When so-called “King of SPACs” Chamath Palihapitiya was in his heyday, I jokingly compared him with Prof. Harold Hill, the conman-hero of The Music Man.
I was wrong. He was the Pied Piper, luring investor cash to its doom.
Now that the song is over, it’s time for a reckoning with the 12 SPACs Chamath created through his Social Capital investment firm.
Special Purpose Acquisition Companies (SPACs) were a way to get around investment bankers’ role as gatekeepers to the public market. Palihapitiya, and others, created “blank check” companies that would take other companies public by buying them. On March 14, 2018, he told CNBC “I could go on TV and raise a billion dollars in a week,” and he was right.
The question is where did all that money go?
Where Are They Now?
All Palihapitiya’s SPACs had a ticker symbol of “IPO” followed by a letter. There was an IPOA, an IPOB, etc.
Virgin Galactic Holdings (NYSE:SPCE) was originally IPOA. Since its first trade in 2019, the space plane company stock is down 70%, opening May 2 at about $3.50/share. A sister company, Virgin Orbit, has collapsed, and Galactic is still conducting pre-revenue tests.
OpenDoor Technologies (NASDAQ:OPEN) was originally IPOB. It was formed as an online real estate marketplace. Since its first trade in late 2020 it’s down 94%, after a failed effort at flipping the houses it was listing. It recently cut 22% of its workforce and opened May 2 at $1.39/share.
Clover Health (NASDAQ:CLOV) was originally IPOC. The company, which offers Medicare Advantage plans, is down 95% since it came public in early 2021. Its last trade was at 75 cents per share. While I have praised Clover Assistant, its tablet-based telehealth service, I called it dead money a year ago. The company has not been profitable, and recently laid off 10% of its workers.
Social Capital Hedosophia IV (NASDAQ:IPOD) never found a merger partner and Chamath gave up on it last September. The same fate came to Social Capital Hedosophia VI (NASDAQ:IPOF) and the rest of Chamath’s alphabet soup.
One Almost Winner
SoFi Technologies (NASDAQ:SOFI) was originally IPOE. Since coming public in June 2021, it’s down 70%.
However, this may be the most successful of Chamath’s SPACs. It has a valid business model, as an online banking and brokerage platform. I have personally pounded the table for the stock, even bought some. But CEO Anthony Noto now agrees that consumers are seeking “safer, more well trusted” banks.
SoFi and the SPAC boom have a similar history. Both were caught offsides when the cost of capital surged. When interest rates were near zero, equity capital was easy to raise, and growth was in fashion. With interest rates at 5%, there’s now competition for capital, and investors demand that companies provide profitability alongside growth.
SoFi’s low costs, its ability to automate the work of other banks through its Galileo and Technisys units, and its purchase of mortgage servicer Wyndham, all make sense. But the payoff on this strategy is years away, if it comes at all.
The Bottom Line
If you followed Chamath Palihapitiya into the SPAC boom, you lost money.
It turns out there is no shortcut to investing success. No one has a magic formula for spotting great start-ups. Investment bankers, it turns out, have a pretty good record at separating the wheat from the chaff. That’s why they get paid the big bucks.
Chamath says he’s over it. He blames the Fed’s interest rate hikes for what has happened. After years of praising Bitcoin, he has turned on crypto as well. Chamath has even compared himself to Warren Buffett of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B).
The difference is that the only person Chamath Palihapitiya has made rich is Chamath Palihapitiya.
On the date of publication, Dana Blankenhorn held a long position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.