Zillow's former CEO Supports SPACs, Wishes He Had Used One When Going Public


Zillow’s 2011 IPO could have been popping champagne, instead it was a “facepalm moment” for employees and founders.

Zillow’s former CEO, Spencer Rascoff, said he experienced a “facepalm moment” when the stock price shot up 200 percent within minutes of trading,

“I was bothered by that spike for years to come,” Rascoff tweeted as he touted the Special-purpose acquisition companies "SPAC" and the benefits of the investing tool.

SPAC aka blank-check companies do not have no assets. They are formed in order to merge with startups and take them public (161 SPACs have gone public in 2020, raising $59.4 billion. That’s up from 59 SPACs that raised $13.6 billion in all of 2019).

The certainty largely has to do with price. For a traditional IPO, executives endure grueling roadshows to drum up investor support, and investment bankers price the stock based on interest. If a stock is priced too high, it won’t sell; if it’s priced too low, it can take off like Zillow on the first minutes in trading. However, this means that the company could haveraised more funds.

With a SPAC, the share price is negotiated ahead of the IPO.

“The typical tech IPO trades up by 43% one day later,” Rascoff said. In Zillow’s case, the stock jumped to $60 from $20 per share on its first day of trading, leaving employees and investors “penalized by the broken IPO system.”

Investors like Bill Ackman, Alec Gores and Chamath Palihapitiya, along with private equity firms Apollo Global Management and TPG Capital have all gotten into the SPAC game. Spencer Rascoff now joins them with his Supernova Partners Acquisition raised $350 million in an IPO last week. Also landlord Tishman Speyer formed a $300 million SPAC in order to merge with a proptech company.

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Economics, Finance and Investing