Chamath’s Warning: Why He Says Avoid His New SPAC
▼ Summary
– Chamath Palihapitiya launched a new SPAC called “American Exceptionalism,” raising $345 million to acquire startups in energy, AI, crypto/DeFi, or defense and take them public.
– He strongly advises retail investors not to buy the stock, as 98.7% was sold to institutions and SPACs are suited for investors who can handle volatility and long-term capital commitments.
– Palihapitiya earned the title “SPAC King” for popularizing SPACs from 2019-2021, but his and others’ SPACs have delivered poor returns, with many down over 90% from launch.
– He argues SPACs benefit startups, employees, and early investors by providing liquidity for paper wealth and reinvestment capital, despite acknowledging past issues.
– To address criticism, he structured “American Exceptionalism” so sponsor payouts only vest if stock prices increase by 50%, 75%, or 100%, aligning incentives for all parties.
Venture capitalist and All-In podcast co-host Chamath Palihapitiya has launched a new special purpose acquisition company named “American Exceptionalism,” raising $345 million to target startups in sectors like artificial intelligence, energy, cryptocurrency, and defense. Despite this new public offering, Palihapitiya is making an unusual public plea, strongly advising everyday retail investors to avoid purchasing the stock.
He structured the SPAC so that 98.7% of the shares were sold to large, pre-selected institutions, leaving just over 1% available for the general public. On social media, Palihapitiya explained his intent was to limit retail participation, stating these investment vehicles are best suited for sophisticated investors who can handle significant volatility, integrate them into a diversified portfolio, and provide long-term financial backing.
It is highly uncommon for a founder to discourage public investment in their own IPO. He went further by issuing a buyer-beware warning to any retail investors, including fans of his popular podcast, who might consider buying shares against his advice, urging them to thoroughly review all disclosures before deciding.
The background to these warnings adds an ironic twist. From 2019 to 2021, Palihapitiya was central to the SPAC boom, earning the nickname “SPAC King” after his first SPAC took Virgin Galactic public. However, the subsequent performance of most SPACs has been dismal. Data confirms that while SPACs can be profitable for their sponsors and sometimes for the acquired companies, they have generally resulted in poor returns for public shareholders. One academic journal noted that SPACs have consistently delivered poor post-merger returns to shareholders for many years.
Even Goldman Sachs temporarily halted underwriting SPACs before resuming this year, which prompted Palihapitiya to poll his followers on whether he should launch another SPAC. The response was a decisive “no,” with 71% of nearly 58,000 voters opposing the idea. This sentiment is supported by performance data showing nearly all of his previous SPACs have fallen more than 90% from their initial values.
In promoting his latest venture, Palihapitiya argued that SPACs remain beneficial for startups, their employees, and early venture capital investors. He pointed to the growing number of unicorn companies and the difficulty employees face in converting their equity into cash, suggesting SPACs can provide needed liquidity. He conceded, however, that the track record for these vehicles “hasn’t been all roses,” which is precisely why he is cautioning the average investor.
To address past criticisms that SPAC sponsors profit at the expense of other investors, Palihapitiya claims to have implemented a new compensation structure for “American Exceptionalism.” Under this model, the sponsors’ stock allocations will only vest after the share price increases by 50%, 75%, and finally 100%. He stated that this aligns everyone’s interests, ensuring that if the deal performs poorly, no one benefits, and if it succeeds, all parties win together.
The central question for startups considering this path in 2025 is whether going public via a SPAC, including one backed by a prominent figure like Palihapitiya, is a wise strategic move. Historical evidence strongly suggests that startups going public via SPAC rarely see their stock perform well over the long term, making it a potentially risky avenue despite the promised liquidity.
(Source: TechCrunch)
