Bill Gurley says SPACs are remarkably cheap compared to incorrectly priced IPOs

Nextdoor’s decision to go public through a special-purpose acquisition company was largely the result of favorable pricing compared to a traditional IPO, said Bill Gurley, a partner at Benchmark and one of the early investors in the network. neighborhood social.

Gurley has been among the most vocal supporters of direct listings, another IPO alternative in which companies go public without selling shares at a deep discount to new investors. He said the average initial public offering in 2020 came with a cost of capital of 57%.

“SPACs are remarkably cheap compared to incorrectly priced IPOs,” Gurley told CNBC’s “TechCheck” on Friday.

Nextdoor announced plans earlier this week to pursue a SPAC sponsored by an affiliate of Khosla Ventures, Vinod Khosla’s investment firm. In a SPAC, a so-called blank check company raises capital through a public offering and then pursues a potential target, which becomes the operating entity once the transaction is closed.

The pace of new SPACs slowed earlier this year after breaking a record in 2020 and setting a new record in the first quarter of this year. The pullback came after the SEC issued accounting guidance that would classify SPAC warrants as liabilities rather than equity instruments.

However, the activity has resumed. In addition to Nextdoor, fintech company Circle, space companies Planet Labs and Satellogic, and solar energy company Heliogen announced deals this week. Still, the CNBC SPAC Post Deal Index, which is made up of the largest SPACs that have announced a target or those that have already completed a SPAC merger in the past two years, is down 3.8% in 2021, after falling in February and March. .

The Nextdoor transaction will bring in $ 686 million and value the company at $ 4.3 billion. Benchmark first invested in 2011 with an after-money valuation of just over $ 30 million, according to PitchBook.

The company says its site is now used in more than 275,000 neighborhoods around the world and in nearly 1 in 3 American households. It allows users to organize events, sell or give away items, and alert neighbors to danger. Earlier this year, Nextdoor filed an anti-racism notice after long facing criticism for racist comments on its platform.

In 2018, Nextdoor hired Sarah Friar, who was Square’s CFO, as its new CEO, replacing company founder Nirav Tolia. Before that, he spent more than a decade at Goldman Sachs.

Gurley said Friar ran all the numbers and closely considered an IPO before making the final decision.

“Sarah Friar is an extremely seasoned CEO with tons of Wall Street experience, having worked at an investment bank and as the CFO of a public company,” said Gurley. “She did a double follow-up, she was looking at the IPO and she just said that I have more control and get better financial results if I follow the SPAC route.”

Invest to solve the labor shortage

Gurley appeared on “TechCheck” alongside Sumir Meghani, co-founder and CEO of Instawork, an online job market. Instawork announced Thursday that it raised $ 60 million in a funding round led by Craft Ventures.

The startup connects workers in the restaurant, hospitality and retail industries with part-time jobs at companies that need labor. The transaction comes a week after Suzanne Clark, executive director of the US Chamber of Commerce, told CNBC that the biggest problem American companies face is hiring enough skilled workers. He pointed to a lack of skilled labor, Covid-era unemployment benefits, insufficient access to childcare, and work visa restrictions.

“Our professionals earn almost double the minimum wage,” Meghani said. “Our best professionals can earn even more than that. They can be paid instantly when they leave a shift. We are rewarding the quality in Instawork with a faster payment, a higher payment but, above all, flexibility ”.

Gurley, who was one of Uber’s early backers, said Benchmark is focusing heavily on the category and has made about eight investments in “these kinds of markets.”

– CNBC’s Pia Singh contributed to this report.

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