"Spacs, to me, are the sign of a completely overheated market"

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

As a serial founder and digital strategy consultant, there are many topics that occupy Nils Seebach. With the new hype around Spacs, empty shell companies that help start-ups find their way onto the trading floor, there has been another one for a few months now. Shortly before Easter, the former investment banker took some time out and sits in front of the camera of his laptop. 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're not, why is that?

Spacs, to me, are the sign of a completely overheated market. We are currently living in a startup world where it has never been easier to get money quickly. We have an oversupply of capital right now.

One or two founders, especially with a view to Germany, might see it quite differently. What makes you think that?

With a view to Berlin alone, one financing round is chasing the next at the moment. Financing for more than 100 million euros used to be an absolute rarity, but now it's happening more and more frequently. There is currently more capital than is actually needed and that is chasing the supposedly big deals. The money has to "go somewhere" in the meantime, so investors are building up a stock market shell; they are putting it into financial products that don't actually make any sense at all. The Spacs volume is already so high - I don't even know what companies they're all trying to take over with it. It's really not like there are a lot of well-positioned companies 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 startup goes public via a Spac, there is no reasonable review of the business model compared to a traditional IPO. It all happens much faster. One has to ask why a start-up takes this fast vehicle. Many companies probably only do this because they are not yet ready 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. Subsequently, the start-up scene 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 get it either: if I can go to a growth investor who understands startups, brings his expertise to the table, why do I go for a spac instead? An IPO like this only makes sense if I want people to not look quite so closely at it. There is a high chance that such a company will crash and fail afterwards. The only necessity I see is for start-ups that can't get money via a traditional financing round because their business idea goes against the investors' standards. That might be true for startups in the cannabis space, for example, or for young companies in the defense industry.

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

For me, it's often mostly the fortune hunters in the scene. Let's say I was a rich investor and didn't really know where to go with my money at the moment anyway - I'd take some of it too and build a SPAC. If it ends up working out, all the better. If it doesn't, no big deal either. The problem I see behind this is more for small investors and stock market newbies who trust them with their money as well.

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

Because I assume the spac manager will rather take over some company than give investors their money back. There are a lot of people playing in the stock market who need to be protected because they are just not professionals. Then, when a celebrity promotes a spac, it suggests to unsophisticated investors a level of security that simply isn't 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 enough to apply the same rules to them as to normally listed companies. The question for financial regulators is whether they want to protect retail investors, in which case the only way to do it is to ban them - or whether they want to protect the market as a whole, in which case more regulation is needed.

Personal details:

Nils Seebach (born 1982) is a digital entrepreneur, investor and supervisory board member. As 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.