Description
“He (Alexander Tamas) is Yuri Milner's human supercomputer. The investing whiz has placed some of the most impressive investment bets in the history of our industry, including Facebook, Zynga, Groupon and Twitter. He is a walking encyclopedia of Internet business models and strategies. He's on speed-dial for everyone trying to build the most successful, highest-scale, global Internet companies today.”
-Marc Andreessen and Ben Horowitz, in an article where they ranked Alexander Tamas the #1 “most powerful person in tech you’ve never heard of” https://www.forbes.com/pictures/ffdj45gejg/1-alexander-tamas-partner-dst/#1dd8e7a34c60
I believe Vy Global Growth (VYGG.U), a SPAC launched by Tamas that began trading this morning, provides an asymmetric opportunity over the short, medium, and long-term. The management team has an incredible track record and reputation in the tech world, but keeps a low public profile otherwise, which creates the opportunity to buy shares at a small premium to cash. While I view this as an attractive long-term hold, it is also timely, in my opinion, so this is going to be a short write-up.
The quick summary is that 1) downside is minimal at the current price, 2) other tech SPACs run by talented teams are trading at 20%+ premiums to cash (possible short-term upside), and 3) if VYGG acquires a business, it will likely be both interesting to the market (potential medium-term upside on a deal announcement) and an excellent long-term investment.
SPACs in General
VIC author “unlimiteddownside” posted a great overview of pre-deal tech SPACs in July that is worth reading for background. I won’t rehash all of the details, but SPACs are increasingly a credible way for high-quality companies to go public. Comments like these from Bill Gurley and the recent Opendoor acquisition provide further support for this:
http://abovethecrowd.com/2020/08/23/going-public-circa-2020-door-3-the-spac/
https://twitter.com/bgurley/status/1311740687751102465
https://www.valueinvestorsclub.com/idea/Pre-Deal_Tech_SPACs/5377561191
I believe you will see more attractive assets go public via SPACs in the coming months, particularly from high-quality tech sponsors like Vy, Ribbit, Dragoneer, and Altimeter. There are also many lower quality sponsors and a giant money grab happening in the SPAC space, so choose your sponsors carefully. VYGG today gives you one of the best sponsors, without having to pay a significant premium.
Risk/Return
VYGG.U currently trades at a 5% premium to its trust value, so the potential downside is low, in my opinion. With any SPAC, it’s worth thinking through the following:
1) Odds of trading up before a deal is announced
2) Odds of trading up when a deal is announced
3) Odds of making a good acquisition that creates value over time
Given the team's quality, discussed in more detail below, I believe the odds of all three are relatively high. Each has uncertainty for sure, but combined with low risk of meaningful loss, the overall risk/reward appears quite attractive. Regarding #1 specifically, three similar pre-deal tech SPACs launched by talented investors are each trading above $12/share today:
o Dragoneer Growth (DGNR.U): $12.06/share
o Ribbit LEAP (LEAP.U): $12.68/share
o Altimeter Growth (AGCU.U): $12.10/share
One interesting thing to note is that both Ribbit and Dragoneer traded at lower premiums on their first day public (DGNR.U closed at $10.68, LEAP.U at $11.53), then gradually drifted upwards on decreasing volume from there. It’s possible that many IPO participants looked to sell on the initial day-one pop, and that a similar dynamic is playing out with VYGG.U today. Altimeter started trading yesterday, so it’s too early to compare.
VYGG.U Team and Board
The VYGG.U team and board have incredible reputations and track records investing in and building tech companies:
· Alexander Tamas (Chairman, founder of Vy Capital)
o Senior team member working with Yuri Milner at DST, where he sourced and led early investments in Facebook, Airbnb, Spotify, Twitter, JD.com, Alibaba, Xiaomi, and Zalando
o Founded Vy Capital with backing from leading endowments, now manages $2 billion in private tech investments
· Jon Hering (CEO, Partner at Vy Capital)
o Has co-founded two successful companies:
§ Lookout: Leading cybersecurity company that has raised $350 million from Andreessen Horowitz and others
§ Coalition: Leading cybersecurity insurance company that has raised over $100 million from Hillhouse, Ribbit Capital, and others
o Here he is on 60 Minutes talking about cybersecurity https://blog.lookout.com/60-minutes
· Justin Kan (board member)
o One of the first founders to go through Y Combinator – his startup he co-founded, Justin.tv, later turned into Twitch (bought by Amazon for $1 billion, and worth a whole lot more today)
o Later a partner at Y Combinator
o Large public presence and following in the tech world (over 100k followers on Twitter)
o https://en.wikipedia.org/wiki/Justin_Kan
· Hugo Barra (board member)
o Helped build Android at Google
o Senior team member at Xiaomi, responsible for operations in all markets outside of China
o Currently VP of virtual reality and head of the Oculus VR team at Facebook
o https://en.wikipedia.org/wiki/Hugo_Barra
· Steve Huffman (board member)
o Co-founder and CEO of Reddit
o https://en.wikipedia.org/wiki/Steve_Huffman
· Javier Olivan (board member)
o Senior team member at Facebook since 2007, currently VP of growth, previously head of international growth
o Was on the board of MercadoLibre from 2012-2019
· Julie Herendeen (board member)
o Chief marketing officer at Pagerduty and board member of Hubspot
o Previously the head of global enterprise marketing at Uber and before that, built the first global marketing team at Dropbox
· Sujay Jaswa (board member)
o Previously the CFO ad Dropbox
o Before that worked at New Enterprise Associates, where he was involved with early investments in Workday and Cloudflare
Some of Vy Capital’s investments are listed below, including the VC’s they’ve invested alongside:
o Reddit (Sequoia, Y Combinator, Andreessen Horowitz)
o SpaceX (Founders Fund, Craft Ventures)
o Zomato (Sequoia India, Tiger Global)
o Urban Company (Tiger Global, Steadview, Accel)
o OfferUp (Andreessen Horowitz, Altimeter)
o Rigetti Computing (Andreessen Horowitz, Bessemer Partners)
o Upgrade (Ribbit Capital, Union Square Ventures)
o Coalition (Ribbit Capital, Hillhouse)
o Harbor (Founders Fund, Valor Equity)
In addition to backing many leading US tech companies, the team has been active and successful investing outside of the US, increasing the pool of potential acquisitions for VYGG.U. Vy Capital Managing Director Vamsi Duvvuri focuses on emerging market investments, including Vy’s investments in Zomato and Urban Company, two of India’s leading startups. At DST, Tamas led early investments into JD.com, Alibaba, and Xiaomi, so they also have a great network in China. Board members Hugo Barra and Javier Olivan have significant international experience as well.
The team’s official track record isn’t publicly available, but we’ve verified with LPs that they have generated strong returns, and if you take into account Tamas’s investments at DST, he likely has one of the best track records of anyone in the tech world.
If you’re a founder thinking about taking your tech company public via a SPAC, this is one of the first groups you should want to associate your company with. They have a fantastic network, can truly add value to your business, have a long-term focus, and are global in nature. As a result, the VYGG team should have superior deal flow.
Summary:
Some of this is more short-term in nature than I usually think about, and like any SPAC, you get the uncertainty of not knowing what business they will acquire. I’m personally comfortable with all of that given the low and largely capped downside and what seems like reasonable odds of upside over the short, medium, and long-term. If I had to guess, I’d predict this will trade above $11/share before a deal is announced, and will likely trade higher than that upon the announcement of an acquisition. If that doesn't happen, that's fine, as I am also optimistic about this team’s chances to make a great acquisition.
Risks
- Small loss if no company is acquired
- The promote is high like most SPACs but may get negotiated down as discussed in Gurley’s blog post above
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.
Catalyst
- Short-term : selling from IPO participants wanes in the coming weeks
- Medium-term: market is excited about the deal they announce
- Long-term: they make a great acquisition