Pod Insights Big Technology Podcast What The Heck Happened To SPACs — With Charles Duhigg About this episode Charles Duhigg is a Pulitzer-prize-winning reporter and the author of Smarter Faster Better and The Power of Habit. He joins Big Technology Podcast to discuss what's happened with SPACs — special purpose acquisition companies — that seemed ready to revolutionize the IPO process just last year but have now fallen out of favor. Duhigg explains SPACs' rise, their decline, and what the financial world will look like once they settle into place. We also spend the first ten minutes discussing Elon Musk's Twitter bid and whether he's flying a bit too close to the sun.
Come chat with about this episode with me here on LinkedIn: https://www.linkedin.com/feed/update/urn:li:activity:6922620355924647936/
You can find Duhigg's story here: https://www.newyorker.com/magazine/2021/06/07/the-pied-piper-of-spacs
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Alex Kantrowitz? This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay?
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1:03 Speaker 01 LinkedIn Presents.
1:24 Alex Kantrowitz? Hello and welcome to the Big Technology Podcast, a show for cool-headed nuanced conversation of the tech world and beyond. About a year ago, the hottest financial instrument in the world was the SPAC. You might have heard about it. Every company was SPAC-ing. Nobody was IPO-ing anymore. Well, right now, it looks like SPACs are a forgotten instrument. And it's very rare that something goes from being such an object of fascination to such an afterthought in our financial world. And I think by looking at what's happened to SPACs, we can learn a lot about where our economy is today and where it's going. We have the perfect guest to talk about it today. Charles Duhigg is here. He's a Pulitzer Prize-winning reporter, author of Smarter, Faster, Better: About the Science of Productivity, and The Power of Habit: About the Science of Habit Formation.
2:10 Alex Kantrowitz? He's currently a reporter at The New Yorker. Charles Duhigg, welcome to the show. Thanks for having me. It's great to have you here. The last time, well, the first time we met, actually, we were on set at CNBC and talking about Elon Musk's Cybertruck. It was a big Elon Musk story. Right now, in the middle of another Elon Musk story. It does seem like, you know, the business world is just like, you know, you have Elon Musk and you have pauses and there's more Elon Musk.
2:34 Speaker 02 It, you know, Matt Levine, who writes on the money stuff column, has like an index where he says the best thing you can do for your stock is be as adjacent to Elon Musk as possible. Because if Elon will tweet about your stock or your crypto or whatever you've got going, the value will go up. And I think it's true. And it is very weird. Like, I've looked in history, trying to figure out, is there another time that someone who is ostensibly the richest person in the world, I'm not sure Elon is actually the richest person in the world, but ostensibly holds that title, is such like a trolling jackass. And the truth of the matter is, like, I don't think so. I mean, it's almost like he creates his own
3:15 Speaker 02 weather system. And so as a result, he can do these things that other people can't do. But the, we've been living for the last decade in like, a kind of like weird meteorological time. And so I am wondering if he's eventually going to come down to earth. Because the things he does are, on the face of them, ridiculous. But it's entertaining, right?
3:40 Alex Kantrowitz? What does coming back to earth mean for someone like Elon?
3:43 Speaker 02 I mean, I don't know. I don't know. Right? Like, it wasn't, I wrote this piece about Elon for Wired. This was before the Model S had really, they had figured out how to, how to make the factory work. And there was a really legitimate question at that moment. I mean, this was like, only five years ago, that whether the, the company was going to go bankrupt, right? It was on the brink of bankruptcy. I mean, basically, Elon Musk himself has said they were on the brink of bankruptcy if they didn't fix their manufacturing problems. And it wasn't clear that the, that a fix was available. That, that things weren't going to work out. And so, the thing about, about Musk is I think he flies pretty high. And, and the thing about flying high is, it's a great trip. But then, when you fall, you
4:26 Speaker 02 tend to plummet pretty quickly. And so, it does feel like, much like SPACs were, you know, a year, a year and a half ago. It feels like we're in this moment where things are not as certain as some would lead us to believe. And I would not be surprised if a year or two years from now, we're having a conversation and everyone's like, wow, you know, like, like that Elon Musk wipeout was, was unexpected and stranger than we thought it was going to be because the guy is doing stuff that like, he's taking on the SEC, right? He's basically thumbing his nose at regulators. He's making these bids for companies that it's totally unclear whether he has the financing lined up. These are
5:09 Alex Kantrowitz? Oh, Twitter, he doesn't have the financing lined up.
5:11 Speaker 02 Right, right. I mean, he says things on, on Twitter that are insane. And so like, it's, it's not the kind of behavior that you look at and you're like, wow, this is definitely, definitely according to a plan that makes a lot of sense.
5:25 Alex Kantrowitz? Yeah, it doesn't, it doesn't seem to make a ton of sense. But the other argument would be, look at, and we won't do the whole podcast on Elon, but why not start talking about him? By the way, we're recording on a Monday, the podcast is coming out Wednesday. Who the hell knows? He could have already had this.
5:38 Speaker 02 Everything could have changed.
5:39 Alex Kantrowitz? Exactly. But like, okay, give the guy credit though. Like, he did end up taking that car and he's going to produce more than a million vehicles this year and after not knowing if he could do it. And then like his rockets are going to space and landing. I mean, it's amazing.
5:54 Speaker 02 No, I totally give him the credit. I mean, credit where credit is due. Like, like he has done this thing that other people said wasn't possible. And, and regardless of whether he like, is seen as an emblem of success or an emblem of like hubris, he has changed the automotive industry in a, in a fundamental way, right? We, the, the Ford F-150 electric version is about to be released relatively soon. And, and I think you can draw a line from Elon Musk to Ford making its most popular truck electric. Um, so, so this is not to, to discount.
6:28 Alex Kantrowitz? He made it cool.
6:30 Speaker 02 Yeah, he made it cool. He made it cool. He made it seem feasible. He like, you know, he helped push along battery technology, which is the number one thing that we need in order to make electric vehicles and of all kinds more, more feasible. So I, I'm not saying that, that what he's doing isn't important. And I'm not saying he doesn't have accomplishments. But I am saying that his behavior is so unusual for someone with the, the clout, the position and the power that he has right now, that it, it starts ringing all these bells in my mind that like, You know, this kind of hubris is not often unpunished.
7:07 Alex Kantrowitz? Right.
7:07 Speaker 02 And, and there are a lot of people, despite his accomplishments, who are lined up, who are just salivating for him to have a misstep so that they can come and, and, and, you know, dance on his corpse a little bit.
7:19 Alex Kantrowitz? Right.
7:19 Speaker 02 So it's, it's gonna be fun to watch, right?
7:22 Alex Kantrowitz? Oh, it sure is.
7:23 Speaker 02 This is the best part of it. That's why he keeps on coming up in the news.
7:25 Alex Kantrowitz? Exactly. I mean, being a business reporter has never been this entertaining.
7:29 Speaker 02 Yeah.
7:29 Alex Kantrowitz? Wild.
7:30 Speaker 02 Yeah. Yeah, it's crazy.
7:32 Alex Kantrowitz? So, but, but what, if, if a fall for him, like, what does it look like? Like, he gets fined by the SEC? It's a pretty toothless organization. I mean, he's, for years now, he's been saying that SEC stands for blank Elon's blank. Like, literally, that's what he's saying.
7:43 Speaker 02 Yeah, I know.
7:44 Alex Kantrowitz? And I haven't done anything to it.
7:45 Speaker 02 I know. I know. It's, um, so, y- yes, but the fact that you are saying it is a toothless organization, there's a lot of regulators within the SEC.
7:55 Alex Kantrowitz? Yeah.
7:55 Speaker 02 Who feel very upset that people now feel like we can say it's a toothless organization. So they're gonna look for opportunities to prove that they are not a toothless organization. Now, there's a fundamental question here, which is, you know, back when, when he first basically kind of got in trouble with the SEC because he said he was gonna take Tesla private and didn't have any of the, and said he had the funding lined up and he didn't. There was this big debate within the agency and outside of the agency of people saying, "Look, i- if your goal as a regulator is to protect shareholders, the number one thing you can't do is remove Elon Musk because that's gonna hurt shareholders, right? It's clear that he's running this company that anyone who else who ran this company would, would not do as good a job."
8:35 Speaker 02 So the SEC is in a difficult position, but here's the thing, like, any, you might have a fight with the, with the weakest bully on the playground and the dumbest bully on the playground, but if that bully is the big bully, if they're stronger than you, it doesn't matter how stupid they are, they're still gonna put their fist in your face.
8:56 Alex Kantrowitz? Absolutely.
8:57 Speaker 02 Picking a fight with the US government is never, traditionally has not worked out really well, even for people who are smarter and better than Elon Musk, right? And so, so I don't know how the SEC or Gary Ginsler or others, I don't know how they come back and, and sort of prove that they should not be called the Suck Elon's Blank, but... But, but, but I'm absolutely certain that there are regulators who are saying, "The fact that this guy is taunting us and making these claims, "we have a moral obligation to act to prove to other folks within the marketplace "that we are a legitimate regulator,
9:39 Speaker 02 "even if that means perhaps damaging the shareholders of Tesla or SpaceX or other companies."
9:45 Alex Kantrowitz? Last question about this. Elon is trying to bring Twitter private. You said in the beginning that, you know, Matt Levine mentioned that the best thing you can do "for your stock is to have Elon part of it. "But if Elon brings Twitter private, "then you sort of lose that benefit because you don't have the meme stockability. "It's not on the public markets. "You can't have the retail investor join in and be part of the swarm. "Given that, is there a compelling pitch that Elon can make? "'Cause he only has, what, $3 billion of cash on hand? "Is there a compelling pitch that Elon can make to, let's say, private equity "or other rich people to say, "Hey, come be part of me. "You know, be part of this with me. "You will make your money back."
10:20 Speaker 02 No.
10:21 Alex Kantrowitz? I'm struggling to see it.
10:22 Speaker 02 Not, not, like, what, he bid, what, $43 billion or something like that?
10:26 Alex Kantrowitz? Yes.
10:27 Speaker 02 Like, is there anyone on this world who has like an extra billion dollars in the pocket "that, that it says like, "You know, I definitely don't want to buy into Twitter right now, "but once Elon owns it, it's going to be a whole new ballgame." No, of course not. Like, well, that, but is the, the fact that he, what was it? It was like, it was like 44 billion, 200 million, right? He wanted to get 420 in there.
10:48 Alex Kantrowitz? It was, the price was, yeah, $54.20.
10:51 Speaker 02 That's it. $54.20. It is not an accident that it ends with 420, "which Elon thinks is funny because it's like a code for pot. "So, no, I do not see anyone out there who's like, "man, I just cannot wait to hand over billions of dollars "'cause I know that Elon is going to take, take this company that like, "is the most troubled business model on earth, maybe? "Like, like Twitter, if you ever want to have fun, "just like try and figure out like why Twitter isn't making money "despite the fact that everyone knows about it? "It, I, there's no magic pixie dust that Elon can wave on this. "So, no, I don't, I don't, I don't think anyone's going to join him. "Now, that doesn't stop him from using his own cash, right? "He's definitely got enough money if he was to sell some Tesla stock to go buy the thing. "But even, I don't think.
11:37 Speaker 02 He's not
11:38 Alex Kantrowitz? He probably wouldn't have done it at this point.
11:39 Speaker 02 No, yeah.
11:40 Alex Kantrowitz? So let's talk about Spacks because that's, that's what, you know, you wrote this great story about Spacks about a year ago in The New Yorker. Another colorful character actually is at the central there, Chamath Palihapitiya. So we'll get into, but why don't we start with that? How does Chamath and you, how did Chamath and Elon compare?
11:57 Speaker 02 So, um.
11:58 Alex Kantrowitz? And yeah, and who is Chamath?
12:00 Speaker 02 So Chamath is this really interesting guy and I think, I think he's interesting because he's an archetype for a certain type of person who's successful right now in Silicon Valley. And throughout history, right? So Chamath is this guy, his, his family is from Sri Lanka. They escaped and became refugees in Canada. He grew up in Canada. He went to college to study electrical engineering in Canada and then he followed his girlfriend to California. And he got a job at Facebook, which at that point it wasn't clear that like Facebook was going to be Facebook, right? It was just one of many companies that was now in California. So it was a brand new company, relatively young, and he's given this kind of unsexy assignment, which is to grow audience. Because at that point, Facebook is basically growing by leaps and bounds. It doesn't seem hard to grow audience.
12:45 Speaker 02 There was no thing, no such thing as like, like, like growth scaling at that point, right? It wasn't even something people thought about. But Chamath comes in and he's, he's kind of larger than life. He's this charismatic figure. He's able to get a bunch of, of engineers to work on this project with him. And he kind of invents like the hard, hard, high pressure signing up people to, to join a viral service, right? Before anyone knew that was, that was possible. One of the things he did is he created Facebook pages for people who had not yet signed up for Facebook, like millions and millions of these. So that when you would Google yourself, your Facebook page would come up, but you hadn't actually claimed it yet. So then people would claim it.
13:27 Speaker 02 And of course, like, once you start doing that, you start getting more and more membership. And he really did supercharge the number of people who were on Facebook and made Facebook, you know, sort of the dominant social media company of that age. And so he makes some good money on that, makes enough money that, you know, he's got. You know, tens of millions of dollars, enough that he can buy a small percentage of the Golden State Warriors. He leaves Facebook. He starts this, this private equity and investment group called Social Capital and basically hires some really smart people and then makes them so crazy that all of them leave because they basically hate working with Chamath. He's just, he's narcissist, right? He's an egomaniac and, and he loves being at the
14:11 Speaker 02 center of things. And he does all these things that again, in retrospect are kind of clever, but you understand why people don't want to hang out with him, which is like, you know, he's, he himself is a person of color and he, he creates an index to say which venture capital organizations are the most inclusive. And to figure out which are most inclusive, they basically just go on, on LinkedIn and look at pictures of people and like look for the brown people to say how many each, how many minorities are working at each firm. And then he publishes his list of the most inclusive venture capital companies in Silicon Valley. And of course, his firm, Social Capital, is at the top of the list, right? He's number one. And everyone at this, at this time is like, this is ridiculous. Like, you're basically perpetuating a fraud. In fact, The Wall Street Journal writes an article
14:56 Speaker 02 about Chamath saying he's the venture capitalist other venture capitalists love to hate. But again, it works. From that point on, whenever anyone, any journalist writes about diversity in venture capital or diversity in Silicon Valley, they end up mentioning Chamath, right? Even articles about like, you know, how women are treated within venture, the venture capital world, which is of course a hot topic. Chamath ends up getting quoted in that. He has a, a larger than makes sense persona within this industry. But eventually he, he like pisses off all of his partners who think that Chamath is just doing things to help Chamath, not to help the companies that they're investing in. A lot of them leave in sort of disgruntled ways. He announces that he's going to take Social Capital, his, his investment
15:38 Speaker 02 firm and, and kind of like just make it a family office. But in truth, it's because basically he'd been abandoned by all the people who were helping him run the place. And so he starts looking at his assets. He recognizes he needs another, the, the press is bad about Chamath at this point, right? Like all the blogs are covering the blow up at Social Capital. He looks at the assets he's got and they had done this thing about a year earlier where they had launched a SPAC before anyone knew what a SPAC was. They had gone out and they'd said, "We're going to raise a big pool of capital for a publicly traded company. We're going to take an empty shell company through an IPO and raise a bunch of capital. And then we're going to go buy a real company, a privately traded company with this shell."
16:21 Speaker 02 And so that privately traded company will sort of through the back door become publicly traded. They'll be able to be a public company without having to go through the normal rigmarole of an IPO.
16:30 Alex Kantrowitz? And that's a SPAC.
16:31 Speaker 02 And that's a SPAC. And that's a SPAC. And by the way, we're going to give ourselves 20% of the company as like a reward for doing this. And he does that with Virgin Galactic. And it ends up being a huge, huge, short-term success, right? Virgin Galactic, much like Chamath, it's run by Richard Branson. It's this like perpetually troubled company that has literally never made a deadline that it's set for itself. It's never, still, I think this is true, has never put a paying person into space. It's a space tourism company. They still have never put a paying customer into space 15 years after the company was founded.
17:10 Alex Kantrowitz? There's, I'll let you continue, but there's this one great line in the story that I have to quote that you have. Someone said Chamath working with Richard Branson, he said, "It's like watching someone try to have sex with their reflection."
17:21 Speaker 02 Yes, that's exactly right. He was actually even a little bit more crass for the rest of the quote. I only use the beginning of it. They got into...
17:29 Alex Kantrowitz? What's the, actually...
17:30 Speaker 02 The specifics of it, but...
17:32 Alex Kantrowitz? Don't want to get kicked off, Ab.
17:34 Speaker 02 Right. But much like Chamath, the reason why this works is because space, Virgin Galactic is kind of this amazing story. And so lots of people buy into it. Lots of people want to be part of it. And this kind of gets to what Chamath is all about. Chamath succeeds nowadays, or succeeded at this period a year ago, because he's an amazing storyteller. Like he tells stories about capitalism. He tells stories about like taking risks and investing in things that are certainly going to change the world. He's an amazing storyteller and people love stories. And there are periods of capitalism where being a storyteller is the most important skill someone can have. Because the public is so hungry for stories, they eat it all up.
18:17 Speaker 02 This happened with with credit cards, this happened with mutual funds, this happened with junk bonds, this happened with mortgages, right? If you go back to each of these financial instruments that evolved in the last century, what you see is you see a wonderful storyteller or a small group of storytellers who convinces the rest of the world to see things in a new way. Now, of course, the outcome is usually things blow up, right? Mutual funds blew up in the Great Depression. Credit cards were like one of the worst, worst investments when they first emerged in the 1970s. Mortgage backed securities obviously led to the 2008. You know, the junk bonds blew up and Mike Milken ended up going to jail.
19:00 Speaker 02 But what happens is that there are certain times, these periods in history, where you need storytellers to make people believe in a new financial instrument. And then the infrastructure for that instrument gets built. And then eventually everything blows up, but the infrastructure remains. And so the instrument becomes something boring and normal and useful going forward once the storytellers have either gone to jail or fallen into disrepute.
19:25 Alex Kantrowitz? And this is, you know, maybe the first step of what's happened with Chamath. Because, you know, with this Virgin Galactic, you tell me if this is right or wrong, but with Virgin Galactic, he actually did popularize, you know, the bringing forward of this SPAC movement.
19:39 Speaker 02 Absolutely.
19:40 Alex Kantrowitz? Let's see, you say in 2022, 248 SPACs went public, raising more than $83 billion. So they, so, and, and yeah, so, so it seems like with Chamath as this great storyteller, like he's great on TV, he's great in podcasts, you know, the all in podcast that he's part of is consistently in the, towards the top of the technology charts. And, you know, so, so by doing this, he did help tell this story that brought so many others in. So can you talk a little bit about the wave of enthusiasm that emerges around Chamath for the SPAC movement and what the public markets were like when that happened?
20:16 Speaker 02 So there's this pervasive, um, I think it's a myth in Silicon Valley, but it's pretty widely believed that IPOs kind of suck.
20:26 Speaker 02 As a way of taking your company public. And the, and the theory about why they suck is because they're super time consuming. You have to spend a lot of time with lawyers and regulators and writing these documents. They are, they're super expensive. You, you end up giving a lot of money to the bankers who take you public, but also you usually price your stock too low. And so the people who buy your stock on the first day make a lot of money, but you're missing out on millions that you should have raised otherwise. They're, that, that the, that when you're in an IPO, traditionally you're in this silent period, so you can't really talk about your company. And for a lot of companies that don't have profits yet, talking about their company is how they make investors believe that it's a good bet. So basically, there's a whole group of people in Silicon Valley who hate IPOs. They think it's a scam.
21:12 Alex Kantrowitz? Right, there's an argument also that they shut off to the common person.
21:16 Speaker 02 Yes, the, the, the common person can't buy into the first day of the IPO. And the companies have delayed going public. They've turned to private equity. The, the private market has kind of replaced the public markets as a, as a place to get all of your financing and that the common investor cannot play in the, in the private market, right? They're actually, they're actually excluded by law. You have to have a certain net worth in order to become a private equity investor, a qualified investor as it should. So, so basically there is this theory. Now, now let me just say, I've talked to a ton of academics and researchers who have studied this. All of them basically say, those are myths. Like if you put a direct listing next to a SPAC, next to an IPO, they all basically cost the same amount and they all basically take the same length, uh, same amount of
22:01 Speaker 02 time and work. It's just that the perceptions are very, very different. But setting that aside, whether it's true or, or it's a myth, Silicon Valley believes IPOs are broken. So they want a new way to go public because taking your company, company public is essential, right? It's a liquidity event for your investors. They get to cash out. It's a way to raise money that's less expensive. There, there's usually kind of a, a liquidity premium so that you can, you can raise more money more easily. And, and most of all, like, you know, CEOs have to go public, like, otherwise they can't go back to their Harvard Business School reunion and, and without people respecting them.
22:37 Alex Kantrowitz? Is that, is that what it is?
22:39 Speaker 02 I, I went to Harvard Business School, so let me just say, yes, that's exactly how it is.
22:43 Alex Kantrowitz? I see.
22:44 Speaker 02 So they, so, so everyone wants to, there is this pressure to go public, but the IPO is seen as being broken. And so SPACs come along as basically a way of people saying, This is an easier way to do an IPO. Again, researchers disagree. But the thing that SPACs sponsors, the people who are creating SPACs say is they say, because it's not an IPO, you can still talk about your company. You can still make forward-looking projections. You can basically act like the same CEO you've been for the last five years without having to worry about the SEC jumping on your back and making your life terrible. Again, the SEC actually disagrees with this. SEC has released guidance saying that's not right, but for a long time, people believed it.
23:27 Speaker 02 And that created this opportunity for guys like Chamath to come in because what Chamath would do is he would say, okay, I'm going to take a company like Virgin Galactic Public, and it's going to be through a SPAC, not through an IPO. And so as a result, it's going to be cheaper and more nimble and more efficient, which everyone in Silicon Valley and everyone who's on the stock market loves. But second of all, he says, and you know what? When I'm going public, all those other companies that are doing IPOs, they can't tell you about how rosy the future is. They can't make forward-looking projections. But I, I'm doing a SPAC, so I can. So I'm going to tell you these crazy stories about the fact that Virgin Galactic is going to become the most profitable company ever despite 15 years of amazing losses. They're going to become the most profitable company ever in like nine months.
24:08 Speaker 02 And, and basically, whether he's allowed to do that or not, that's what he does. And it's SPACs are so new that nobody's like suing him yet. No regulators are telling him that he's breaking the law or regulations. And it works, right? Because he spins this amazing tale. And there's all these retail investors, all these normal investors, all these people who live in Des Moines, Iowa, who say, man, Chamath was just on CNBC, and he said that this company is going to send tourists into space. This is the future. I want to buy a piece of that. And so they buy into it. And the stock goes through the roof. Right?
24:46 Alex Kantrowitz? Yeah.
24:46 Speaker 02 And sorry, go ahead.
24:48 Alex Kantrowitz? I'll just say, um, so Virgin Galactic, um, goes up to $55.91 on June 25th.
24:57 Speaker 02 From $10 a share, right?
24:58 Alex Kantrowitz? Yes. Okay. And, and this is, this is a good cliffhanger because it's now trading around eight. And I'm going to pause here, we're going to take a break. And then when we come back, we're going to talk about what the F happened for something to go so high up and then all the way down. So standby, we'll be back here right after this on the big technology podcast. This episode is brought to you by AVPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data and most teams have no single way to see it, secure it and prove it's under control. That's exactly what AVPoint does.
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27:21 Alex Kantrowitz? And we're back here on big technology podcast with Charles Dukic. He's a Pulitzer Prize winning reporter, author of smarter faster better about the science of productivity and the power of habit about the science of habit formation. He's currently a reporter at the New Yorker where he wrote a great story about Chamath and SPACs. It's called Pied Piper of SPACs. I really encourage you to go check it out. I'll drop it in the show notes. Before the break, we were talking about how Virgin Galactic had gone up to $55.91 by June 2021. Now it's trading at eight. It's been as low as in the $7 range. It doesn't look good. And it's amazing that this financial vehicle that Chamath helped popularize, again, like it wasn't just Virgin Galactic. It seemed like every company was
28:02 Alex Kantrowitz? going SoFi is another example of the company that, you know, went public via SPAC and then shot up and is now
28:08 Speaker 02 By Chamath, right?
28:09 Alex Kantrowitz? Chamath was behind Chamath helped it. Yes, exactly.
28:11 Speaker 02 Chamath has named them IPO A and IPO B and IPO C.
28:14 Alex Kantrowitz? Yes.
28:15 Speaker 02 Yeah.
28:15 Alex Kantrowitz? So Charles, what what happened? I mean, it's so shocking to me that some something that was so hot became so, I don't know, uninteresting to people and so cold so quickly.
28:28 Speaker 02 Well, so two things happened. Number one, so Chamath goes out and he tells us, let's take Virgin Galactic as an example. Chamath goes out and he tells this amazing story, right? Virgin Galactic is going to change the world. It's going to start sending people into space as tourists, etc. And and the stock goes through the roof. The stock like explodes 5X on the stock. And other people are watching this and they're like, you know what? I could start a SPAC too. Because it turns out, if you're in like a financial professional, it costs less than a million bucks to set up a SPAC. Sometimes it costs only like $100,000 to set up a SPAC. So they go out.
29:01 Alex Kantrowitz? There was a great line in your story about how people knew more folks with SPACs than had contracted COVID during this time.
29:07 Speaker 02 Oh, absolutely. All over Wall Street. You talk to anyone like who's an investor and you're like, how many SPACs you know? And they're like, oh, I got like seven or eight folks doing SPACs. It's like, how many people have gotten COVID? And they're like, well, I think my aunt's friend got COVID, right? Like, like you want to talk tale of two countries, like it's right there. But so, so everyone starts starting, starts creating these SPACs. And of course, because like retail investors are oftentimes not as sophisticated as they should be. CNBC is talking about how amazing SPACs are, how it's the new way of raising wealth in America, how people are getting rich on it. So all the, so many of the SPACs do great. They raise billions and billions of dollars. Now, here's the problem. Again, back to Virgin Galactic. So Chamath tells a story about
29:51 Speaker 02 Virgin Galactic becoming profitable within nine months and, you know, making billions of dollars within just a couple of years. And of course, once it goes public, Virgin Galactic misses every single benchmark, every single deadline that Chamath had said that the company was going to hit. Because Virgin Galactic is a terrible company. You cannot take, like, you can't invent space tourism as a real industry in nine months after it's been failing for 15 years. Like, just think about how ridiculous it is to say, I'm creating space tourism as an industry, right? And then on top of it to say like, and in fact, I'm going to do it overnight. It's just going to happen. And we're going to start earning billions of dollars. Doesn't make any
30:35 Speaker 02 sense. Not only that, but Virgin Galactic has a terrible, terrible track record. And so a bunch of people who had bought into this SPAC, smart money sees the, sees it go way up, the price go way up, and they sell immediately, including Chamath. Chamath liquidates all of his Virgin Galactic holdings.
30:54 Alex Kantrowitz? The full holding?
30:55 Speaker 02 The full holding. So first he liquidates his personal holding. Then eventually he ends up liquidating his corporate holding. I don't know how many shares he owns at this point, but it's not a lot. He was the chairman of Virgin Galactic and he resigned as chairman and when the price started going down. So Chamath and all the smart money, they jump out of Virgin Galactic and all these SPACs as soon as they can. But there's all these retail investors, right? The people who are like, man, I heard Chamath on CNBC say that space tourism was going to be awesome. And they're watching this and eventually some of them get wise and say like, you know what? This is ridiculous. Like, I don't know anyone who's going to go into space for their next summer vacation. And so the stock price comes back to where it ought to be,
31:39 Speaker 02 which is not very high, because they don't actually have a business model that makes any sense yet.
31:46 Alex Kantrowitz? Right. And it seems like all the diligence that would typically be done through an IPO, like if you, if you had a company that was strong enough in the fundamentals to go through an IPO, you were probably going through an IPO at this time. But all the diligence ends up, you know, kind of coming out in the wash a couple, like, well, maybe a couple of months after these things go public. And you look at SoFi, SoFi is at $7.13. Now it's down 54% on the year. I mean, it's miserable. And here, here's some other stats that I found when I was doing some research. So SPAC activity in the first quarter of 2022 was its lowest since the early of early, uh, early 2020 with only 57 listings through April 14th. And, and so you remember the stat
32:26 Alex Kantrowitz? that I read earlier in 2020, 248 SPACs went public. So we're way, way down. And then companies that have gone public via SPAC have underperformed the S and P 500 by 80% since 2018.
32:41 Speaker 02 That's exactly right. And there's, and like, there's two things worth remembering about this. The first is, one of the reasons they've underperformed by 80% is because the guy who creates the SPAC, the guy likes Chamath, he gives himself 20% of the company for free.
32:54 Alex Kantrowitz? Right?
32:55 Speaker 02 Right. So like anytime you like buy a car and you only get 80% of that car and 20% of it goes to like your idiot, you know, brother in law. It's probably not a great deal for you to buy that car because you're taking a 20% haircut on the first day. But the second important thing is to remember that when SPACs go public, they make a promise to all these people that they've invested. They're going to go find a private company to acquire. And there's still hundreds of SPACs that have not found a private company to acquire yet. So there's all these SPACs out there that have these giant pools of money. And they're going out and they're talking to private companies. I mean, I have friends who hear this all the time. They're like, look, we'll take you. You want to go public like, like, let it come, come, let us acquire you through the SPAC. Like, we'll let you go public. And the private companies are doing one of two things.
33:38 Speaker 02 Either they're saying, number one, like, this doesn't make any sense. We're not ready to be public. Or number two, they're saying, actually, I got five other SPACs competing with me. So you need to come down on your pricing. You need to give me a sweetheart deal. And as, and as we all know, if you give the, the founder of a company a sweetheart deal and the sponsors of the SPACs are getting a sweetheart deal, there's not a lot of sweetheart left for the common investor. So these things are all, that's why they're down 80%.
34:05 Alex Kantrowitz? Yeah. And a company that I used to work for BuzzFeed actually went public via a SPAC, went out at $10, it's now at 468. So it's at the media industry also. I've asked Jonah Peretti to come on the show, so maybe we can get him on and talk about.
34:17 Speaker 02 I would be very curious to see what Jonah has to say about that. It's a, it's a, how, how, I assume you had some, um, some equity in BuzzFeed?
34:25 Alex Kantrowitz? I did, yeah. I had, I had some options. And when I left the company in 2020, I called the finance department and I was like, all right, let's talk about these options. Cause I had actually worked at an ad tech company in sales and I walked away from some options and I lost on a lot of money. The company like had 100 or 200 employees and ended up selling for like 310 million dollars, which isn't a great deal, but like, there would have been money there. So I was like, I'll never make that mistake again. And then I went to BuzzFeed and I was like to spoke to the finance department. I was like, I like to buy my options, like, let's talk it through. And they actually told me like, listen, if you bought now, you're underwater. And I just kind of let the deadline go and never bought the options. And it ended up being a good thing because. I would have had to pay all the tax on like the valuation and then I would have lost money on, you know, the SPAC itself. There were all these issues in terms of like,
35:10 Alex Kantrowitz? you know, employees actually being able to sell. The software wasn't working or whatever it was. So.
35:14 Speaker 02 There's a and and and actually Buzzfeed is a great example because Jonah, as I understand it, chose that partner, that SPAC to work with because they let Jonah maintain control. Not because it was the best financial deal, not because it was the one that was most guaranteed to succeed for investors and employees, but because it was most guaranteed to let Jonah stay in charge. Again, we would have to ask him to make sure that's true.
35:37 Alex Kantrowitz? I gotta ask him.
35:37 Speaker 02 But that's what I heard.
35:39 Alex Kantrowitz? But you're right. If there's so many competing, then yeah, you'll be able, if you're the founder, to choose these sweetheart deals.
35:44 Speaker 02 And that's the problem is that like, you know, capitalism is supposed to work because it basically sets greed against greed. It's supposed to to value the financial outcome as this goal. And as soon as a market gets out of out of whack because people are good storytellers, because there's too much supply or too much demand, then all of a sudden these perverse incentives can come into play. And that's where little the little guy ends up getting screwed usually.
36:11 Alex Kantrowitz? Yeah. Do you think this was a function of just like low interest rates and people were just dying? I mean, to for me to to put my money into a SPAC where someone's like, I might acquire a company you like, trust me, it would take a huge leap of faith to do that. So do you think this was just like a product of zero interest rate policy where people like found it difficult to make their money elsewhere and they decided, okay, let's do this?
36:33 Speaker 02 I think part of it was people chasing yield, right? Because like interest rates are low, the stock market, the stock market, it's it's hard to beat 10% return in the stock market. But the other part of it is just frankly, the people with power understanding that this was a sucker's game that they could win and using their platforms, using their popularity, using Twitter. To basically hoodwink the little guy into funding, into funding their profits. Right? Like, like Chamath would get on Twitter and he would say these crazy things about Virgin Galactic. And so if you're someone who reads Wall Street bets and like, looks to Twitter for advice on stocks,
37:14 Speaker 02 and you see this guy who you admire cheerleading some company, why not go buy that company? Particularly when he says it's literally a rocket that's going to go to the moon. You go and you buy the thing and what you don't know is Chamath's going to pull his shares out as soon as he can. As soon as-
37:31 Alex Kantrowitz? So how-
37:32 Speaker 02 Sorry, go ahead.
37:32 Alex Kantrowitz? No, as soon as the stock price gets high. How is this different from most other financial movements? You wrote, and I think you've touched on this in the past, you cited this guy, Robert Shiller, talking about narrative economics, and this from your story. Narrative economics argues that many of our dearest economic theories are simply stories that we've made true through correct collective belief. I could think of a lot of them, NFTs, Bitcoins, SPACs, but like also the, you know, totally accepted parts of our economy now. So is it that just like this, this took the path of many traditional financial instruments and was just found wanting, once it was exposed in the public and now has fallen apart?
38:10 Speaker 02 Well, first of all, it hasn't fallen apart. I think that, that SPACs will be a tool going forward.
38:15 Alex Kantrowitz? Okay, I wanted to ask about that.
38:16 Speaker 02 And I think this is pretty consistent, that, that if you look at the things that we use all the time now, credit cards, for instance. So, credit cards were much like SPACs when they first appeared. Like, there was this credit card craze in the 1970s where they would send credit cards unsolicited to prisoners, to infants, in one case they sent it to a dog. And people, of course, would take these credit cards and go run up huge bills and then walk away from them. Right? And credit card companies made a lot of money on these. And like, the, the people who had bought into those stocks or the banks who were behind them, lost a lot of money. And then what happened was, and, and basically the reason why is because the credit card sellers were really very good storytellers. Like, they could, they could tell you the story about why a credit card made sense,
38:59 Speaker 02 why giving it, giving it to someone who hadn't asked for it was like a really rational idea. And then it all falls apart. And then what happens is that credit cards become normal and boring. People don't analyze credit cards based on these fanciful stories anymore. They start analyzing them based on nuts and bolts, numbers, you know, sort of this logic that we usually bring to financial analysis. So what Robert Shiller and others would say is- There are periods when narrative economics are more persuasive than others. Right? There are vast periods of history where showing up and telling some extravagant story gets you labeled a snake oil salesman and you're kicked out of the marketplace.
39:40 Speaker 02 And everyone turns to like the boring guys in bow ties with ink stained fingers who are working on actual actuarial tables. And we say, those are the storytellers we want to listen to. We're entering a period like that right now. Right? When like inflation gets high, when shit gets real, all of a sudden, nobody wants to listen to the storytellers. They want to start listening to the boring, serious guy in the back of the room. But then there are other periods where it just feels like, it feels like anything is possible. Like someone you've never heard of before is suddenly an overnight billionaire. And you're like, look, if that guy's getting a billion dollars and he doesn't seem smarter than me, why can't I get a billion dollars? And so they start chasing not only yield,
40:25 Speaker 02 because there's fewer other options to invest in, they also start chasing the dream because capitalism is built on the dream. And it works for a little while. Everyone invests. We build this big economic infrastructure for something like a SPAC or a mutual fund or credit cards or junk bonds. And then it all blows up. But when it blows up, what's left behind is the infrastructure. The infrastructure that was funded essentially by retail investors. And someone boring comes along and they say, you know what? I can use this infrastructure to just bake my bread, to like do normal day to day work. And suddenly you have something like credit cards that everyone uses, or you have, I think, five or six years from
41:07 Speaker 02 now SPACs, which will be a legitimate option for some types of companies rather than an IPO.
41:14 Alex Kantrowitz? Yeah, I guess like, and I know you have to leave soon, so let me just put it this way. Like, we have, I've heard these stories also about crypto that like eventually like the, you know, the froth will fall away and we'll have legitimate stuff. But like, why is it necessary that that happens? Like, you know, obviously like the these established, it's like the crypto.com commercial in the Super Bowl, everybody says, oh, this will never work. And then it does. And of course, that's what happens with everything established. But sometimes the things that people say will never work actually don't work. So why are you convinced that SPACs will actually stick around? Because they do seem, the way that you've been speaking about them, like an inferior product to an IPO.
41:49 Speaker 02 They're gonna stick around the same way crypto is gonna, the same reason crypto is gonna stick around, because it's the right solution for some situations, right? Like, there are some companies that cannot IPO for various reasons. They can't IPO because they don't have enough of a track record, but they deserve to be a public company. They're gonna be more successful as a public company. They're in some out of favor industry like, you know, marijuana or gambling, something that like, basically institutional investors don't want to get behind. And so you can't sell the book before the IPO. But they have great revenues. They deserve to be a publicly traded company. They're gonna succeed better as a publicly traded company. A SPAC is a route to public markets that some companies will need to rely on because
42:33 Speaker 02 they don't fit the mold of what an IPO should be. And we should have different routes to public markets, right? We should have different kinds of currency out there. If the entire world could only use the dollar, it'd be disastrous. So we've got hundreds of different currencies and now we have digital currencies. That doesn't mean that I'm gonna go buy something at Whole Foods using crypto. That's ridiculous. But it does mean that if I want to move money across a border, maybe crypto is the way to do it. Or if I want to park some wealth in something that is speculative, maybe crypto is the right answer. Or maybe the blockchain becomes this way of disintermediating the financial middlemen for a lot of transactions. Things emerge because there's a real need for them.
43:16 Speaker 02 What happens, though, is that sometimes people become over enthusiastic. And their over enthusiasm is encouraged by storytellers who stand to profit off that over enthusiasm. And then it blows up. But that doesn't mean that the underlying need wasn't there. It just means that it might have. Been applied to situations where it wasn't appropriate.
43:37 Alex Kantrowitz? Right. And now the SEC is putting in some laws into place that are going to restrict some of the freewheeling parts of the SPACs, which actually could actually help move it towards something more standardized.
43:47 Speaker 02 Absolutely. And you're gonna see going forward, there's a certain kind of company that will use a SPAC instead of an IPO. And that'll be fine.
43:54 Alex Kantrowitz? Okay, let's do one last minute. I want to get your predictions on what happens to Chamath first.
44:00 Speaker 02 I mean, look, Chamath's got plenty of money. He like, he recedes from like view, right? I mean, he's someone who's addicted to attention. So I'm sure he'll do things much like Elon, but less successfully than Elon, to try and get attention. And, and maybe he goes over a line in the sand to something where he ends up getting like, you know, slapped by regulators, maybe even arrested. That's what happened to Mike Milken. Is it basically like Milken like kind of thought that he was a god? And so he started acting like one, and was brought down to the sides. I don't think, I don't think that's Chamath. Like, I don't think Chamath, I think Chamath kind of knows that he's, he's a storyteller
44:41 Speaker 02 and he doesn't, doesn't mistake himself for, for what he isn't. But I think he's someone who like a lot of figures, like he had this moment in the sun and he sort of recedes from view and he tries to stay relevant. He tries to stay, say outrageous things on Twitter to get attention to go on CNBC. But he has damaged his own brand by being a sponsor of a bunch of SPACs that did not work. And people saying like, look, if you put money in this thing, like, you'd better know who the sucker at the table is because otherwise it's you. Somebody is going to get screwed in this deal. And so he burnt his reputation kind of building these things. But he got paid, you know, hundreds of millions, maybe even a billion dollars to do it. And you can, you can set a lot of-
45:25 Alex Kantrowitz? Fair trade off.
45:26 Speaker 02 Yeah, you can set a lot of reputation on fire for that much cash.
45:29 Alex Kantrowitz? Yeah. Lastly, your, your prediction with Elon and Twitter?
45:33 Speaker 02 I have no idea. I think it just fades. I don't know. Who knows? It's Elon, right? Like, I can tell you what would happen in a rational situation, but I can't tell you what's gonna happen here because everything that's happening is irrational. But I do think that there is something important to recognize about Elon Musk, which is he really, really likes attention, right? When I was working on the Chamath story, a lot of people compared Chamath to Trump. When I was working on the Elon Musk story, a lot of people compared Elon to Trump. And I think the reason why it seemed familiar, like people made the comparisons, was because these are all people who seem irrationally addicted to other people's attention.
46:15 Speaker 02 And so if you recognize that, then the question becomes, the only way to predict their behavior is to predict what will get them attention. And if, if talking about Twitter and buying Twitter gets Elon attention, he's gonna continue talking about it. And if it starts seeming like it's not gonna get him attention, particularly the kind of attention he wants, he's just gonna stop and he'll find something new.
46:35 Alex Kantrowitz? So I guess he'll keep talking.
46:37 Speaker 02 I guess. I guess we'll find out.
46:39 Alex Kantrowitz? So one thing I found as a Twitter reporter is people on Twitter love stories about Twitter.
46:42 Speaker 02 That is true. That is true. Also, it's worth pointing out, people on Twitter is a very, very small percentage of the nation in the world. It just happens to be the people that we bump into every single day. So we think it's large, but it's really not that big.
46:58 Alex Kantrowitz? But that, well, yeah, but the cultural influence is, is big. You see it on TV, you see it in newspapers, you see it everywhere.
47:03 Speaker 02 I would, I would actually argue, like, if you live in, like, Des Moines, I don't think the cultural impact of Twitter is that big. I think it's just that the people we bump into are the people who are putting things on TV and writing things in newspapers.
47:17 Alex Kantrowitz? Right. In Des Moines, they're, they're watching TV and reading newspapers, but I, I understand.
47:21 Speaker 02 But they're watching, they're watching different TV and reading different newspapers.
47:25 Alex Kantrowitz? If you're, if you're watching Fox News in Des Moines, you're gonna see Tucker Carlson's responding to tweets of the day.
47:31 Speaker 02 Yeah. Yeah, no, I agree. I saw that they're ignorant of Twitter. It's just that they're not using it as like this, like,
47:37 Alex Kantrowitz? Exactly.
47:37 Speaker 02 information source the way that the rest of us are.
47:40 Alex Kantrowitz? And this is why Facebook is the company with some real staying.
47:44 Speaker 02 Right, right, exactly.
47:47 Alex Kantrowitz? Charles Duhigg, thank you so much for coming on. Great chatting with you. Thanks for having me. My pleasure. The books are Smarter, Faster, Better, Power of Habit, and The Story, which you can find in the show notes, The Pied Piper of SPACs. It'll be an interesting story, not going to go away anytime soon. Great to have you on, Charles. Thank you to Nate Watney for doing the editing. Thank you, LinkedIn, for having me as part of the Podcast Network. And thanks to all of you, the listeners. Really appreciate it coming back week after week. We'll be back next Wednesday for another show with a tech insider or outside agitator. Until then, take care.
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Previous Emergency Podcast: Elon Musk Offers To Buy Twitter — With Ranjan Roy Next Elon's Plan to Fix Twitter — With Alex Roetter Page updated October 26, 2026 · transcript and summary are machine-generated
