Almost three years ago, a special purpose vehicle (SPAC) led by investor Chamat Polihapitia took space tourism company Virgin Galactic public. It was the first human spaceflight company to trade on the NYSE—or any exchange, for that matter—and it was so successful that it sparked a SPAC frenzy almost immediately.

The beauty of the mechanism, like Polihapitia offered us last year, is that SPACs are not burdened with the same disclosures as the traditional IPO process. While old-school IPOs look back and tell investors what the company has accomplished, a SPAC “actually allows you to raise a really large amount of money, appeal to a broad base of institutional investors, and it allows you to tell them what you think the future can look,” he said.

Still, the good times could only last so long. By late last spring, the frenzy cooled when the SEC unveiled new accounting guidelines for SPACs and hinted that tougher rules would follow. By the time of the broader stock market downturn last March, fueled by rising inflation, SPACs were no longer seen as a panacea for private companies going public. Instead, the related deals were seen as toxic for retail investors, many of whom lost money by investing in overly optimistic forecasts from companies that quickly failed to deliver on their promises.

Now, in a kind of bookend to the era, Polyhapitia, which has raised money in a total of 10 SPACs, announced in blog post today it will wind down two SPACs that raised $460 million and $1.15 billion, respectively, after failing to find a suitable merger candidate for either.

Polyhapytia is hardly alone in its need to return money to investors. Hedge fund manager Bill Ackman, real estate billionaire Sam Zell and baseball executive Billy Beane, among others, have all shut down companies with blank checks this year after enthusiasm for the cars faded.

Many other SPAC sponsors are expected to do the same. A total of 247 SPACs closed in 2020, and another 613 folded in the first half of last year, before the SEC made it clear it planned to do more on the regulatory front.

These many companies with blank checks need to find suitable targets in a market that has turned bearish and the clock is ticking. Given that blank check companies are typically expected to merge with a target company within 24 months of the SPAC being funded by investors, if these hundreds of SPACs fail to complete mergers with candidate companies in the first half of next year, they will either go out of business (which could mean millions lost dollars for SPAC sponsors) or obtain shareholder approval for renewal.

Given that the time between when a deal is announced and when the SEC has time to review it can take up to five months, according to SPACInsiderthe picture looks, well, bleak for many of these efforts.

As for Polyhapitius, you must recognize his time. He’s losing the money he spent on the two SPACs he’s winding down now, but he tells the WSJ that his investment company, Social Capital Holdings, has made about $750 million by sponsoring half a dozen other SPAC deals. In addition to Virgin Galactic, it includes online real estate business Opendoor, insurance company Clover Health, financial services company SoFi and two biotech companies: Akili and ProKidney Corp.

All of them have had a tough time on the public market, although the same is now true for many companies that went public through the traditional IPO process.

In his post earlier today — a 273-word investor update — Polihapitia called the SPAC “one of many tools in our toolbox to support companies as they enter the next stages of growth.” The language was notably muted in contrast to Polihapitia’s numerous appearances on CNBC in recent years, during which he has aggressively extolled the virtues of SPACs.

This is also consistent with what Polyhapitius has been saying all along, including Resident of New York last May and live an interview from TechCrunch a year ago when we talked at length about his SPAC business.

When, for example, he was asked early on if Polyhapitius had any idea of ​​the craziness his deal with Virgin Galactic would cause, he said he didn’t expect there to be “this kind of activity. But it makes sense,” he continued, “because whenever there’s any kind of innovation, you tend to see that euphoric enthusiasm, right? It’s always the first phase of something where all these people get really excited. And then you have some people sometimes [call] this valley of disappointment. And then you have a long-term business. . .”

He then insisted that the “big important takeaway” about SPACs is that “in the hands of the right people” they are a “really important tool.”

Time will tell if investors agree. Polyhapithia is still looking for targets for the other two SPACs, he has almost a year to work his magic. The two SPACs, each with $250 million, are both facing deadlines next summer.

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