IPOAU - Social Capital Hedosophia

[saltybit]

A new SPAC from former FB VP of Growth Chamath Palihapitiya, who has made the transition to become a successful VC at social capital.

 

The SPAC's mandate is to "give a new way for private tech companies to go public".

 

A few articles:

https://www.cnbc.com/2017/09/13/this-tech-ipo-has-everyone-talking.html

https://www.recode.net/2017/8/23/16194374/social-capital-investment-firm-banks-ipo-public

 

The S-1

https://www.sec.gov/Archives/edgar/data/1706946/000114420417044783/v473766_s1.htm

 

[shalab]

Could be a moon shot investment:

 

https://www.cnbc.com/2017/09/13/this-tech-ipo-has-everyone-talking.html

 

[Junto]

I will be watching this one. Not because I particularly want to invest in the idea but I like listening to the ideas and thought process of Chamath Palihapitiya

[premfan]

After listening/ reading all content ever on chamath.  I bet anyone one token Slack is the company he is targeting to make public.

[premfan]

Hi Shai,

 

Thank you for sharing.

[glorysk87]

honestly a little surprising people are considering this. to me, just seems like a way for Palihapitiya to extract value from the recent buzz around his name.

 

this spac vehicle is an unbelievably expensive way to take any company public......see below

 

"Founder Shares -- In May 2017, our sponsor subscribed for an aggregate of 14,375,000 Class B ordinary shares, par value $0.0001 per share, for an aggregate purchase price of $25,000, or approximately $0.002 per share (after giving effect to a surrender of shares by our sponsor for no value and a subsequent share capitalization)."

 

So, essentially, Palihapitiya is getting paid 20% of the value of the IPO simply for bringing a company public. On top of that, there's the underwriting fee that Credit Suisse is getting of like 5-6%.  If this isn't one of the most expensive ways to take a company public, I don't know what is.

 

Basically you give up a monster amount of value in exchange for Palihapitiya's expertise in choosing a company to take public. No thanks.

[Jurgis]

 

Chamath Palihapitiya @ Stanford

 

[Jurgis]

https://www.virgingalactic.com/articles/virgin-galactic-and-social-capital-hedosophia-announce-merger-to-create-the-worlds-first-and-only-publicly-traded-commercial-human-spaceflight-company/

 

You can now own (a piece of) spaceship too!

[SHDL]

https://www.virgingalactic.com/articles/virgin-galactic-and-social-capital-hedosophia-announce-merger-to-create-the-worlds-first-and-only-publicly-traded-commercial-human-spaceflight-company/

 

You can now own (a piece of) spaceship too!

 

It's a moonshot investment, obviously, but an interesting thing about this is that the downside is limited for the common shares (IPOA), at least for the time being, because you can redeem each share for like $10.3 in cash when the deal officially closes in a few months.  So you can take a big swing at this without risking a lot of capital.  I think the situation will change (i.e., the share price will start going up) once the SPAC arbitrageurs are done selling.

 

There are warrants (IPOA.WS) too but I believe their upside is capped at a certain level.

[Ahab]

I took a look at the terms of the warrants this evening. There is definitely capped upside. But I am unsure what would happen to the warrants in the event of a massive IPO pop. The legalese isn't completely clear on that  ;D . Seems like warrant holders would potentially benefit to an extent from an average share price above the $18 redemption price in the trading days prior to redemption.

 

Once the warrants become exercisable, we may call the warrants for redemption:

 

• in whole and not in part;

• at a price of $0.01 per warrant;

• upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and

• if, and only if, the last reported sale price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders.

[SHDL]

I took a look at the terms of the warrants this evening. There is definitely capped upside. But I am unsure what would happen to the warrants in the event of a massive IPO pop. The legalese isn't completely clear on that  ;D . Seems like warrant holders would potentially benefit to an extent from an average share price above the $18 redemption price in the trading days prior to redemption.

 

Once the warrants become exercisable, we may call the warrants for redemption:

 

• in whole and not in part;

• at a price of $0.01 per warrant;

• upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and

• if, and only if, the last reported sale price of the Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders.

 

That sounds right. If IPOA were to jump from where it is now to, say, 40, over the course of a few days, the warrants will be in the money by 28.5 and should therefore trade above that.

[Ahab]

I think something that intrigues me more and more with this trade is the looming deadline for Social Capital to achieve a combination before the SPAC has to wind up. The SPAC raised money on September 14, 2017. So if I am correct it only has to mid-September to complete the merger with Virgin Galactic. Basically, if this deal goes through we are looking at a month and a half until the expected IPO bump (in my perception). Just reading the tea leaves, this is a great market for money losing "tech" companies to go public in and space is in right now.

 

[5xEBITDA]

They can extend the deadline if they need to

[Ahab]

Thanks for the correction 5x. Do you know if investors allowed to redeem at the point of an extension event?

 

[5xEBITDA]

Yes you can redeem up to two days before any special meeting to vote on an extension (although just to be safe I typically stop trading after the record date just to be safe). Redemptions for an extension vote won't be an option on your proxy card, you'll have to contact your custodian for a corporate action form (if they don't contact you first) to file your redemption request.

[Ahab]

https://fintel.io/doc/sec/1706946/000114420419035385/tv525555-pre14a.htm

 

Looks like that extension we just discussed is coming to fruition (3 month extension).

[Jurgis]

Fido now has a voluntary (?) split of IPOAU into stock/warrant parts. Is there a reason not to split it? Or does it become a forced split at some point?

[5xEBITDA]

Fido now has a voluntary (?) split of IPOAU into stock/warrant parts. Is there a reason not to split it? Or does it become a forced split at some point?

 

If you don't split then you trade the unit (stock + warrant) as one security. Splitting makes it easier because then you can trade the warrant and keep the stock or vise versa.

 

 

[bobp]

I think there's no real good reason to not split the units other than a possible fee.  If you decide to redeem common eventually you'll have to have units split. They just extended for another three months so you have time but the common is more liquid.

 

If you hold through a completed merger your units will be automatically split and in that case there's no fee.

Check with fidelity if they charge a fee for you to voluntarily split. They may waive it, but if not it can be prohibitive if your position is small. It could, for instance, be $300, 100 for each component.

 

If you split, watch how they split your cost. They may or may not know what they're doing and I don't think there's any definitive method. Your trade dates for common and warrants should be your original unit purchase dates.

 

Fido now has a voluntary (?) split of IPOAU into stock/warrant parts. Is there a reason not to split it? Or does it become a forced split at some point?

[Spekulatius]

So this is now lifting off (or crashing ) as SPCE , what is the opinion. The main investor Chamath Palihapitiya strikes me as a nutcase:

https://finance.yahoo.com/news/virgin-galactics-investor-ex-facebook-exec-palihapitiya-says-in-better-mental-state-without-social-media-120538566.html

 

Anyone knows what Chamath track record is? I saw him first when he presented BOX as a long, benefiting from AI etc, the fact non-withstanding that BOX storage seems to be a lousy product. I think the economics of space tourism probably put the economics of the first 100 year or airlines to shame.

[Jurgis]

I think the economics of space tourism probably put the economics of the first 100 year or airlines to shame.

 

Just for fun - why? Right now there is only one company offering a product at grossly inflated (prepaid?) price. It's possible that there will be one (Blue Origin?) or two (Space X??? Any others?) more competitors sometime in next 5 years. Even that is not given. I don't think there's an easy way for competition in space tourism that is comparable to airlines. Of course, if you are talking 100 years, then sure. It's not a 100 year hold. But nothing is.  8)

 

The biggest risk is a catastrophic failure in first flights. That would cool the space tourism for years if not decades.

Second biggest risk is delays delays and more delays that have plagued everyone in this space ( ;) ).

 

Disclosure: I sold IPOAU and bought tiny amount of warrants. The warrants are up 80%+. I can buy a beer with the profits. I am definitely not objective here. I have not looked at valuation.

 

The thread should be renamed to SPCE.

[Foreign Tuffett]

So this is now lifting off (or crashing ) as SPCE , what is the opinion. The main investor Chamath Palihapitiya strikes me as a nutcase:

https://finance.yahoo.com/news/virgin-galactics-investor-ex-facebook-exec-palihapitiya-says-in-better-mental-state-without-social-media-120538566.html

 

Anyone knows what Chamath track record is? I saw him first when he presented BOX as a long, benefiting from AI etc, the fact non-withstanding that BOX storage seems to be a lousy product. I think the economics of space tourism probably put the economics of the first 100 year or airlines to shame.

 

Agree that this company looks like garbage from an investment standpoint. The closest comparison I can think of here is the Concorde passenger jet, which wasn't very successful.

 

Capital intensive: Yes

Trying to do something that is very difficult: Yes

Pre revenue: Yes

Went public via SPAC: Yes

Business could literally burst into flames and become a zero in an instant: Yes

Limited addressable market: Yes

Investment case requires a belief in long term management projections: Yes

 

Can you imagine what Buffett would say about something like this? WWWD - "What would Warren do?"

[BG2008]

Mark my words! Virgin Galactic trading below $10 is going to be horrific.  In SPAC investments, trading below the $10 initial price has very detrimental consequences for investor psychology.  I don't know why, I hate Chamath as my spidey senses feels really weird around him.   

[Spekulatius]

Mark my words! Virgin Galactic trading below $10 is going to be horrific.  In SPAC investments, trading below the $10 initial price has very detrimental consequences for investor psychology.  I don't know why, I hate Chamath as my spidey senses feels really weird around him. 

 

Yes, the psychological or technical impact on breaking the $10 issue price is huge with SPACS. It doesn’t really help that most buyers in SPACS probably haven’t done any fundamental analysis either.

[BG2008]

Mark my words! Virgin Galactic trading below $10 is going to be horrific.  In SPAC investments, trading below the $10 initial price has very detrimental consequences for investor psychology.  I don't know why, I hate Chamath as my spidey senses feels really weird around him. 

 

Yes, the psychological or technical impact on breaking the $10 issue price is huge with SPACS. It doesn’t really help that most buyers in SPACS probably haven’t done any fundamental analysis either.

 

Yeah, I was going to expand on this a bit.  I did a lot of SPAC Warrant speculation back a few years ago.  And I did really well with them, like 100-300% in a few month type of returns.  I used to size them at 5-10% of my IRA when I see something that was very high probability.  I won't give the secret sauce away because they are proprietary.  They are not as attractive anymore because the sponsors changed the terms of the warrants which means you only get 1/3 to 1/2 a warrant per unit.  So, I used to pay a lot of attention to the terms of the deals, backstops etc.  I started noticing a lot of "tea leaves" for SPAC deals.  One of those "tea leaves" is that if a deal trades below $10 (assuming that's the deal common share IPO price), it has a huge psychological effect.  It is probably similar to a highly touted tech IPO that winds up trading below its IPO price.  With the exception of Facebook and a few other company which went on later to kick ass and take names, when a SPAC deal trades below $10, it is basically a death sentence.  With the insane valuation of the Virgin deal and the SPAC backing and the fact that Chamath took some 20% of the economic and the warrant overhead, this thing is set up for a disaster.  One question you should ask yourself, this is a Richard Branson company and he's no stranger to the capital markets.  Why not a traditional IPO?  Everytime I see a SPAC deal, I ask "if you are so good, why no do a traditional IPO?"  Why deal with the headache of the warrants and the extra hassle of giving away 20% of the economic?  The IPO fee is 7% which is much cheaper by comparison.  SPAC deals have to do a roardshow and cobble up interest anyway.  They need to get sell side research as a part of the deal anyway.  This is what Chamath was criticizing and he promised that there will be a new and improve way of pricing deals.  I thought he had some interesting "crypto" or "tech" solution.  But he went with a SPAC.  I feel that 10-20% of his comment are very insightful, the rest are garbage.  But 110% of his statements are meant for TV and headlines which is preciously why his garbage will continue to circulate.  I would stay the F away from SPAC deals.  It's like looking for your wife at the local brothel.