Suddenly, it seems like Special Purpose Acquisition Companies – aka SPACs – are everywhere. They accounted for most of the growth in the U.S. IPO market in 2020 and raised about $80 billion over the course of last year. That was up from barely $14 billion in 2019 and accounted for more than 50% of the total IPO market in 2020. The last time SPACs took off like this was in 2007, when they made up about 14% of the market.
What’s the deal?
It helps to first understand what exactly a SPAC is and what makes them unique.
According to the SEC, a SPAC is a type of blank check company, or “a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. A SPAC is created specifically to pool funds in order to finance a merger or acquisition opportunity within a set timeframe.”
In a SPAC, a sponsor raises capital in order to generate value for shareholders and partners, and that money is eventually used to acquire an existing private company. Once that’s done, the SPAC structure effectively comes to a close and the company continues to operate as a traditional public company.
These companies exist to raise funds to take an existing company public. That’s it.
But, despite their recent popularity, SPACs aren’t exactly new. The structure has existed for decades, but has become more common recently due to the COVID-19 pandemic among other things. The switch to work-from-home last spring put a damper on the traditional IPO roadshows that bankers use to drum up investor interest in their new offerings, making the less hands-on SPAC an attractive alternative.
Intellectual property and SPACs
As Grant Moss with Adapt IP explains it, innovation and IP play an important role in the success of failure of any SPAC.
“The SPAC and the target company must prepare and file an investor presentation, which is provided to potential investors to assist with the evaluation of the investment opportunity,” he writes. “Like most roadshow documents, these presentations aim to show potential investors what differentiates the companies in questions from competitors and why and how their capital will be utilized for growth. Further, they highlight innovations, intellectual property and patents. Innovation and intellectual property are important assets for these companies as they represent commitments to fuel growth and protect market positioning.”
For instance, according to Moss’ research, the word “innovation” appeared in 76% of SPAC investor presentations, and “patent” “intellectual property” or “trade secret” showed up 33% of the time. That’s no fluke. IP matters, no matter how a company goes public.
But that’s not all.
IP due diligence factors into any fundraise, and SPACs are no exception. In fact, especially since a company going public via SPAC will likely face further scrutiny in the broader market, IP considerations are arguably more important. One not-so-surprising data point in Moss’ report is the fact that the role that intellectual property plays in the process is heavily dependent on the market involved – e.g., pharmaceutical and commercial product companies need to have invested much more heavily in patent protections heading into the SPAC process vs. companies in service or health tech. This lines up with the importance of IP in these types of industries overall.
The bottom line is that, when considering going down the SPAC path, it is important to understand the IP expectations of your industry because they won’t change as you move to go public. Just because you aren’t following the traditional IPO process doesn’t mean that investors will expect anything less of your IP diligence.
SPAC mergers can be a best-case scenario for ambitious companies that are looking to go public, but it takes some planning from an intellectual property perspective. You can begin NOW by taking a look at the comparables among recent SPACs to see what your company should be doing now in order to achieve a similar valuation in the future.
Protecting your intellectual property starts with understanding what to protect. Ready to turn your intellectual property into your greatest asset? Click here to get started.
