Investors’ SPAC push could revamp the private market money game

Since last year, we’ve been tracking the growing list of capitalists who got into the SPAC game. You can read an interview we conducted with Amish Jani, the co-founder of FirstMark Capital, about his SPAC here. And if you need a refresher on all things SPAC, we have that for you as well.

This morning, I want to better understand the trend by parsing a few new venture capitalist SPACs. We’ll examine Lerer Hippeau Acquisition Corp. and Khosla Ventures Acquisition Co. I, II and III. The SPACs are, somewhat obviously, associated with New York-based Lerer Hippeau and Menlo Park’s Khosla Ventures. And all four dropped formal S-1 filings last week.

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Today’s topic may sound dry, but it really does matter. As we’ve reported, Lux Capital is in on the SPAC wager, along with Ribbit and, of course, SoftBank. Adding our latest names to the mix and you have to wonder if every VC worth a damn in the future will have their own raft of SPAC offerings.

In that way, as some late-stage venture capital funds invest earlier — and now later — full-service VC outfits will offer first-check to final liquidity, will such a full-stack venture outfit be able to win more deals than a group offering a limited set of financing options? If so, the recent venture capital SPAC wave could become more of a rising tide in time, to torture a metaphor.

Regardless, let’s quickly parse what Khosla and Lerer Hippeau are telling public investors about why they will be great SPACers before working our way backwards to what the resulting pitch must be to startups themselves.

Full-stack capital

The Lerer Hippeau SPAC is the most interesting of the two firms’ combined four offerings, so we’ll start there. That isn’t to diss Khosla, but the Lerer Hippeau blank-check has some explicit wording I want to highlight.

From the Lerer Hippeau Acquisition Corp. S-1 filing, read the following (bolding: TechCrunch):

As our seed portfolio matured over the last decade, we added a growth strategy to our platform through our select funds. This capital enables us to continue providing financial support to our top performing early stage companies as they scale, and to selectively make new investments in later stage companies in the Lerer Hippeau network. With our portfolio now maturing to the stage at which many are considering the public markets, we view SPACs as a natural next step in the evolution of our platform.

After writing that it has had four portfolio companies “publicly announced business combination agreements with SPACs” and noting that it expects more of the same, Lerer Hippeau added that it considers its “expansion into the SPAC market as a highly complementary element of our strategy to support founders throughout their entrepreneurial journeys.”

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