Bill Gurley Says SPACs Are “Remarkably Cheap Compared to Mispriced IPOs”


Nextdoor’s decision to go public through a dedicated acquisition company was largely the result of cheaper pricing compared to a traditional IPO, said Bill Gurley, a partner at Benchmark and an early investor on the neighborhood social network.

Gurley is one of the vocal advocates of direct listing, another IPO alternative where companies go public without selling stocks to new investors at a steep discount. He said the average 2020 IPO would come with a 57% cost of capital.

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

Nextdoor announced plans earlier this week to pursue a SPAC sponsored by a subsidiary 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 looks for a potential target company that will become the operational unit after the transaction is complete.

The pace of new SPACs slowed earlier this year after breaking a record in 2020 and hitting a new high in the first quarter of this year. The withdrawal came after the SEC issued accounting guidelines that would classify SPAC warrants as liabilities instead of equity instruments.

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

Nextdoor’s transaction will raise $ 686 million and value the company at $ 4.3 billion. According to PitchBook, Benchmark first invested in 2011 with a post-money valuation of just over 30 million US dollars.

The company says its website is now used in more than 275,000 neighborhoods around the world and in nearly one in three US households. It enables users to organize events, sell or give away items, and warn neighbors of dangers. Earlier this year, Nextdoor posted an anti-racism notice after long criticism for making racist comments on its platform.

In 2018, Nextdoor hired Sarah Friar, Square’s chief financial officer, as its new CEO, replacing the company’s founder, Nirav Tolia. Prior to that, Friar spent over a decade at Goldman Sachs.

Gurley said Friar got all the numbers done and carefully considered going public before making the final decision.

“Sarah Friar is a highly experienced CEO with extensive Wall Street experience who has worked for both an investment bank and the CFO of a public company,” said Gurley. “She’s been following it two-pronged, looking at the IPO and just saying that by going the SPAC route I have more control and get better economics.”

Investments to address labor shortages

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

The start-up connects employees in the catering, hospitality and retail sectors with hourly jobs at companies in need of work. The deal comes a week after Suzanne Clark, CEO of the US Chamber of Commerce, told CNBC that the biggest problem American companies face is hiring enough skilled workers. She pointed to the shortage of skilled workers, unemployment benefits from the Covid era, inadequate access to childcare and work visa restrictions.

“Our skilled workers earn almost double the minimum wage,” said Meghani. “Our best specialists can earn even more. They can be paid immediately when they leave a shift. We reward quality at Instawork with faster payment, higher payment, but above all flexibility. “

Gurley, who was one of Uber’s early adopters, said Benchmark was heavily category-focused and made about eight investments in “these types of marketplaces.”

– CNBC’s Pia Singh contributed to this report.

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