© 2024 Black Man­ta Cap­i­tal Part­ners S.à r.l.
/ Blog / The New Sher­iff in Town: Tok­enized SPACs

The New Sher­iff in Town: Tok­enized SPACs

A Spe­cial Pur­pose Acqui­si­tion Com­pa­ny, or short SPAC, is ini­tial­ly an emp­ty shell of a com­pa­ny with no oper­at­ing busi­ness. This allows SPACs to con­duct an IPO in a more cost- and time-effi­cient man­ner. The sole pur­pose of SPACs is to raise cap­i­tal for the acqui­si­tion of a poten­tial­ly suc­cess­ful com­pa­ny and to nor­mal­ly take it pub­lic in this way. 


Typ­i­cal­ly, a SPAC is set up by what is known as a spon­sor, which itself invests and pro­vides cor­po­rate man­age­ment of the vehi­cle. Many of these spon­sors orig­i­nal­ly come from the pri­vate equi­ty sec­tor and are well-known and con­nect­ed in this area.


While around 613 SPACs went pub­lic in the U.S. in 2021, only 39 did so in Europe, still a sig­nif­i­cant increase from the pre­vi­ous year’s 4 SPAC IPOs. The two largest clus­ters in terms of busi­ness mod­els in Europe tar­get com­pa­nies from the finan­cial ser­vices and tech­nol­o­gy sec­tors. In terms of num­bers, most are con­cen­trat­ed in the ener­gy and envi­ron­ment sectors. 


U.S. SPACs on Track and Why Europe Has Lagged Behind

The dif­fer­ence in the pop­u­lar­i­ty of SPACs between the U.S. and the EU is pri­mar­i­ly due to the fact that reg­u­la­tions in the U.S. are more favor­able to SPACs. List­ing require­ments for com­pa­nies plan­ning a tra­di­tion­al IPO are stricter in the Unit­ed States, which encour­ages you to find an eas­i­er and faster path to an IPO through a SPAC. In addi­tion, SPACs in the U.S., pro­tect­ed by a safe har­bor exemp­tion, are allowed to dis­close spe­cif­ic busi­ness plans in their mar­ket­ing mate­ri­als, allow­ing them to dis­close plan fig­ures to their investors up to sev­er­al years in advance.


In Europe, by con­trast, the dif­fer­ence between a SPAC merg­er and an IPO is less impor­tant from a reg­u­la­to­ry per­spec­tive. The safe har­bor excep­tion does not exist. Euro­pean SPACs are only allowed to pro­vide guid­ance on busi­ness devel­op­ment, so the tar­get com­pa­nies are not allowed to pub­lish spe­cif­ic busi­ness plans. Also, many Euro­pean coun­tries do not allow SPAC investors to sim­ply ter­mi­nate the SPAC and reclaim the funds if they dis­agree with the objec­tives set forth in the new cor­po­rate relationship.


Whether the U.S. SPAC mod­el can be suc­cess­ful­ly imple­ment­ed in Europe depends large­ly on investor and mar­ket sen­ti­ment, as well as the require­ments of the rel­e­vant juris­dic­tion. Cur­rent Euro­pean guide­lines mean that it is pri­mar­i­ly com­pa­nies with a proven busi­ness mod­el that will gain share­hold­er approval for the busi­ness combination. 


With­in Europe, Ams­ter­dam (Nether­lands) with Euronext is the undis­put­ed leader in the num­ber of Euro­pean SPAC IPOs, due in par­tic­u­lar to the flex­i­ble com­pa­ny law in the Nether­lands. This allows U.S. struc­tures to be ful­ly mim­ic­ked, which in turn attracts more inter­na­tion­al investors. These investors are already famil­iar with U.S. struc­tures and thus avoid poten­tial addi­tion­al work and risks in the inter­nal invest­ment process­es. In addi­tion, low­er lan­guage bar­ri­ers and tax advan­tages make the finan­cial cen­ter attractive.


SPAC Meets Blockchain — The Next Evo­lu­tion of Secu­ri­ty Tokens

Tok­enized SPACs are a nat­ur­al evo­lu­tion of the tra­di­tion­al SPAC mar­ket, offer­ing inno­va­tion, greater flex­i­bil­i­ty, trans­paren­cy, low­er costs (up to 90% low­er), and more oppor­tu­ni­ties for com­pa­nies that are not large enough or do not want to be list­ed on a domes­tic exchange. 


Most impor­tant­ly, com­pared to tra­di­tion­al SPACs list­ed on a pub­lic exchange, tok­enized SPACs are attrac­tive to spon­sors who might be less well known in the finan­cial world but may be in a much bet­ter posi­tion to under­stand dig­i­tal and “inno­v­a­tive” industries.


They offer investors dig­i­tal equi­ties to lever­age and mit­i­gate the risks of pri­vate invest­ment offer­ings by pro­vid­ing access to lead­ing ear­ly-stage tech­nol­o­gy com­pa­nies in a trust­ed and trans­par­ent format. 


In terms of struc­tur­ing, SPACs sim­ply spec­i­fy the invest­ment struc­ture and theme (e.g. Fin­tech or ESports). This is very sim­i­lar to a ven­ture cap­i­tal or pri­vate equi­ty fund, with the dif­fer­ence that you usu­al­ly invest in mul­ti­ple com­pa­nies instead of one. Addi­tion­al­ly, SPACs typ­i­cal­ly raise funds first and only then select the com­pa­ny to acquire. A SPAC can be any invest­ment vehi­cle that is legal in any coun­try, includ­ing LLCs, Cay­man funds and PTE Co.


Sounds Famil­iar, well…

Tok­enized SPACs could be com­pared in some ways to Decen­tral­ized Autonomous Orga­ni­za­tions (DAOs), which are already gain­ing pop­u­lar­i­ty in the cryp­to space. How­ev­er, there are sig­nif­i­cant dif­fer­ences: a DAO is com­mu­ni­ty-dri­ven and oper­ates with­out cen­tral author­i­ty. Smart con­tracts are the basis of this form of orga­ni­za­tion and exe­cute the deci­sions agreed upon among the mem­bers. There are exam­ples where a DAO has been used to raise cap­i­tal to buy a spe­cif­ic com­pa­ny (Block­bus­ter­DAO or BuyThe­Bron­cos­DAO).


How­ev­er, in SPACs, the man­age­ment of the com­pa­ny is cen­tral­ized. Investors usu­al­ly have about three months to form a pic­ture of the com­pa­ny they want to acquire. At the end of this peri­od, investors can indi­cate at the annu­al gen­er­al meet­ing whether they want to approve or reject the acquisition. 


Due to the high­ly tech­ni­cal nature of the prod­uct, DAOs also tar­get a dif­fer­ent group of investors, which is usu­al­ly retail investors from the cryp­to community.


So What is a Tok­enized SPAC

In terms of tok­eniza­tion, a SPAC can also be mapped as an STO, which seems bet­ter suit­ed to attract pro­fes­sion­al investors due to the reg­u­lat­ed nature of secu­ri­ty tokens. In this sce­nario, a spe­cial pur­pose enti­ty is cre­at­ed to exe­cute the SPAC, i.e., acquire a promis­ing com­pa­ny. Through the STO, cap­i­tal is raised from investors, who in return receive, for exam­ple, par­tic­i­pa­tion rights in the future rev­enues of the com­pa­ny. In addi­tion, as with a clas­sic SPAC, investors receive vot­ing rights with which they can vote on the type of com­pa­ny to be acquired. Fur­ther­more, the access cap­i­tal raised can be used to pro­vide the acquired com­pa­ny with growth cap­i­tal and thus rep­re­sents an attrac­tive invest­ment oppor­tu­ni­ty. Addi­tion­al invest­ment incen­tives arise from the trad­abil­i­ty of dig­i­tal assets on rapid­ly devel­op­ing sec­ondary mar­kets. Giv­en the nov­el­ty of the prod­uct, the recent hype around tra­di­tion­al SPACs, and the favor­able con­di­tions in the cryp­to mar­ket, a tok­enized SPAC offers promis­ing mar­ket­ing oppor­tu­ni­ties and poten­tial­ly high investor demand.


Every coin has two sides, and tok­enized SPACs also have their poten­tial draw­backs: cur­rent­ly, shares of tok­enized SPACs can­not be trad­ed on tra­di­tion­al exchanges, result­ing in mod­er­ate liq­uid­i­ty. In the case of tok­enized SPACs, it is there­fore cru­cial to care­ful­ly plan mar­ket­ing strate­gies to com­pen­sate for the lack of investor con­fi­dence in this new prod­uct com­pared to tra­di­tion­al­ly issued SPACs.


In sum­ma­ry, tok­enized SPACs rep­re­sent an excit­ing new way to raise cap­i­tal for niche appli­ca­tions that have been pre­vi­ous­ly exclud­ed from tra­di­tion­al cap­i­tal mar­kets. If care­ful­ly exe­cut­ed and well planned, they could fur­ther rev­o­lu­tion­ize the way we per­ceive finan­cial inno­va­tion and open up unknown oppor­tu­ni­ties for a whole new set of busi­ness cases.