SPAC's, the VC Loop, and API layers of Fintech
Chris McCann's weekly newsletter on technology, investing, and fintech.
Our fund, Race Capital, will host a fireside chat on August 13 with Bill Janeway - one of the most legendary venture capital investors. He was the sole investor in Veritas and BEA Systems, where his $50M invested turned into $6.5B of realized returns to their LP's.
Our partner, Alfred Chuang who was the CEO of BEA Systems will be sharing his valuables insights in a conversation moderated by Gina Chon of Reuters. We will cover how the pandemic is impacting the venture capital landscape, the outlook for tech unicorns, and some of the more recent geopolitical tensions tech will soon be facing.
To RSVP for the event: https://wartimeconversations.splashthat.com/
Written by - Chris McCann, General Partner @ Race Capital, former Greylock Partners.
SPAC SPAC SPAC
It seems like everyone in the technology field is talking about special purpose acquisition companies (SPAC’s), raising SPAC's, or theorizing about them.
Matt Levine from Bloomberg gives one of the best succinct explanations of what SPACs are, how they work, and the tradeoff for companies.
A SPAC, or blank-check company, is an empty shell that raises money from investors in a public offering and uses that money to find a (usually private) target company and merge with that target; effectively taking the target company public.
The SPAC typically pays investment banks a fee of 5.5% of the money it raises + it typically gives its sponsor—the famous investor or operator who runs the SPAC and finds a target company to take public—20% of its stock virtually for free, which, again, is passed onto that target company. So SPAC fees are about ~25% of the money raised, three or four times as much as you’d pay in an IPO, albeit better disguised.
The VC Loop
My friend Nikhil Basu Trivedi formerly of Shasta Ventures, wrote a great post explaining the complete loop of what venture capital investors do during the lifetime of their careers (from a deal flow perspective).
It’s summed up in this fancy flowchart written on a napkin:
In brief, VC investors have to find the best companies, decide on which ones to invest in, win the right to partner with the founder, help the portfolio company become successful, and ultimately exit the investment into realized returns. This allows for the VC to raise more capital to complete the loop again.
API Routing Layers in financial services
Ayo Omojola, the former banking lead at Square Cash, wrote about the emerging API routing layers being built in the fintech sector.
This includes APIs which aggregate identity service providers (KYC, KYB), aggregating income verification, and even aggregating student loan programs. There's a whole host of verticals this could be applied towards, which is something I explored in my fintech infrastructure post back in February.
If you’re an early founder building a company in this space or thinking about this space I’d love to chat with you > chris@race.capital
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