Chamath Palihapitiya, one of the big backers of SPVs, has thrown in the towel and returned $1.5 billion to investors after failing to find targets.
The former Facebook exec, who once described himself as the Warren Buffett of his day, said two of his vehicles were being liquidated, blaming valuations and volatility for his inability to find deals.
Spacs are publicly traded vehicles that raise money and then attempt to acquire private companies. They started out as an alternative to a traditional IPO, but the market plummeted this year as investors shunned riskier deals.
“In the last two years we have evaluated more than 100 targets and although we have been close to making a deal on several occasions, we have ultimately backed out each time for a variety of reasons,” Palihapitiya said in a regulatory filing.
Palihapitiya became the face of the blank check business boom and partnered with British venture capitalist Ian Osborne to launch several spacs as the market picked up. He used Twitter to promote his businesses and attract retail investors who saw a way to gain access to publicly traded companies that often had no revenue or even product.
Social Capital Hedosophia, which combined the name of Palihapitiya’s venture capital firm with Osborne’s own company, named after the Greek gods of joy and wisdom, launched a total of six Spacs.
Their first deal, with Richard Branson’s Virgin Galactic, set the tone for the kind of goals blank check companies would pursue — early-stage companies that made big promises to revolutionize their industry, or even the world.
Shares in the space company shot up to $55, allowing Branson and Palihapitiya to sell the company and make hundreds of millions of dollars before the stock plummeted to around $5.
Other companies that Palihapitiya helped get IPOs, including real estate group Opendoor, Clover Health, a healthcare company, and online lender SoFi, are all trading well below $10, the price investors buy a spac at.
“Looking back, I’m proud of the companies we’ve taken public,” Palihapitiya wrote in a letter filed with the Securities and Exchange Commission. “They are well positioned to bring innovation to each of their end markets over the next few years and I am proud that we have been able to play a part in each of their respective journeys.”
Palihapitiya’s deals were often followed with much bravado on Twitter, where he presented himself as someone who wanted to help retail investors despite his billionaire status. He was a strong proponent of having “skin in the game” as a Spac sponsor, using his own money to build the vehicles.
Earlier this year, the Financial Times reported that Palihapitiya had borrowed money from Credit Suisse to fund two of his signing deals – Virgin Galactic and Opendoor. When the FT asked in 2020 if he took out a loan to fund his $100 million investment in Virgin Galactic, Palihapitiya denied it, writing, “That’s NOT right.”