20VC: SPACs. What Are They? Why Now? How Do They Change The Venture Landscape? Are They Better Than IPOs & Direct Listings? How Should Founders Think About Them? Kevin Hartz & Troy Steckenrider @ A*

Kevin Hartz is Co-Founder & Partner @ A*, a newly listed special acquisition company which raised $200M to acquire and take public a tech startup. Kevin is also the Co-Founder, former CEO, and Chairman Eventbrite (NYSE: EB). Before Eventbrite, Kevin was the Co-Founder & former CEO of online money transfer service, Xoom (acquired by PayPal for $1.1B). Kevin is also one of the most successful early-stage investors in the business with a portfolio including the likes of Airbnb (Seed, Series A), Uber (Series B), Pinterest (Seed, Series A), Trulia (first check) and PayPal (Seed). Troy Steckenrider is Kevin's co-founder and Partner @ A*. Prior to A*, Troy was COO @ ZeroDown changing the landscape for homeownership with $136M in funding. Before ZeroDown, Troy spent 5 years at Opendoor as Director of Capital Markets. Before that hyper-growth experience at Opendoor, Troy enjoyed roles at both Bain Private Equity and McKinsey. In Today’s Episode You Will Learn: 1.) How Troy and Kevin came together to co-found A*? What is a SPAC? What are Kevin and Troy looking to achieve with the SPAC? 2.) What does Kevin believe are the primary drivers for the rise in SPAC's over the last few years? How will they change the structure of both the VC and startup industry? How will the SPAC landscape evolve over the next few years? What is the biggest challenge they face? 3.) Why does Kevin believe that the fee structure for SPACs is egregious? How would they like to change the incentive structure? How does the timeline for a SPAC transaction compare to that of an IPO? How does the fee structure compare when comparing SPACs to banks in IPOs? 4.) Why did Kevin and Troy choose $200M for the right size for their first SPAC? How does the size of the SPAC determine the type of company the SPAC will merge with? What are Kevin and Troy looking for in their partner company? 5.) What does the fundraising process look like for a SPAC? How do SPAC sponsors deal with the challenge that LPs call pull out if they do not like the proposed partner deal? When evaluating SPACs, what do investors look to invest because of? What makes A* special? Items Mentioned In Today’s Show: Troy’s Fave Book: Churchill: Walking with Destiny As always you can follow Harry and The Twenty Minute VC on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  We are back and this is the 20 minute VC with me, Harry Stebbings. Now, last week, we covered one of the most discussed topics of the moment being rolling funds. And today, I'm really excited to discuss another very hotly discussed topic of the day, SPACs, or special acquisition companies. And joined by the founders of one of the most recent SPACs, Astar. And so with that, I'm thrilled to welcome Kevin Haas, co-founder and partner at Astar, a newly listed special acquisition company, which raised $200 million to acquire and take public a tech startup. Kevin is also the co-founder, former CEO and chairman at Eventbrite. Kevin is also one of the most successful early-stage investors in the business, with a portfolio including the likes of Checklist Out, Airbnb, Uber, Pinterest, Trulia and PayPal, just to name a few. And then I'm also very, very excited to be joined by Troy Steckenrider, Kevin's partner at Astar.

• 0:45Harry Stebbings?

  Now, before Astar, Troy was COO at Zero Down, changing the landscape for homeownership with $136 million in funding. Before Zero Down, Troy spent five years at Open Door as Director of Capital Markets. And before seeing that hyper-growth experience at Open Door, Troy enjoyed roles at both Bain Private Equity and McKinsey. And I do want to say a huge thank you to Brian Singman at Founders Fund and Spike Lipkin for some fantastic question suggestions today. I really do appreciate the team effort on the schedule. But before we move into the show today, I want to take a moment to mention HelloSign, a great example of a company that found success in building a product focused on user experience. HelloSign is an effortless e-signature solution used by millions to securely send and request legally valid digital signatures and agreements.

• 1:26Harry Stebbings?

  They raised a total of $16 million in funding and recently got acquired by Dropbox for an impressive $230 million. Check out hellosign.com/20vc to join the thousands of companies and founders who value fast, secure and simple e-signatures. And speaking of really gorgeous product and customer experiences there with HelloSign, you have to check out Rootable. Rootable is helping companies speed up their business payments using a secure invoice and bill payment platform. On the receivable side, you get paid faster with accounts receivable automation. And then on the payable side, you reduce accounts payable cost, clutter and compliance risk. And that's why the likes of Ticketmaster and Snack Pass both use and love Rootable. Head over to rootable.com to check them out today and experience the

• 2:10Harry Stebbings?

  10x customer experience improvement they provide. And then finally, a couple of months ago, I had Jeff Sibert and Wayne Chang on the show from Digits. And simply put, they're two of the best founders that I've met. And they're creating the most intuitive financial software you've ever used. Automatically analyzing your company's spend and visualizing it for you as it happens. Hone in on recent activity, trends, anomalies, or any question you have in just a few clicks. And unlike every other financial software, their integration is not weeks, it is just a few clicks. Have to say the product is just so beautiful and I never thought I'd say that about financial software. You have to check it out and you can do so at digits.com. But that's quite enough from me. So now I'm very excited to hand over to Troy Steckenrider and Kevin Harts at A-Star.

• 2:57Speaker 01

  You have now arrived at your destination.

• 3:00Harry Stebbings?

  Kevin, Troy, it's such a pleasure to have you on the show today. Thank you so much for joining me, having raised a very exciting news back.

• 3:06Speaker 02

  Harry, really a pleasure to be here.

• 3:08Speaker 03

  Thanks, Harry. We're excited to be chatting with you.

• 3:09Harry Stebbings?

  I do want to set some context though. So a little bit on you and how did you make your way into the world of investing? But most importantly really here, it's like, how did you come to co-found A-Star today? Let's start with that.

• 3:20Speaker 02

  Well, first I'll back up and give the roots or the background of where A-Star came from. A-Star, and that's an A* ex is really reference to a search algorithm developed in 1968 at Stanford University. And so one, that's really a call out to our geek roots in that we're really looking only in the innovation economy for those great enduring businesses to partner with, with our first vehicle of one on this backside. And secondly, A-Star refers and finds the optimal path to the truth or the answer. And that's really our quest and our mission is to find a great business. I'll say that we're doing this simply because it's time for a change and we see that change coming. So while we hope to be catalysts to that change, we see a few macro events that are making this world of the SPAC come true.

• 4:05Speaker 02

  The first is just in terms of seeing the venture business, looking back historically. The venture business existed in the 60s, 70s and 80s, but was a sleepy backwater. It was considered that if you were a New York investor and you moved out to the peach orchards of the West Coast, you would Be throwing your career away. And now we see in the nineties, two thousands, that vehicle really driving the innovation economy, even being reformed in the economics, even being more rewarding in driving more change than the onerous economics that we saw in the, say, eighties when you had three X liquidation preferences and you had companies sometimes giving up fifty percent of their ownership. We also saw the oncoming and growth of Y Combinator as a vehicle that's really been a benefit

• 4:47Speaker 02

  to the formation stage businesses on the financial side. And while there had been many incubators and accelerators before that, it was really Y Combinator that got that correctly. We see this SPAC phenomenon not as a flash in the pan, not as a quick up and down, that'll be a passing fancy of the twenty twenties, but really an enduring vehicle to bring our innovation companies to market. And we find that to be extremely exciting. But to do that, it's going to take some reformation, just as we saw in the eighties and nineties on the venture side. We're going to have to get the economics in line to be a benefit of not just the sponsor or the investor, but really also the partner company. And when doing that, we'll really find those enduring businesses to partner with. And that is the mission and the values of what we're doing at A Star with our first vehicle called One.

• 5:32Speaker 02

  Now, as the name One refers to, we're likely, we hope and plan to have a two and a three and a four with the success of One.

• 5:40Harry Stebbings?

  Can I just dive in and ask this? For people who are wondering, okay, with those analogies and that historical context, what actually is a SPAC then? How do you explain it to them? And what does that look like in terms of that explanation?

• 5:51Speaker 03

  So with respect to what a SPAC is, it really is just a pool of capital that is used to invest in a private company and help them get public. That capital is raised on the public markets via a traditional IPO, goes into a bank account and is held for up to two years. During that two-year time, the SPAC management team has the opportunity to go find a partner company, negotiate a deal with them and take them public. And so from the company's perspective, this is a much easier and straightforward way to get to the public markets. And from the SPAC investors' perspective, this is a way to invest in additional technology companies and to some degree get access to a private company before it IPOs, which is traditionally inaccessible to public market investors. Putting it in a VC context, I would say this looks somewhat like a fully drawn VC firm,

• 6:34Speaker 03

  where the capital is committed and actually funded upfront. The VC firm would then go out and do one deal. But what's interesting here is with a SPAC investment, the SPAC investors have the opportunity to decide at the time of the investment, whether or not they want to participate. And so again, in the VC context, this would be that a VC LP would fully fund their capital commitment upfront. It would sit in an account for up to two years, but then they would have the option to participate in the specific deal or not, after knowing what that deal is.

• 7:02Harry Stebbings?

  Can I ask, there's two big questions, man. I expected it to be off schedule, but not this off schedule this soon. So I'm just intrigued in terms of like the voting structures, as you said, that for LPs or investors being able to say yes or no to being involved. Isn't that bad for you? How do you think about that? And is there not a concern that the best deals are contrarian deals? And actually, it may not be obvious to a series of family offices and institutions that actually X company is an incredible investment at this stage, and actually it's a contrarian bet.

• 7:28Speaker 02

  I'd like Troy to add a bit to this, but first I would just say it's really on our shoulders to find a great company. And when you find a just outstanding enduring business, there should be no issue or there will be no issue whatsoever. A company with a strong management team, with a clear competitive advantage, in an unusual market will always find great investors and draw those great investors. So our real purpose is to focus entirely on finding an enduring business, a special business, one that's not just going to boom after 12 months and then go bust, but really one that we want to hold on to for the long term. And we think that's entirely tied to our mission. We don't hear terms like mission and vision too much in SPACs, but we really have special values that are really focused on finding a great company

• 8:12Speaker 02

  and one that public market investors would of course be attuned to invest in. Troy can give some of the technical details about the ability to withdraw from the vehicle. Troy?

• 8:21Speaker 03

  Thanks, Kevin. So with respect to the question of whether the funds will be available. So Perry, you're absolutely right that there is this additional optionality. And this is one of the reasons that I think SPACs have become so popular for investors, is because they know that they will have that look at the potential company and have the ability to redeem if they don't like the deal. That said, I think recent market trends have really Shown that the vast majority of deals are approved. I mean, I think it's something like 99% of deals have had a yes vote of SPAC deals since like 2010 have had a yes vote. And then in addition to that, the vast majority of capital typically does roll over. Most investors who are participating in SPAC tend to like the deals. And especially with SPACs trading where they are right now and for strong technology companies coming to market, you do see a ton of investor appetite. And so the redemption thing is certainly a risk,

• 9:04Speaker 03

  but I think it's a little bit less risky than people actually make out when you actually kind of track the real world technicals in terms of the way it trades.

• 9:10Harry Stebbings?

  Yeah, no, I do totally understand that. Can I ask, when we think about kind of where it sits in the funnel, is it kind of replacing the growth round pre-IPO? Is it replacing the IPO? How do you think about that? And then what's the exit for the SPAC itself almost?

• 9:23Speaker 02

  Well, our belief strongly is that there is no exit to a company. The most enduring companies are just going through a financing event and will continue to build on. I watched Julia firsthand go through the IPO process in September of 2018, and that was a traditional IPO. And that was really as we finished and completed the IPO and it was a successful one. We just were looking on the future. It was back to work. The second part to that is just that there's optionality. And more optionality is better for founders and operators. And more optionality means that there's a direct listing, there is a primary traditional IPO, and now there's a SPAC. In addition, companies still can take growth rounds. But what we've seen in the market are the winds of change.

• 10:04Speaker 02

  And the winds of change are simply that companies have reversed this trend of staying private for so long. We were in a world in the 90s where I think it was John Doerr that said, six or seven quarters of increasing revenue growth and a company goes public. And what that translated to was for the longest time, it was an average of four years from inception to IPO. In the early 2000s was a strong reversal. And we went through a phase where it was 12 years as a public company, which is an insane amount of time to stay private. And there's a lot of downsides to that. The muscles of really performing well can be atrophied in the darkness of the private markets. There's not as much strong governance as we've seen with some of these broken companies as of recent. And we see founders wanting to get out into the light of the public markets and really compete. If you look back,

• 10:50Speaker 02

  At Microsoft in the 1980s or Amazon in the 1990s, one would maybe not recall that they went public at a $500 million valuation each, something that in just a few years ago would be unheard of. So we're looking actually upstream and we're finding a great deal of reception from founders that want to get out there and compete at 50 million and growing triple digits or 60 million in revenue, growing triple digits. And as Troy pointed out, we can stretch and expand to almost any size capital raise with the addition of a pipe.

• 11:20Harry Stebbings?

  Totally get you. I do want to touch on that kind of capital raise in the pipe. In terms of the 50 to 60 million there that you mentioned, I'm really interested because that's absolutely your theory C, D, E sweet spot for VCs. How do you think the best facts and how do you intend to really collaborate and work with the venture community to get the best deal flow and to kind of fully partner with the best companies?

• 11:38Speaker 02

  Well, there's been a lot of reception on behalf of the VCs, the venture firms that really want to learn more about this vehicle and are really looking for opportunities for liquidity themselves. In addition, it's really at the founders and operators' decision of which direction they want to go. As we're seeing many con flex their own voice, they're saying that it's time to get out in the public market sooner and have a much broader audience and a much broader reception to picking and choosing investors. So you don't see these decisions made in the darkness of a one or two preemptive bidders on a round, but you actually can really see the full range of top tier investors, the Fidelities, the Capital Groups, the T-Roe Prices, the Bailey Giffords and so on.

• 12:18Harry Stebbings?

  Yeah, no, I totally get you in terms of that variety and exposure. I think, you know, a lot of founders and it's often viewed in kind of comparisons to the IPO. If we kind of take that as a core element, I'm really interested. And I am actually pretty naive here, so I'd love for you to help me out. How does SPAC fees work? And at the end of the day, is it cheaper than banks? And how should we think about that?

• 12:36Speaker 02

  At the current time, SPAC fees are egregious. I'll just say that outright and they need to be reformed. We call this the Amazonification of the SPAC market. It's far too long, been too costly of a source of capital for founder companies. But also the either collusion or the selection process has traditionally steered towards not the highest performing companies in order to really partner with. The highest performing companies, you need to bring this in line with the traditional IPO, with the direct listing or otherwise. And Troy will talk about the mechanisms to do this.

• 13:08Speaker 03

  So the economics for the sponsor really take two forms. The first are sponsor shares, which are typically 20% of the post-money SPAC investment. So on a $200 million SPAC, that'd be 50 million. Again, it's on a post-money basis. On a $400 million SPAC, that'd be 100 million. And those are the founder shares. The second item is that the SPAC typically purchases warrants, which are call options on the upside, typically struck out of the money. And that further kind of provides an upside alignment and allows the SPAC management team to benefit as the company trades well, if it does increase in value. I think what Kevin and I have really struggled with is the founder shares aspect of it, because it doesn't seem to fully align incentives. What's interesting is you get the founder shares regardless of whether the deal does well.

• 13:51Speaker 03

  And so there is a world where the company post-DSPAC could trade down. Investors have lost money, the company has lost money, and yet the SPAC management team would still walk away, having done very well. And so one of the things that we really want to see change in the industry more broadly is this idea of aligning incentives with the goal of really trying to make it more we-win, they-win. So we would do well on the upside if the company does well on the upside. But we don't think it's fully fair that we should continue to do well in a down case.

• 14:18Harry Stebbings?

  I think that's so interesting. And I was reading the TechCrunch piece that you guys did, which I really enjoyed. And quite rightly, you guys obviously went for the more vanilla structure, given it being the first time with this new SPAC. But how do you think you can transition to evolving the fee structure over time? Is that on the next SPAC? Is that on educating now and then with the next SPAC? How do you think about that transition?

• 14:37Speaker 02

  We think about setting market leadership and others will follow by example. That if there is a fair deal for both sides, that if there's a fair deal that the partner companies really see out there, you're going to attract the best companies. You're not going to attract the B and C companies. So that really has to go in a line, and we do want to be at the forefront of doing this. We've all seen, again, this term to Amazonify a market, and this really needs to be really brought in line. We saw venture capital in the 70s and 80s as a financial instrument that was just in the formation stages. It was just in the very early stages of. Starting to really have an impact on the innovation economy. And back then, the economics were so far in favor of the investor themselves. And as they reformed, there was a great benefit for both sides.

• 15:21Speaker 02

  We saw in the early days, three X liquidation preferences, founders having to sell half their company to investors. And as that came much more in line, both sides benefited. And what you see today is this Renaissance or Medici period where the economics are in line. Both parties are benefiting. SPACs follow the same pattern, but they're really just a few decades behind. And we hope to really align incentives to make it fair. This also effectively forces out any of those that are just in it for the opportunistic money making and really don't care about the future prospects of the company. So we see ourselves as reformers. We don't see ourselves as the only ones here. We know there's a lot of great investors and entrepreneurs entering the space. And we in fact, want to create a bit of a rebel alliance to really reform this vehicle.

• 16:05Speaker 03

  I think that couple of points I would just emphasize, you know, so Harry, you absolutely picked up on the correct point, which is that for our SPAC, we plan to kind of address this when we're negotiating with a specific partner company to make sure that whatever deal we end up with, we are fully aligned. I would say one of the other things, and this speaks to Kevin's kind of desire to reform the industry, is that we're calling attention to this. You rarely hear sponsors talk about how the industry is overpaid, certainly not in other asset classes and certainly not in SPACs. And so we really want to make sure that the tech community understands that these terms are negotiable and that they should be thinking about alignment. So whether it's with us or more likely with other SPACs as well, these are the questions they should be asking. And so if you're a founder, you should say, should you as the SPAC benefit if the company trades poorly? If I'm a founder and I'm losing money on this de-SPAC transaction,

• 16:48Speaker 03

  does it make sense that the SPAC sponsor is walking away and having done really well? And so we're really just trying to bring attention to this issue with the goal of ultimately kind of changing the standard over time. But I think really that first step is that awareness component.

• 17:00Harry Stebbings?

  Totally agree with you in terms of the awareness. Can I ask you, when I think about this in kind of broader context, I'm like, okay, is this wave one for SPACs? And in five to 10 years, we'll see a fundamentally different landscape with a real democratization. But then I actually look and I go, you know, Kevin and Troy, you're both incredibly investable people. Obviously Kevin's background with the Van Buiten, all the incredible angel investors in the portfolio. There's so much to you. As a team, not many people have that. It's almost kind of the 1%. Will we see a true democratization of SPACs? Or is it still like in the hands of very few, do you think, in five to 10 years?

• 17:29Speaker 02

  We think for the time being, it's hard to predict out into the future. But whatever it turns out, whether it's a small group of SPAC firms that are really at the forefront, or whether it's a much broader democratized audience, that it will be reformed and it will be a standard way to get out. What we do see and what we do predict unfortunately is something akin to perhaps the dot com bubble in 99 and 2000, where you saw a lot of bright shiny objects and big flash in the pan market seeming successes. And then you'll see a lot of these coming down to earth at a very fast rate of velocity. And that concerns us because it could end up out regulating the industry as we saw with Sarbanes-Oxley in the traditional IPO. It can really, even more importantly, result in a loss of a lot of people's money.

• 18:13Speaker 02

  As we see now, this army of investors coming out of Robin Hood, the millennial investor. It's not our goal to leave consumer retail investors holding the bag. But in fact, we want to grow value with them. And we want to grow value with the long-term investors that are going to put their shares in the so-called lockbox and just leave them in for decades, as one would with many of these leaders we see today, would be greatly beneficial. So we really need to align things. What the future holds is a great reformed vehicle. Will it be a few or many? I think that either way, if you have people with the right values, investors with the right values, again, you often don't see investors and values in the same piece. But the best firms out there really do operate in a manner that's fair for both sides and beneficial for both sides.

• 18:55Harry Stebbings?

  Can I ask, if you're advising, you know, one of the endowments, institutions, pension funds, you name it, having been through the process and having also just analyzed SPAC environment and landscape, if you're advising them, seeing this new swathe coming through their door, how would you advise them on SPAC evaluation?

• 19:10Speaker 02

  It's really only based on people because there's no assets, there's no P and L, or there's a small tiny L but no P, because it's just amount of money held in trust. Astar holds $200 million in trust in a very simple structure. And so what is evaluated there? It's entirely evaluated on people and looking at their background, are they? Really effective in understanding of tech. They've been immersed in the ecosystem of the innovation economy. Do they reward both the company and the shareholders from the investments they make? Are they seen as founder friendly? All these are just a few of the questions and I'm really heartened. We're out to raise the tide of all ships and we think we'll benefit from that as well. But I'm very heartened to see people like Mark Stod and his team at Dragon Air bringing a vehicle to market. Mark is a phenomenal investor.

• 19:54Speaker 02

  He's shown in the Airbnb's and Uber's and many other investments he's made over the years that he's a very effective steward of capital. And for the fact that he's now out in the open markets, trading his SPAC vehicle or his SPAC vehicle is trading is very exciting. And for the first time retail in many long, only investors can get involved in that company. We see the rumors of Mickey over at Ribbit bringing a SPAC to market. And these are the types of exemplary leaders and great investors that we want to see more out there and become a decision that the institutionals and others would want to really place their money with, just as they would with a venture fund where you're simply looking at the people in track record themselves.

• 20:32Harry Stebbings?

  Totally get you from that perspective on the people. Can I ask a naive one? And it's like, can SPAC, you mentioned Mickey there and Mark and both incredible people. Can SPACs work together? And I keep reading and you mentioned Pipe earlier. How do we think about this extension of capital? And can they work together? And what is Pipe and how does it fit into the equation?

• 20:49Speaker 03

  So there's a couple of different points here. So just to kind of unpack that question. I think the first one was around whether or not SPACs can work together. I'm not sure there's a regulatory issue, but I can say that historically there really hasn't been a transaction that's involved multiple SPACs working with the same target. And again, part of that is just because to some degree SPAC is a merger transaction. And so the idea behind the SPAC is that the SPAC itself merges with the company. And so having two SPACs merge with it just wouldn't really make sense as much. That said, you're absolutely right that there is additional capital that can be brought in and that that typically takes the form of a pipe. A pipe is a private investment in a public equity. And effectively what that is, is a large typically institutional investor will take a stake in the company. One of the things that we wanted to flag is, because it's come up a couple of times,

• 21:34Speaker 03

  Pipe in the broader finance community often means investing in a distressed company. It's an easy way to get some equity on. The balance sheet of a company that may not have options and the pipe is often purchased at a discount to the current trading price. In the SPAC world, pipes are a little bit different. And I would say the analog in the SPAC world looks far more similar to an anchor investor in an IPO, where the pipe investor in a SPAC typically has done a lot of underwriting of the company, has gotten to meet the management team, has reviewed projections, and decided to make a sizable order to basically buy shares in a company that's coming public. And so it looks a lot more like a traditional anchor investor in an IPO and allows that pipe investor to really get in a meaningful chunk and participate for the long term.

• 22:13Harry Stebbings?

  Got you. Okay, that makes total sense. So the one question I do have before we dive into A-Star specifically and then the quickfire, and mentioning the different components that go into the financing there, time really comes into my mind. How does timing look for the SPAC, both in terms of the transaction and the merger? And how does that compare to an IPO process?

• 22:31Speaker 02

  In our case, we have a 24-month timeframe to get all the way to what's called the de-SPAC-ing process. And that's simply that putting our 200 million that we have in A-Star, our first vehicle one, onto the balance sheets and effectively merging with a partnered company. And so that's generally the time limit. Investors don't want to wait around forever for that money to be utilized. And so there's generally a time limit put on that. And it's really an interesting theoretical equation of how long you wait, how many companies you pass on before you find that next great leader in the market. We always hope to find the right company right out of the gates. And we're seeing an extreme amount of reception and promise. But we also will wait and be patient to find that right company.

• 23:10Harry Stebbings?

  Yeah, no, I totally agree in terms of waiting and being patient on that right company. With that in mind and how you think about investing the money, I do want to ask a kind of direct but obvious question. It's like you chose 200 million for the right size for the first vehicle. Why did you decide that right size being 200 and what was the logic behind it?

• 23:26Speaker 02

  Well, Harry, we've seen what's becoming known as the mega SPAC growth theory. And that is over just even the last 18 months, we saw the average SPAC size from 150 to 200 million just a few years ago, balloon up to 500, 800 billion dollars. And as we saw with the Tontine vehicle, 4 billion dollars. Now, there's nothing wrong with that, but that's really focused on big game hunting. We're interested in helping with these tailwinds of Versing the stay private trend with a smaller SPAC with something on the order of 200 million. In the case of the Eventbrite IPO, Julia raised 200 million dollars, all her primary capital, and it was the right amount needed at the right time. That is something we're mirroring because in general, and what the rule of thumb is, that a vehicle based on the size of the capital really looks to partner with a company

• 24:11Speaker 02

  that's four to six times market cap. So that would be 800 to 1.2 billion, or really just going after that billion dollar sweet spot. And so that really helps us get to market with a company that's relatively earlier on in its IPO lifecycle. Secondly, as Troy alluded to with the pipe, is we can flex up and we can get those top-tier institutional investors in that pipe. Once you have a look at a really great company that are looking to get into more IPOs, that just don't have the ability to do so now with the trickle of the IPO market happening right now, but really give more long-only investors, the T. Rose, Bailey Giffords, Durable Capital and others, the ability to buy into these IPOs or these pipes, which serve as an IPO purchase and watch these companies mature over years and we hope decades.

• 24:54Harry Stebbings?

  Kevin, can I ask, you mentioned kind of the historical trends that we've seen and how SPACs kind of fit into them. One thing that we have seen is just the huge proliferation of later-stage venture capital and what that's done in terms of driving prices up and the number and pure quantity of unicorns. How do you think about the pricing concerns today, given bluntly, pricing being so high and billion-dollar companies today not necessarily having the fundamentals that they used to years ago in terms of sustainable business models, 150 million in revenue? How do you think about that and the pricing challenge?

• 25:22Speaker 02

  Well, the best companies, the most enduring companies are always effectively overvalued. If you look at Microsoft on its historical basis through the 80s and 90s, it was always seen as far too ahead of its skis in terms of valuation. If you look at the Facebooks or the Amazons or others, always far too ahead in valuation. And especially in this robust market today, you're seeing it companies trading at 10, 20, 30, 40 times the revenue multiples, which is even giving the private markets a run for their money. So some companies will fall off that track, but the enduring companies will continue to stay ahead of the crowd. And frankly, those are the companies that we're looking for. There will be this convergence in private and public. There's always a point where there has to be. This reconciliation and the pendulum swings back and forth between the public markets being overvalued and the private markets being overvalued. But really, at the end of the day,

• 26:07Speaker 02

  in the long term of that business, it will find its right valuation despite the ups and downs. Having had two different companies, Zoom, the money remittance business in the public markets, and now Eventbrite, we do see these undulations of the market and macro effects and so on. But we also know that in the long term, the business will be valued in a way that is fair. And it's really in the hands of the entrepreneurs. It's really in the hands of Julia as the CEO of Event, right, to navigate that company. And that's our philosophy.

• 26:33Harry Stebbings?

  Totally get it in terms of that being the philosophy. I do want to ask, well, we mentioned the proliferation of venture funding there. And obviously, the increasing number of SPACs means increasing competition for those great companies. I guess my question to you is like, raising the money from LPs and investors, what's your unfair advantages of SPACs, Paulster? And how did you prove to them that the team that you've assembled really is something different?

• 26:53Speaker 02

  Well, we'll come back to those terms of values, which really is important to us. One is really having a great deal of respect for founders, because we've been on both sides of the table as investors on the private side and as operators on the private and public side. We've really walked in their shoes. And we've also been in the innovation economy since the very early innings, and have seen some really great companies grow up around us. I've had the really great fortune of being a seed investor in companies such as Pinterest, a seed investor in companies like Airbnb. And that's been very informative, all the way back to the PayPal days of having the honor of watching the PayPal mafia really grow and proliferate into some really incredible people, really changing the world. And in that alone is a narrative that's true and something that

• 27:36Speaker 02

  we just believe strongly and something, again, that we're out to create a revolution. And we're not out pitching investors, we're not out pitching companies, we're trying to find partners to work with us and really make these changes here. And that's simply the sincere effort. We also have set outright that we'll compress this cost of capital. We're one of the very few SPACs entering the market today, and we hope it's much more of a trend that have been able to come out with a very low warrant coverage. A quarter warrant is something that's unheard of for a first-time SPAC. We've seen this over just the last few years, where it used to be one-for-one warrant coverage, then a half, and then maybe- A third with a quality SPAC and now we're at a quarter. And this again reduces the cost of capital for our partner companies. And also allows the investors that get involved to really think about the long term

• 28:20Speaker 02

  and not just being the arbiters of some type of small warrant vehicle.

• 28:24Harry Stebbings?

  Yeah, that's final question before the quick fire, Adam. And as I spoke to Chamath about his SPACs on the show, and he said the biggest challenge for him was simply the frequency with which he could do SPACs, how many he could get out the door, so to speak. Would you agree with that being kind of the biggest challenge? And I guess kind of ultimately, what do you want to create here? Is it a series of incredible SPACs? That it's two a year, three a year, one a year? I don't know how that looks in terms of frequency. Would you agree with him being that's the biggest challenge? And how do you think about payments?

• 28:49Speaker 02

  Well, we really have to call out that Chamath is a pioneer in the market. And Chamath would be the first to point that out. Just kidding, Chamath, I had to throw that one out at you. But no, he really was a pioneer in the market. We see things quite differently. We see it as finding the highest quality and not rushing. So we don't want to get out 20 SPACs consecutively off the runway unless we can assure that there'll be 20 enduring businesses. So we'll move at the pace only that we can find the best companies to partner with.

• 29:15Harry Stebbings?

  Totally agree. I do want to dive there into a quick fire, Adam, guys. So I say essentially a short statement and then you hit me with your immediate thoughts. Does that sound okay?

• 29:23Speaker 02

  Okay.

• 29:23Harry Stebbings?

  Okay, so we're going to start on favorite book and why. Troy, you're starting.

• 29:27Speaker 03

  I've been reading a Churchill biography recently that's been great.

• 29:29Harry Stebbings?

  Why is it the favorite?

• 29:30Speaker 03

  I think it's just amazing to see his leadership through stressful times, as well as just seeing the sheer number of times that he faced setbacks and continued to come back and rise above everything.

• 29:38Harry Stebbings?

  Kevin, hit me, what's yours? What's the must read?

• 29:41Speaker 02

  The must read is A Great Company's Business Plan and Financials. To me, that is the best narrative, the most inspiring narrative I can see.

• 29:48Harry Stebbings?

  Kevin, I have to ask this. Are you a deck man or are you a memo man? I'm more of a memo man these days.

• 29:54Speaker 02

  Well, I've traditionally been more of a deck man, a deck person, I should say, because it really encapsulates the visual and the text. But I'm coming around to the memo ways. I'm seeing the use of Notion. And I'm not sure if you've seen this trend where there's some really well concise written Notion memos. Now the challenge is I'm a stickler for great editing. And so when I see a not very well written memo, which becomes much harder, I would say than the narrative of a presentation, I'm very Impatient and bothered by that.

• 30:21Harry Stebbings?

  Got you. No, I like that. Troy, tell me hardest element of running a SPAC today?

• 30:25Speaker 03

  I think it really is finding this great partner. The reality is getting this SPAC up and running isn't tremendously difficult. And we've been able to find great partners for all of the different components of it. But really kind of having these conversations with partners and helping them understand the benefits. And to Kevin's point, really finding a business that will be durable and be something we want to hold for years is always a challenge.

• 30:43Harry Stebbings?

  Kevin, what would you say the biggest challenge is?

• 30:45Speaker 02

  It without a doubt is ensuring we find a durable business. We had our first org meeting. An org meeting is when you sit down with the banking team. And in this case, we chose Goldman Sachs because of their work that they did with Eventbrite and the great terrific work we did. And we worked with the team from that IPO. I digress, but we had our org meeting on June 18th. We retained Goodwin, our law firm, who also we had worked with for many years. And that's a specific reason is because it's inside the innovation economy and we're trying to mainstream this. But getting back to the point, we had this org meeting on June 18th. We'd filed in early July, our S1 flipped public in early August. And we launched in with public on August 18th. So that's 60 days and that's with four people.

• 31:25Speaker 02

  And I should give a shout out now to Laura De Petra. She was our legal eagle that worked very closely with Goodwin. And the amazing thing and astounding thing there was that she graduated from law school. She worked for Wilson Sensini. It then took a 20-year hiatus to raise a family and jumped back in with us and was quite an amazing force of nature. So I hope we can see many more talent like this coming out to really drive the innovation economy. Thank you, Laura.

• 31:48Harry Stebbings?

  That is absolutely incredible. I do want to ask, what would you most like to do now with this very interesting perspective and you had on? What would you most like to change about tech and venture when you look back on it now and the world that you engage in through the SPAC's perspective?

• 32:01Speaker 02

  I think really in general is finding what to change on the investing side is really finding a genuine fit between a founder and an investor. A lot of times they become quick sales processes and an investor, or that is an entrepreneur, is swept off their feet. And a term sheet is signed before really assessing and evaluating the full range of investors. You're making a long-term partnership decision. You really want to be thoughtful as to evaluation, to the terms, to who is going to be on your board for 10 years. For example, I've been fortunate to have a two-time investor and that's Roloff Botha, involved in both companies from near cradle all the way through the public markets. And having Roloff Botha from Sequoia involved was really a game changer there. And we very precisely chose Roloff.

• 32:44Speaker 02

  In the case of Eventbrite, our Series A was actually the lowest priced term sheet. But having that trust and knowing his brainpower and prowess in building companies, it became a very easy choice for us. And he worked just as hard as Julia went through. I would argue perhaps the hardest hit COVID business in the tech space has been a live entertainment and ticketing business. And we've gotten through a most amazing turnaround, which I think, Harry, you should consider for another episode.

• 33:09Harry Stebbings?

  I would absolutely love to. I mean, I wanted to ask, but I also didn't want to be insensitive. But I would love to make that happen. Troy, what would you most like to change?

• 33:16Speaker 03

  Yeah, I mean, I think for me, I come from a private equity background. I really want to see a clear transition towards companies that are actually kind of businesses. One of the things I've personally struggled with here in the valley is it feels like there are many companies that are working on products, but not always businesses. And so one of the things I would love to see is just see companies that actually are focused on unit economics and the ability to actually have a path towards being a successful business. And part of that is obviously selfish as an investor, but part of that is just because I think it creates a more durable and resilient industry, because businesses can become self-sustaining in a way that some of the development or kind of the high-risk product companies can't.

• 33:51Harry Stebbings?

  Totally get you there. Final one, what do you want to achieve with A-Star? When you think about like the 10-year vision as a founder, because this is a founding story, what do you want to achieve with A-Star?

• 33:59Speaker 02

  Well, we want to, just as any founder in the innovation economy or as any great investor, we want to really build an enduring franchise. So we look with great fondness and admiration at firms like Sequoia Capital and Benchmark and Andreessen Horowitz as companies that are really building not just these investment vehicles that come and go, but really as the term Sequoia alludes to, something that will last for perpetuity and really stand for great values and really find and partner with those great companies. That, at the end of the day, is something that I think we all want to have that lasting impact in what we do.

• 34:31Harry Stebbings?

  Troy, what would yours be?

• 34:32Speaker 03

  Yeah, I think it really is just kind of helping the ecosystem more broadly. We'd love A-Star to become a platform that is used for lots of different things and to help lots of different companies. And so we've obviously chosen to name our first SPAC one with the idea of there being two and three, et cetera. And so, yeah, we just love to be helpful to the broader tech community and help companies become public because we think it benefits both the companies and the investor universe.

• 34:52Speaker 02

  I would also simply add that we really want to be pioneers, not the pioneers with the arrows in our back, but really reform this SPAC vehicle, really drive towards the future and really make this an option, just as you would consider a traditional IPO, a direct listing or otherwise. It's a very unique asset. Every founder should be at least listening and learning about this. It's changing in real time. And so just as we saw the internet change the landscape, just as we saw Bitcoin or other phenomenon, social networking, this is something to watch on the financial asset side, just as venture capital changed and radically grew in the 90s and 2000s, just as Y Combinator had an impact on formation stage businesses. We think this is an enduring vehicle and we think that we want to have a lasting pioneering impact here.

• 35:36Harry Stebbings?

  Listen, I couldn't be more excited for Astar. I think it's such an exciting new project and some really exciting times ahead with the evolution of the SPAC industry. So thank you so much for joining me today and this has been such a pleasure. Thanks, Harry. Really appreciate it.

• 35:47Speaker 02

  Thanks so much, Harry.

• 35:50Harry Stebbings?

  What can I say? I just love Kevin and so enjoy getting to meet Troy through this process. And if you'd like to see more from us behind the scenes, you can on Instagram at H Stubbings1996 with two Bs. I cannot wait to see the incredible business Astar does partner with. But before we leave you today, I want to take a moment to mention HelloSign, a great example of a company that found success in building a product focused on user experience. HelloSign is an effortless e-signature solution used by millions to securely send and request legally valid digital signatures and agreements. They raised a total of $16 million in funding and recently got acquired by Dropbox for an impressive $230 million. Check out hellosign.com/20vc to join the thousands of companies and founders who value fast, secure and simple e-signatures.

• 36:34Harry Stebbings?

  And speaking of really gorgeous product and customer experiences there with HelloSign, you have to check out Rootable. Rootable is helping companies speed up their business payments using a secure invoice and bill payment platform. On the receivable side, you get paid faster with accounts receivable automation. And then on the payable side, you reduce accounts payable cost, clutter and compliance risk. And that's why the likes of Ticketmaster and Snack Pass both use and love Rootable. Head over to rootable.com to check them out today and experience the 10 Next customer experience improvement they provide. And then finally, a couple of months ago, I had Jeff Sibert and Wayne Chang on the show from Digits. And simply put, they're two of the best founders that I've met. And they're creating the most intuitive financial software you've ever used.

• 37:15Harry Stebbings?

  Automatically analyzing your company's spend and visualizing it for you as it happens. Hone in on recent activity, trends, anomalies, or any question you have in just a few clicks. And unlike every other financial software, their integration is not weeks, it is just a few clicks. Have to say the product is just so beautiful and I never thought I'd say that about financial software. You have to check it out and you can do so at digits.com. As always, I so appreciate all your support and I can't wait to bring you a fantastic episode this coming Friday.