Matt Levine doesn't think this is a good idea:
https://www.bloomberg.com/view/articles/2017-09-15/icos-vcs-...
A final thing about SPACs is that they are so expensive. Banks charge a rack rate of about 7 percent for initial public offerings, though big sexy tech IPOs tend to be done more cheaply. SPAC sponsors compensate themselves rather more lavishly. Hedosophia's sponsor -- a Cayman Islands company owned by Palihapitiya and his co-founder -- invested $25,000 to found the SPAC. In exchange for that nominal payment, and their work on finding a company to take public, they get 20 percent of the SPAC's stock. (They are also are putting in another $12 million or so to buy warrants in connection with its IPO.) A 20 percent fee for taking a company public is just ... more ... than a 7 percent fee. And that's not even counting the 5.5 percent fee that Credit Suisse charged for taking Hedosophia public! Something like a quarter of every dollar that investors are putting into Hedosophia is going to compensate financiers for doing the work of (ultimately) taking a unicorn public, which is a funny way to make that process more efficient.
To get in only paying 7% (i.e. at the IPO), you have to already be a wealthy investor so you can get some of the IPO stock.
The 18% difference is your fee for deal access basically.
I'm not saying it's right, but it explains why it makes sense.
It's often funny and quite informative.
It's not true that there's nothing new under the sun. There are some domains where there's almost nothing new. But there's a big difference between nothing and almost nothing, when it's multiplied by the area under the sun.
There are a lot of companies whose valuation are not worth their price. Sooner or later they will need to raise money. They wont be able to approach debt markets as that means fixed repayments.
Sure 7% for IPO will be always better but if they don't want to answer all kinds of questions about their business in SEC filings, this might be the deal for them. Or cases where in the startup founders are not that versed in IPO filings and fees.
That really gets at a deeper trend. Ben Thompson observed that Benchmark Capital took a huge gamble by suing Uber's CEO, as founder-friendliness is currently a large denominator in how promising companies choose funding sources. This acquisition company wants to leverage these same forces to put the companies first at the expense of IPO middlemen, which may be pointless if it ends up actually costing more.
Matt Levine does a daily "roundup" style column where he links to and comments on multiple finance-related stories. He did not claim this was an ICO; he simply mentioned this in a daily roundup which included a story about Hedosophia and also a story about ICOs (and in context he was discussing them as two different alternatives to traditional IPOs). Thus, 'ICO' appears in the URL, because the URL is autogenerated from the title, and the title gives a rundown of what he's covering.
"If you are a technology startup, there are two hot ways to fund yourself:"
I just thought SPAC was some VC term or something. Didn't realize he was laying out a third way.
I admit by that point in the article, I had assumed I got the gist of the article. Why fund yourself with an VC when you can ICO and give away basically nothing.
FYI, I just laying out where the mis-understanding came from.