"For me, Spacs are a sign that the market is completely overheated"

The start-up world is in Spacs fever. In this interview, founder Nils Seebach explains why he would rather ban them altogether.

As a serial founder and consultant for digital strategies, there are many topics that occupy Nils Seebach. With the new hype surrounding Spacs, empty shell companies that make it easier for start-ups to get onto the trading floor, there has now been another one for a few months. Shortly before Easter, the former investment banker took some time out to sit in front of his laptop camera. His message to the start-up world: keep your hands off the Spacs.

Mr. Seebach, the German start-up community seems to be in absolute Spacs fever right now. You are not, why is that?

For me, Spacs are a sign that the market is completely overheating. We are currently living in a start-up world in which it has never been so easy to raise money quickly. We currently have an oversupply of capital.

Some founders, especially with a view to Germany, probably see this very differently. What makes you think that?

Looking at Berlin alone, one financing round is currently chasing the next. Financing of more than 100 million euros used to be an absolute rarity, but now it's becoming increasingly common. There is currently more capital than is actually needed, chasing after the supposedly big deals. The money now has to go "somewhere", so investors are building up a shell company; they are putting it into financial products that don't actually make any sense. The volume of Spacs is already so high - I don't even know which companies they all want to take over with it. It's not really the case that there are a lot of well-positioned companies that are just waiting for a Spac to go public.

You say that such shell companies only have disadvantages. What do you mean by that?

When a start-up goes public via a Spac, there is no proper review of the business model compared to a traditional IPO. Everything happens much faster. You have to question why a start-up uses this fast-track vehicle. Many companies probably only do this because they are not yet far enough along for a normal IPO. I assume that a large number of start-ups that go public via a Spac are second-class companies and will not be successful afterwards. The first to suffer are the private investors who have entrusted their money to the Spac and, in the worst case, lost it. The start-up scene then falls into disrepute and a downward spiral develops.

Many players in the start-up scene don't seem to have your concerns at the moment. How do you explain that?

I don't understand it either: if I can go to a growth investor who understands start-ups and brings their expertise to the table, why would I go for a Spac instead? Such an IPO only makes sense if I don't want people to take a very close look at it. There is a high chance that such a company will subsequently fail. The only necessity I see is for start-ups that cannot get money via a traditional financing round because their business idea does not meet the standards of investors. This may apply to start-ups in the cannabis sector, for example, or to young companies in the defense industry.

Spacs are often backed by famous investors, in the USA sometimes even a former politician. Why should they jeopardize their names by taking over a "second-class company" in the end?

For me, these are often mainly the soldiers of fortune in the scene. Let's say I was a rich investor and didn't really know where to put my money at the moment anyway - then I would also take some of it and set up a SPAC. If it works out in the end, all the better. If it doesn't, it's no big deal. The problem I see is more for small investors and newcomers to the stock market who also entrust their money to them.

If a Spac doesn't take over a start-up within two years, the investors get their money back. Why is that not good protection in your eyes?

Because I assume that the Spac manager would rather take over some company than give the investors their money back. There are a lot of people involved in the stock market who need to be protected because they are not professionals. If a celebrity then also advertises a Spac, this suggests to inexperienced investors a security that is simply not there.

If you were the financial regulator, what would you do?

I would ban Spacs altogether. And if I can't bring myself to do that, then I would at least regulate them to such an extent that the same rules apply to them as to normally listed companies. The question for the financial regulator is whether it wants to protect small investors, in which case it can only do so with a ban - or whether it wants to protect the market as a whole, in which case it needs more regulation.

Personal details: Nils Seebach (born 1982) is a digital entrepreneur, investor and supervisory board member. As a serial (co-)founder of two dozen companies and consultant for digital strategies, he is actively working on the digitalization of Germany. Today, he is primarily active as CFO of the strategic digital consultancy Etribes and as founder of Wald & Wiese Holding.