Rocky week as SPACs opened with sharp declines as investors cashed in on last week’s rally and ended the week with a typical speculative run-up. SPAC investors had the collective realization that investing in a SPAC near its enterprise value, typically ~$10/share, is safer — on a risk-adjusted basis — than holding cash. If news of a potential merger rallies the stock, investors will participate in the upside and conversely, the value of the SPAC should not materially fall below $10/ share, in theory.

Stripe of the UK

PaySafe Group nearing a deal to SPAC-out under the BFT ticker— investors will trade $2B for ~22% of the company. As Bitcoin hovers at $19K per token, the battle for digital payments intensifies due to the reflexive nature of digital transactions. In 2016, PaySafe reported revenues of $1B with $142M in net income, or a 14% net income margin. In comparison, Visa reported $10.8B in net income on $21.8B of topline revenue, or a 50% net income margin, in 2020. Headquartered in the UK, PaySafe offers a variety of payment solutions: digital wallet, money transfer, prepaid cards, digital lay-away plan, and mobile ordering.

Bull Case: “Your margin is my opportunity.” — Jeff Bezos. Visa’s dominant position as the locus point for online purchases where it collects a toll (interchange fee) has caught the attention of the Department of Justice.

Earlier this year, the DoJ sued to block Visa’s acquisition of Plaid for $5.3B as the “acquisition would eliminate nascent competitor- Plaid- and prevent disruption of Visa’s monopoly in online debit.”

Effectively, the DoJ has opened up the field and invited down-funnel competitors to mount attacks while Visa scrambles to protect its empire. Payment solution oriented companies like PaySafe stand to benefit as they serve as the interface between customers and banks. Digital payments are expected to grow at a 13.5% CAGR between 2020- 2025 and a growing TAM could partially hedge any execution risk. Investors can add to their basket of fintech darlings outside of Paypal, Square, and Visa while waiting for Stripe’s +$100B public market debut.

Bear Case: PaySafe lacks a clear Peer-to-Peer (P2P)component under its product umbrella. As evidenced by PayPal/Venmo and Square/ Cash App’s stock appreciation (97% and 226% YTD, respectively), investors are betting the next frontier in payments is P2P.

Insurance as a Service (IaaS)

Metromile will SPAC-out under the INAQ ticker — investors will trade $220M for ~18% of the combined company. Metromile is an automobile insurance carrier with a pay-as you-go pricing model where policy holders pay a base rate + a flat $ per mile driven — effectively disrupting the prevailing fixed-cost status-quo. With offices and classrooms closed due to COVID-19, policy holders have dramatically reduced their miles driven. Evidence: On similar insurance coverage and driven miles, I could have paid 50% less if I had switched to Metromile at the beginning of California’s lockdowns in March 2020.

Bull Case: The pitch for digitally native insurance companies ($LMND included) is on-demand price quotes, policy transparency, and cost savings driven from its efficient technology stack. Metromile may end up acquiring tech-savy, younger drivers as they roll off their parent’s policies. As policy holders mature, Metromile can enter into adjacent insurance products to capture incremental revenue and additional policy holders. Additionally, the proliferation of autonomous driving may lead to a lower premiums as data collected may suggest a lower accident rate as compared to human driving.

Bear Case: Insurance is a bet between two parties that the other is a sucker.

1. The insurance companies profitability depends on the policy holders reflexes and good fortune, however the amount of distractions continue to grow.
2. Uber and Lyft are challenging the economics of car ownership.
3. Younger drivers have declined from 46% of 16-year-olds with driver licenses in 1986 to 26% in 2017.
4. Announcement of the merger did not spark a rally in Root, MetroMile’s closest public competitor. Last month, we witnessed investors buying up Blink Charging after SBE announced a merger with ChargePoint. Both companies are +100% over the past month.
5. Policy holders may prefer the comfort of human interaction (and hand-holding) when shopping for auto-insurance.

I’d like to close for with food for thought — OnlyFans, a crowdfunding content platform, could go public using a SPAC, a crowdfunded IPO. OnlyFans is adding as many as 500K users a day and paying out more than $200 million a month to its creators. With 85M users, OnlyFans is on pace to collect $2B from fans. This could be the SPAC of all SPACs.

Investors and gamblers flocked to Electric Vehicle (EV) SPACs as the largest EV automaker, Tesla, reached a $555B valuation,+40% in a month📈. Are we in an EV bubble? Let’s break down some of this week’s action.👀

Happy SPACsgiving!!! pic.twitter.com/PpyvIeeyLl

The Charging Network Wars

SBE announced it will SPAC out ChargePoint, an electric vehicle infrastructure company, at a $2.4B valuation. Investors could own ~20% of ChargePoint as the charging-network war heats up. Despite the deal announcement in September, the stock rallied +42% over the past week — closing at $37.13 per share. Enthusiasm for EV infrastructure sparked a rally in CharePoint’s competitor, Blink Charging ($BLNK), which jumped 24% to a $900M valuation over the past week — trading at +200x prior 12 months sales.

Bull case: Investors are betting on the lucrativeness of a first mover advantage as charging stations can generate recurring, stable revenues by securing highly trafficked locations, effectively carving out local monopolies. These charging network wars are not dissimilar to the ongoing Uber vs Lyft ridesharing wars. Benefiting from it’s early market-blitz (and regulatory malfeasance), Uber has secured its spot as the preferred ride-sharing platform with a dominant 71% US market share. And finally, the continued consumer adoption of EVs will lead to an outsized demand for convenient charging stations.

Bear Case: A recent McKinsey study pegged global EV penetration at 2.5% of total car sales in 2019, an improvement of 30bps from 2018. The market is nascent and YoY growth has slowed to 9% in 2019 (vs 65% in 2018) as the US tax incentives phased out. To invest in either, you’d have to stomach several quarters of front-loaded capital + R&D expenses, attempts to wrangle a fragmented customer base, and competition against Tesla’s Super Charger Network. But that’s not to say, there isn’t money to be made in the short-run.

The Next Battery Day

KCAC is finalizing a deal to SPAC out QuantamScape under the ticker $QS. QuantamScape is a solid state lithium-ion battery company which claims a 80% charge in less than 15 minutes, high energy density, and an 82% improvement vs today’s lithium ion batteries. Automakers who’ve under-invested in their EV programs have been bailed out from their own Innovator’s Dilemma — they’ll continue avoiding battery R&D costs while asserting their dominance in combustion engine technology and sales. By modularizing battery components, QS challenges the long-standing belief that an integrated automaker like Tesla will have the most favorable economics. Over the past week, KCAC traded up+82% to $23.50 per share.

Bull Case: A gust of positive tail-winds: (i) Expansionary total addressable market (TAM), (ii) partnership with the largest automaker: Volkswagen, and (iii) a management team bolstered with battery domain expertise. Like every other EV SPAC, QS is likely taking advantage of hyped market conditions but if they’re willing to open their company to public scrutiny, they must have a defensible product under the hood.

‘QuantumScape’s relationship with Volkswagen dates back to 2012 and includes collaboration on battery cell development, the testing of prototype cells, previously announced funding commitments of over $300 million...’ (Press Release)

Bear Case: The company will register its first year of revenue in 2022. Sales are projected to ramp from $14M in 2022 to $6.4B by 2028. The question on everyone’s mind: Can they produce their battery packs at scale to meet their projections? Unproven, but they certainly have the management chops to figure it out. My prediction is that QS will rally to ~$50 by end of year after plummeting back to ~$20 as investors awaken from their collective delusion and digest the financial projections.

SPAC Watch:

• LGVWU: Longview Acquisition Corp agreed to SPAC out Butterfly Networks. Butterfly Networks produces Butterfly iQ, an ultrasound transducer that can perform “whole body imaging’ with a single handheld probe using chip technology that connects to a mobile phone or tablet. (company website) Healthcare has ballooned to 17.7% of US GDP and further cost increases would be untenable as innovation has crumbled cost structures in adjacent industries. As healthcare companies vertically orient in a cost-reducing exercise, companies like Butterfly Networks could offer additional opportunities to right-size the cost of healthcare. Also, it doesn’t hurt to be backed by the Gates Foundation. The SPAC is trading at $16.60 per share gaining 20% over the past week.

• PSTH: Enter Bill Ackman’s mega, $3B SPAC. Media outlets have reported Mr. Ackman meeting with Silicon Valley unicorns — notably, Airbnb and Stripe. Both companies are eyeing IPO debuts into public markets. Despite no concrete target for $PSTH, the ticker has gained 11% over the past month as investors are betting on Mr. Ackman’s deal-flow and financial acumen to outperform. He recently bought $27M of Credit Default Swaps prior to the pandemic and turned it into $2.7B in just 30 days. (StreetFins). Can lightning strike again?

What SPACs are on your watch list? 👀 Comment 🔽

This week in SPACs was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

In 2020, I predict a continued decline in venture dollar volume as companies with a strong Direct-to-Consumer (D2C) business models look to SPAC.

What is a SPAC?

Special Purpose Acquisition Companies (SPACs), often referred to as blank-check companies, register as shell companies with the SEC, issue shares at $10/ share in the public markets and lure companies seeking investment with public capital within 2-years of its listing. The modern day dating equivalent of setting up a Tinder profile, swiping through potential mates and trying to put a ring on it before they change their mind.

From the target company’s perspective, SPACs operate similar to a VC round, offer the benefits of a direct listing (employees cashing out) and bypass the investment banks and VCs. PWC estimates the average underwriter fee for an IPO is between 3–7%, roughly an entry-level salary for every million dollars underwritten.

“A SPAC was absolutely the right way to come to public markets because it allows us to grow and accelerate [our business]. The fact that we’ve been able to be streamlined, efficient and without a protracted, drawn-out process that is the traditional IPO has just been enormously helpful in keeping the team focused [on the business],” — Hilary Coles, co-founder and VP of product of Hims & Hers.

D2C, LTV and SPACs

The new frontier of LTV can be harnessed in a SPAC listing. Successful direct-to-consumer (D2C) companies create a personalized relationship with the consumer by tailoring their products and services to fit their exact needs. Over time, D2C companies earn consumer trust and expand their product offering to maximize each consumer’s lifetime value (LTV). The next step to maximizing LTV is tapping into the consumer’s checkbooks for an investment opportunity. Enter the $0 per trade pioneer, Robinhood.

Robinhood’s product design and unstoppable growth affirms that retail investors weigh brand perception over a company’s profitability when making an investment decision. The app does not show OR link to a company’s financial statements and yet Robinhood has added 3M investors in 2020. This isn’t a criticism of the company, Robinhood is clearly doing well with over 13M users and a $8.3B valuation. This growing investor cohort has fueled the meteoric rise of companies top of mind and frequently used, most notably FANG (Facebook, Amazon, Netflix and Alphabet’s Google.)

Robinhood will now be the lubricant intermediating capital between public and private markets, underpinning the rise of SPACs.

SPAC-watch 👀

1. Hims: In a post-COVID world, I predict doctor visits will be more frequent and index towards shorter, virtual appointments. Hims stands to gain as a trusted source for men’s and soon to be women’s health.
2. Draftkings ($DKNG): States have suffered lost taxes revenues in this economic slow-down. States can add a tax revenue stream to offset those losses by taxing this vice. Also, Michael Jordan is on board.
3. Virgin Galactic ($SPCE): The space race has increasingly become a billionaire sword fight and there’s a galaxy of opportunities in space. Plus, the applications of the foundational technology Virgin Galactic is developing are not limited to space-tourism.
4. Opendoor ($IPOB): We’ve quickly moved from work-from-home to work-from-anywhere. Instead of going through the traditional real estate charades, sellers can receive an appraisal and purchase offer from the comfort of their living rooms. Game-changer in a post-COVID world.
5. ($IPOC): The target company of this SPAC has not been identified, but you may recognize its manager: Chamath Palitipya, an early Facebook employee, founder of Social Capital and father of the recent SPAC movement. Under his watch, Virgin Galactic and Opendoor have gone down the SPAC route.

What SPACs are you watching?

Why Robinhood is key to the future of SPACs was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

Square first launched as a credit card reader that attached onto early smart-phones used to settle mobile transactions. Now, it has rapidly evolved to become the hardware and software of choice to complete payment at your local coffee shop.

As you can see above, Square has evolved quite dramatically. As of this writing, Square’s valuation is ~10% of $Visa’s and has collected $3B in revenue in 2018, whereas Visa raked in $20B in top-line. Also in 2018, Square processed $85B in gross payment volume, whereas Visa’s processed 130x as much — a staggering $11 Trillion. To reach this milestone, Square has expanded beyond being the starter kit for mobile businesses into a payment and services ecosystem for merchants AND consumers.

If they had listened to the price sensitive merchants, they would’ve focused on lowering fees. Instead, Square had the foresight to build its business model around solving for friction in the exchange of money , while the incumbents focused on exploiting their legacy business models of scraping interchange fees and charging overbearing interest. Square has developed and acquired an ecosystem of products that support its mission of making commerce easy, fast and affordable.

We believe everyone should be able to participate and thrive in the economy. No one should be left out of the economy because the cost is too great or the technology too complex. — Square’s About Page

Below I’ll contextualize three product innovations — Cash App, Caviar and Weebly — and attempt to link them to my hypothesis of Jack Dorsey’s master plan: launching a closed loop payments competitor to Facebook’s Libra Coin. — A closed loop payment system is one where transactions remain within a controlled ecosystem, which cut costs by reducing the number of middlemen.

The Cash App is gearing up to be blend of Venmo and Coinbase. Send money to your friends, colleagues and family while buying your next fractional Bitcoin, all by a few taps within the same app. Square is growth-hacking virality using the same strategy PayPal employed in their early days: paying their users $5 cash-money to refer their friends. Square can afford this customer acquisition strategy with $500M of cash sitting on their Balance Sheet. For those not in the know, Venmo is a digital wallet that lets you make and share payments with friends and Coinbase is an app that allows users to buy, sell and store under-researched cryptocurrency purchases. Coinbase makes its money through transaction fees while Venmo is testing different strategies in monetization — current one being ‘Pay with Venmo’ as a payment option on trendy D2C check-out pages.

By the way, Square sold $166M of bitcoin in 2018.

The Cash App is the gem that positions Square as a first mover for a closed-loop payments system with massive scale with outlets of distribution. Imagine paying for your weekend latte with the $5 that you received moments ago from splitting the bill with friends. Not impressed? Me either. Let’s take it a step further.

Now imagine those $5 transactions are aggregated and used to direct deposit wages to the employee that made your latte a few minutes after they clock-out. The main reason why that’s not possible right now is because the existing banking infrastructure cannot affordably provide that option. Approximate rates that employers pay for payroll processing is $5 per pay cycle per employee. It’s not a stretch to believe that the immediacy of payments would be a popular perk for gig economy workers and the millions of American’s living paycheck to paycheck.

More-so, Square will accumulate a more integrated set of consumer data by marrying credit card transactions with P2P transactions among friends while charging negligible fees.

Currently, the Cash App is being used as the digital wallet for Square’s Caviar workforce. Caviar is Square’s early foray into food delivery -2011- which is essentially a replica of Uber Eats without the staggering 149% YoY growth. However, Caviar does provide Square a controlled environment for it to test the future of frictionless commerce. According to its website, couriers that ride for Caviar earn $25/hr which is made available in the Cash App immediately after services rendered. Granted, the market of Caviar couriers isn’t going to dent the user base that the Cash App needs to compete with Venmo, but it reinforces a use case and is a learning opportunity for improving the fluidity for gig-economy work.

This use case of a closed loop payments ecosystem gives Square an opportunity to save on payroll processing fees while differentiating from other delivery services charted above by offering a major perk: instant payment.

Lastly, Square’s management team has acknowledged the shrinking physical retail landscape could inhibit its mission to make commerce simple. Thus, they’ve decided to explore servicing the digital store front by acquiring Weebly, a do-it-yourself website development tool used by weekend warriors to get their D2C ideas off the ground. Shopify, Wix, and Squarespace Inc. have joined Weebly in democratizing access to the website development space by offering similar functionality in services, accounting, and inventory management. However, Square has one dramatic advantage:

Companies using Square Terminals that are entering the digital arena face little switching costs when utilizing Weebly because it seamlessly integrates inventory, reporting and payments. This seamless integration attempts to create a product moat for Square by providing product stickiness for its customer base. Here’s how easy it is for businesses to link their Square account to Weebly. Don’t blink, you’ll might just miss it:

On the other end, Square’s economic moat is challenged by Shopify’s entry into physical retail with it’s retail kit that eerily mimics Square’s aesthetic. Time will tell if Shopify can gain adoption and gain market share away from Square. But one thing is for certain, Shopify will be able to leverage its existing 500K active businesses using its product as a qualified customer list.

It’ll be paramount for Square to crack the nut of a retail consumer being able to spend their Cash App amount seamlessly in store or online to become a closed loop payment provider. Otherwise, they’ll be retired as a stepping stone in the evolution of payment processing.

In my mind, Jack Dorsey and the Management Team at Square don’t have to have this all figured out — this space is evolving fast and they seem to be adept in rolling with the punches. We still don’t know how adoption of Facebook’s Libra coin will turn out nor how cryptocurrency is going to further shake-up the P2P space. I do know that Square will need to execute flawlessly to not only grow into it’s $30B valuation, but also compete toe-to-toe with it’s growing list of competitors: Visa, Shopify, UberEats and Stripe. For the sake of innovation, Long Live Square.

Disclaimer: I am long $Square and Jack Dorsey

Is $Square building a moat or an ecosystem with the Cash App? was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

Every Sunday evening, I get a screen time notification on my iPhone on where my productivity for that week went. Here’s last week’s summary:

Some would say I’ve been spending too much time on Instagram, but I’ve just been researching for this story. Instagram flexing is a cultural phenomena — brought to you by the Zucks — where people are rewarded to share photos of their lives to construct a digital persona that imitates their aspirational self. The reward: engagement in the form of likes & views.

Here’s are some flavors of said flexing:

The Hustler

• Instagram stories about working 5 minutes outside of normal working hours.
• Entrepreneur +CEO in profile bio
• Spreadsheets, coffee shops, cryptocurrency charts, motivational posts, and mushroom coffee are shown in high frequency in the profile
• Follows Gary Vaynerchuk, Elon Musk and Tim Ferriss.

The Club Promoter

• Post may include, but not limited to: Bottle’s Popping, flashing multicolor lights, cranberry vodka, and awkward dudes hanging out in the background wishing they stayed home and were watching Narcos.

Gym Rat

• Time stamped posts, either early morning or late nights at the local 24 Hour Fitness.
• Posts at KBBQ wearing a short sleeve shirt 2 sizes smaller than they should’ve bought in 65 degree weather.
• You recognize their favorite pre-workout supplement (C4).
• BONUS: Cheat Days include stuff you normally eat. I had to do it to you Dwayne:

Hypebeast

• Marketer’s Target Consumer
• comments ‘gotta cop that’ under post from: The Goat, Supreme and Sneaker News.
• you wonder if they’re saving enough for retirement.

Foodie: 4 distinct types

• Basic B: Post include Avocado Toast, Overpriced Oat Lattes, #PSL and Rosé allday.
• Exotic: If they didn’t post about the 21 course Michellin Star experience, did it really happen?
• Horizontal Photographer: Ain’t nobody got time to turn the phone to see your extra wet burrito. The future is now — Vertical Format, please.
• Vegan: 🥗 🥦🥬 or ‘vegan’ in bio and suspiciously laughing like they just watched a comedy special before taking the picture.

Conclusion.

In the perpetual race for likes and views, I’m seeing people chase these lifestyles rather than life. We aspire to be accepted within the Inner Ring of whichever group matters to us in the moment. I’m probably guilty of a few flexes in my time, and chances are that you are probably too. Nothing wrong with it, just don’t let the flexing consume you. Now, let’s get this bread.

Ohh yea, I used to flex that entrepreneur life. Comment below the flexes is missed!

They don’t want us to have a higher valuation-

A higher valuation early on chains the company to Elon Musk-esque expectations on profitability, user growth & top-line sales. The Stories feature from Instagram took a measurable haircut from Snap’s user growth in 2016, slowing to 3.2% Q/Q growth from 17.2%. Snap Inc is cautiously jumping into the IPO scene with heightened self-awareness of their mortality.

They’ll be tasked to deliver on a $18.5B valuation & +40x Price to Sales Ratio while:

• Growing the existing 161M+ daily active users
• Continuing to innovate with the Spectacles & future hardware
• Tackling profitability with their Net Loss of $514M in 2016

My thoughts are they’ll have their hands pretty tied up in delivering. Although, one thing is pretty much guaranteed, they’ll have their pockets full: co-founders Evan Spiegel & Bobby Murphy are making out with a combined +$7.5B, easily supplanting Jack Dorsey’s measly $1.25B.

To put perspective on the $18.5B. Here’s a few companies that aren’t getting as much love from Wall Street.

1. Twitter Inc, $6.6B: Unfiltered Self-Expression Social-Media Platform
2. Shopify Inc, $5.5B: Cloud-based Mutli-Channel Payment Solution
3. Square Inc, $4.95B: Mobile Payment & Financial Services Gateway
4. Yelp Inc, $2.65B: Consumer-Conscious Business Reviewing Platform

Valuations as of 2/17

If you add the valuation of any three of the above companies, you’ll still need to ask Zucks for at least a $1B loan for an even exchange. That brings me to my point, valuation as a camera company requires a massive profitability commitment for a company that’s yet to to be in the black (see 2016 Net Loss), imagine delivering on a higher software valuation.

Note: I plan on opening my SnapChat in the next 24–72 hours.