% in the two years prior – no doubt due to more cars having advanced safety features such as those outlined in this Consumer Reports article, Car Safety Systems That Could Save Your Life.

So what should you do to protect yourself? My detailed advice is in this 2018 article, Why you should get a new car. Here’s a summary:

  • Drive more slowly and carefully. Just set your cruise control and relax…
  • Don’t get behind the wheel, even if you’ve only had a couple of drinks and don’t feel drunk.
  • Always wear your seatbelt. The 15% of Americans who don’t wear seatbelts account for half of auto fatalities.
  • If your car is moving, don’t even glance at that incoming text, Snapchat notification, etc.
  • If you’re feeling tired, do something about it – no matter how close you are to your destination. Don’t just keep driving, like my wife did (described in the article above)…
  • When you’re renting a car, pay a few extra dollars a day to get a full-size car or larger.
  • If you’re driving a car more than five years old, get a new one if you can afford it.
  • When you’re buying a new car – again, if you can afford it – pay up for a safer one with the latest safety features.

Best regards,


Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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