It’s been a good time to go public for high-profile unicorns lately. Coinbase, Roblox, and Airbnb are just a few of the major private companies to make their Wall Street debuts in recent months. But transitioning from a startup to a publicly-traded firm with more investors and increased scrutiny from Wall Street analysts and government regulators is not easy.
And now the Securities and Exchange Commission could be adding another roadblock. The Wall Street regulator recently announced a proposal to change some accounting rules for stock warrants that could make it more difficult for companies to go public through special purpose acquisition company mergers, or SPACs.
These blank check deals have become an increasingly popular way for companies to go public. It’s how Virgin Galactic (SPCE) and DraftKings started trading. Southeast Asian ride-sharing giant Grab, trading card maker Topps, and office-sharing firm WeWork are in the process of merging with SPACs as well.
“There has been so much SPAC activity that the market was getting indigestion,” said Duncan Davidson, general partner with venture capital fund Bullpen Capital. “We need a pause.” For private companies that have yet to go public, it may be time to think twice about how soon they want to get to Wall Street — and whether it might make more sense to do so through a traditional initial public offering instead of a SPAC.
“It is now becoming a real conversation about whether to go public one way or not,” said Craig Clay, president of global capital markets for Donnelley Financial Solutions (DFIN), a top compliance advisory firm.
“Companies looking to do an IPO realize it may be a long road, but it is less risky.” Donnelley Financial Solutions has helped several top private companies go public recently, including Bumble, Pos, and DoorDash, which did so via IPOs, as well as sexual health company his & hers, which merged with a SPAC. The firm is working with WeWork on its SPAC deal too.