Beyond SPACs: Business Trends of Tomorrow

1. Ostentatious Origins

The first rule of business is never sign a blank check. At least, that’s what we thought. But picture a SPAC as a bunch of entrepreneurs walking onto Shark Tank with nothing more than a smile, a suit and a firm handshake. Instead of laughing them out of the room, though, Mark Cuban showers them with Benjamins. Once they have acquired the funds, the entrepreneurs court companies to acquire and take public. Companies get a less rigorous way to launch an IPO and investors get in cheap on an emerging company. That’s how millennial Luminar founder and college dropout Austin Russell became an instant billionaire after a SPAC acquired his self-driving car company. Though such deals have been around since 2003, 2020 was the Year of the SPAC, with these vehicles raising some $80 billion — outpacing traditional IPOs. Former Speaker of the House Paul Ryan’s elevation to chairman of a $300 million SPAC in August turned the obscure-but-hot trend into an absolute craze.

2. Business School on Steroids

The concept of teaching business is that it’s a subject you can learn — and that heroic individuals, as much as actual products, drive dollar success. That may or may not be true, but SPACs take the concept to a whole new level: relying almost solely on the connections, personalities and reputations of the people heading them. On some level, though, the recent fascination makes sense. Does anyone actually believe Elon Musk is the perfect CEO for a space business, an electric vehicle business and an underground tunneling business? It’s his vision — and bad-boy genius charm — that people are buying into.

3. Smoke and Mirrors?

There is a reason blank-check funds have languished at the periphery of the financial markets since the 1980s — the earliest ones were so predatory that a federal law was passed to keep them from scamming investors. Another term for them, “blind pools,” exemplifies how they were seen — as the blind leading the blind. But the savvy part may be that when they inevitably stumble into a pothole, the hedge funds still have a way to win. Take billionaire Tilman Fertitta, who took his Landcadia Holdings public for $345 million five years ago, then invested all of it into Waitr, a restaurant delivery service that flopped. The IPO investors still recouped the investment — with interest. And Fertitta? He now owns the NBA’s Houston Rockets.

4. Ready to Pop?

So should we be irrationally exuberant or Debbie Downer about SPACs? There are some worrying signs ahead: SPACs have already topped $30 billion in the first month and a half of 2021, and new SPACs averaged a 6.5 percent rate of return on their first day of trading. This is an increase of 6 times over the typical first-day return of around 1.1 percent — and a blinking red light that a bubble is forming. Remember: These are returns for shell companies, long before they identify and take over a real company. Did we mention we also have some tulips to sell you?

5. Surprising SPACers

Martin Luther King III, son of the civil rights icon, recently joined a real-estate-focused SPAC aiming to raise $250 million. The Golden State Warriors’ sweet-shooting Steph Curry, Grammy-winning musician Ciara and tennis legend Serena Williams have all joined the game. Former Facebooker Chamath Palihapitiya, who imagines himself as the “Warren Buffett of the Reddit era,” according to Bloomberg News, has filed patents for seven new SPACs, which just seems gluttonous.

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Automation is coming for the truck drivers, fast-food workers and us poor internet journalists. It’s also coming for things you never thought it would touch. Take Zillow, which has gone from a real estate posting site to a marauding company that gobbles up on-the-rise properties ahead of the competition with its proprietary data. Now it’scutting out the middlemen on both the sales and the bankrolling side with its own agents and loan officers. Pandemic restrictions have made buyers more comfortable with buying sight unseen, meaning virtual tours with faceless guides have turned the emotional business of home purchasing into another pick-and-click affair. Sure, the customer service sucks, local agents doth complain. But that too will change, just as Amazon makes impulse buying easier than ever.

2. Arms Race

Everything from iPhones and medical devices to F-35 fighter jets and wind turbines rely on extremely rare precious metals, more than 90 percent of which are produced in China. Beijing has become increasingly coy about sharing the wealth, particularly as its own technology needs have increased. That creates a market problem, and as we know, a market solution creates a whole new market. Will so-called rare earths become the new water, a resource so scarce and essential that nations will literally go to war over it? Will more sustainable alternative technologies emerge? Or will private space projects and the arrival of more Mars rovers lead to greater efforts to mine asteroids and other planets to get that metallic fix?

3. Communal Investing

More than ever, people are choosing to speak their values with their dollars. That creates new market lanes, ones that aren’t dependent on the bottom line but instead are focused on raising equality as much as equity. Some SPACs have formed around shared environmental goals, such as ESG Core, which raised $303 million on the Amsterdam market in Europe’s first sustainable SPAC listing. But this goes far beyond SPACs and into a future where big business is focused on big impact too.

And of course, a new U.S. presidential administration provides new investing opportunities. There was some reason behind the latest Reddit craze driven by r/WallStreetBets, with casual investors lining up around cannabis stocks as legalization looks more promising under Joe Biden. (The notion was a little off, though, given that many invested in Tilray, a Canadian marijuana company that would only get a secondhand high from U.S. legalization). Pine Island, a SPAC with Biden ties and former House Majority Leader Dick Gephardt on the payroll, has seen its fortunes rise as well.

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1. Going Cashless … and App-less

These days, cash is more often stuck between your sofa pillows than something you carry in your pocket. But pretty soon, even using Apple Pay or Google Pay on your device will seem just as outdated, with smart tech able to immediately link your eyes, fingerprints, facial features or other identifying items to your bank account. Sound too wild? It’s already happening in China. In his poem “America,” Allen Ginsberg asked, “When can I go into the supermarket and buy what I need with my good looks?” Even for those with less appealing mugs, that future may already be knocking at the door.

2. Bit by Bit

And what type of currency will your face be paying with? Quite possibly cryptocurrencies, which are here to stay. Bitcoin topped $50,000 this week for the first time ever, as institutional investors increasingly signal that cryptocurrencies are a reliable investment, or the new digital gold in the eyes of JPMorgan Chase analysts. The peer-to-peer transactions built on trust give it a community ethos in times of discord, and the lack of reliance on governments and central banks when so many across the world are in upheaval is a major selling point. When will SPACs start raising funds in cryptocurrency?

3. It’s All Liquid

The now-famous Reddit stock traders showed the world how easy it is to buy and sell stocks using brokerage apps, but that’s been the case for a while. The new wave will be how other large chunks of our financial markets are being democratized. From property to corporate bonds to Andy Warhol paintings, technology is freeing assets that once were too complex and difficult for the layman investor to swap. Who loses? The bankers who used to take fat commissions on it all.

4. Gamble It Away

The Puritans would be going green right now. The combination of day trading apps like Robinhood and fantasy sports apps like FanDuel has created an environment where millions are available at the fingertips of people who are barely of legal drinking age. Given gambling concerns, some apps now limit you to lower-stake affairs, allowing you and your friends to find levity during a dull workday without giving away the farm. But for the most part, city and state governments are slip-sliding down a path toward shrug-emoji regulation. Look around you, and the real gambling addicts are not the people playing slot games at the gas station but those playing mobile games on their subway commutes.

5. Fresh Brews

Just as Americans eventually expanded their palates from enjoying safe, familiar foods like Italian pasta to experiment with, and even crave, more exotic options like Korean barbecue and Middle Eastern cuisine, the appetite for alcohol beyond Miller Lite has exploded. That has forced a reckoning by local municipalities and global trendsetters, who are quickly adjusting from craft beers being considered too niche to being enticingly hip. Thomas Bilgram is among those creating treasure from another man’s trash by using lost and recycled materials to bottle better booze.

1. Candice Matthews Brackeen

She saw a need, and she jumped on it, starting a mom-and-baby fitness company before building out the small tech company Hello Parent, a mobile app that made it easy for moms and dads to share information. From those humble roots, Brackeen has grown to become a pioneering entrepreneur, joining with husband Brian Brackeen to launch the venture capital firm Lightship Capital with a $50 million fund for underrepresented founders from various minority groups across the Midwest. An unapologetic capitalist, she’s blazing a trail by driving change and impressive returns.

2. Sal Khan

The founder of Khan Academy would give the business world something that SPACs cannot: a soul. Driven not just by profits but also by impact, his decision to create a world-class education website that is free for all has inspired countless iterations since, even while the nonprofit he began in 2006 continues to grow. (In fact, Musk just bought into Khan’s vision with a $5 million donation in January.) Having studied at the Massachusetts Institute of Technology and earned an MBA from Harvard University, the Bengali American educator has all the business acumen of anyone in the SPAC world. And if Khan were to train his eyes on just about any industry, we suspect he would see opportunities that others could not.

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