'Not all SPACs are created equal': A top VC and Shark Tank investor details 3 qualities to look for in blank-check firms — and outlines 2 trends to watch

• Matt Higgins, a venture capitalist and guest Shark Tank investor, recently launched a SPAC.
• He breaks down what it means to be an operator-led SPAC.
• He shares the qualities investors should look for when evaluating SPACs as well as two trends to watch.
• See more stories on Insider’s business page.

Special purpose acquisition company issuance hit a new all-time record this week reaching $79.4 billion in the first two and half months this year. For the whole of 2020, SPAC issuance amounted to $79.3 billion.

A SPAC is formed by a group of investors. Together, the group raises money from other investors to acquire an existing private company with the goal of taking it public within a set time period. The structure has been around for years, providing less limitations compared to the traditional IPO.

But with roughly five SPACs launching every trading day, investors question how many will ultimately succeed.

Venture capitalist Matt Higgins is betting on the operator-led approach, where a SPAC has a chairman or CEO, who has significant C-suite level operating experience.

Over the course of his career, Higgins has taken on high-level operational roles with the Miami Dolphins and New York Jets, taught at Harvard Business School as an executive fellow and runs a private investment firm. He was also a guest star on “Shark Tank”.

He is now leveraging those years of experience in the  Omnichannel Acquisition Corp (OCA) SPAC, where he is chairman and CEO. 

Higgins has assembled a team of “omnichannel avengers”, ranging from Bobbi Brown, Christina Tosi and Gary Vaynerchuk, to help find a suitable target company.

The inspiration for this “dream team” of operators, deal makers and public company experts? A report by consultant McKinsey.

The report determined not all SPACs were created equal, Higgins said, with operator SPACs outperforming other blank-check companies by 40% and the S&P 500 by 10%.

The timing of the report coincided with the SPAC boom and the pandemic upending traditional consumer experiences.

Higgins took the opportunity to combine his operator roots and investor experience, backing the likes of Momofuku and Milk Bar, to launch a SPAC focused on the omnichannel approach –  brands and companies that offer seamless experiences from the brick-and-motor store, to the online site and everything in between.

“I’ve been an operator since I was very young, I helped oversee the rebuilding of the World Trade Center, post 9/11,” Higgins said. “I was the chief operating officer of the agency charged with rebuilding Lower Manhattan. So it’s in my blood and in my DNA, and I’m very passionate about backing founders.”

OAC, which was priced at $10 a share and one half of a warrant when it launched in November, is seeking a target that can provide demonstrated traction with a valuation above $1 billion, has a focus on the consumer space specifically with omnichannel opportunities and is a mission-driven business.

But as the space is becoming increasingly crowded, some investors are calling the SPAC market a bubble waiting to burst.

Higgins isn’t fazed. He thinks strong operator leadership with a very specific thesis will stand out in the crowd. 

“The SPAC structure makes a ton of sense for a variety of reasons, it will be around for the duration,” Higgins said. “That doesn’t mean that there aren’t too many individuals involved.”

Evaluating SPACs

For investors that want to get in on the market, but are worried about the froth, Higgins recommends evaluating the following three components.

1) What’s the group’s background?

“Does this group of people have a strong handle on the sector which they purport to be experts in or which they’re targeting?” Higgins said.

2) Are they likely to get a good deal done?

“The ability to go ahead and get the attention of the best companies within that sector is very important,” Higgins said.

3) How involved will the team be?

“How serious will they take this effort?” Higgins said. “How hard will they work? How deep will they go? And how long will they stay with the company to continue to unlock that value.”

Ultimately it comes down to doing the homework, reading the S1, studying the teams bios, considering the objectives and considering the deal flow, Higgins said, referring to the documentation filed with regulators to launch the SPAC.

“Not all SPACs are created equal,” Higgins said. ” I’m a bigger fan of doing the homework and going back to the S1.”

Sectors to watch

Big picture and away from his consumer-focused SPAC, Higgins is watching the following two emerging trends.

1) Non fungible tokens

Non-fungible tokens are cryptographic tokens that exist on the blockchain. They can represent a real-world asset such as art, collector items, real estate, and music and have boomed in recent weeks.

“NFTs are going to open up opportunities down the road,” Higgins said. ” … Specific works of art selling for $69 million dollars, I’m not talking about that. While novel and interesting, I’m really talking about the big picture utility of non fungible tokens as specifically they’re going to be platform plays that open up in the NFT space that are interesting.”

Higgins is particularly interested in the blockchain possibilities and the royalty perpetuity that can be programmed into NFTs. However, he is also skeptical about the froth in the current NFT market.

“My advice to investors is always, you have more time than you think it’s earlier than you realise, you are not late, use the time to get really smart and immerse yourself with information before taking action,” Higgins said.

2) Transportation electrification and automation

Higgins is also interested in what’s possible when combining electric vehicle and battery technology to transport people within metropolitan areas with no noise, referencing Archer, the urban air mobility company.

He also thinks electric vehicle adoption rates are underestimated.

“For example, I’m very long lithium. To state the obvious, just because we are going to switch I think we’re going to switch to electric vehicles a lot sooner than people realise,” Higgins said. “I actually think the predictions underestimate the tipping point of consumer expectations where everyone feels they have to have an electric vehicle.”

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