Social Capital Hedosophia (IPOA) offers an “almost free” call option to invest alongside its CEO Chamath Palihapitiya, one of the most successful tech investors in recent history. IPOA is a blank check company that raised $690 million this past September to acquire a private technology company. Why is IPOA an “almost free” call option? Given Chamath’s investment track record and deep network in Silicon Valley, I believe IPOA is likely to announce a favorable acquisition of a tech unicorn within six months. But if you do not like what Chamath is buying, you could redeem your shares for $10/share in cash from the company before the deal consummates.^
Who is Chamath Palihapitiya?
IPOA’s CEO Chamath Palihapitiya was a senior executive at Facebook before founding his own successful venture firm Social Capital. Chamath’s investments include Box, Yammer (acquired by Microsoft), Pure Storage (NASDAQ:PURE), Playdom (acquired by Disney) and BumpTop (acquired by Google). He was an early investor in current tech unicorns such as Palantir, Slack and SurveyMonkey.
Chamath created IPOA because he believed this was an easier path to go public for many tech unicorns https://techcrunch.com/2017/09/14/social-capital-to-take-startups-public-without-an-ipo/. You don’t have to agree with this statement, but Chamath has demonstrated his ability to attract prominent private tech companies. First, he has a stellar track record in both private and public tech investments. Second, he is a high profile investor with lots of followers in the media and tech community. Third, he has assembled a solid IPOA Board that includes seasoned tech executives, such as Anthony Bates (former CEO of Skype) and Adam Bain (former COO of Twitter). Fourth, he has raised a substantial amount of cash needed for a merger with a tech unicorn.
Perhaps the biggest reason for IPOA to succeed is that Chamath would like this company to be his launch pad for future blank check companies. If IPOA is unsuccessful, there will be no IPOB, IPOC, IPOD... Therefore, I believe Chamath will shepherd his best idea to IPOA, and he will announce the acquisition as quickly as he can, likely within six months. Even though blank check companies are not supposed to have discussions with target businesses at the time of going public, it is likely that Chamath has potential targets lined up already.
If you do not like the acquisition: You could redeem your shares for $10/share in cash prior to the consummation of the business combination.^
Time value of money: IPOA has up to 24 months to find an acquisition. Until then, your redemption value is locked up in a trust account. However, I believe IPOA will announce an acquisition within six months for reasons stated above.
^ Note: please read IPOA’s prospectus for risks on redeeming your shares for cash
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise hold a material investment in the issuer's securities.