the upfront incentives for SPACs are clearly misaligned, as @muddywatersre outlines, but I thought it would be interesting to walk through what can actually happen as a result of that misalignment

$GTYH is an indicative case study for many SPACs: https://twitter.com/FinancialTimes/status/1326665002485477378

they SPAC'd in mid-2018 essentially pitching a: "we are a higher growth, cloud-based, $TYL analog" story

the investment thesis centered on believing very strong growth and rapidly getting to breakeven

$GTYH was formed through a rollup of six small, separate gov't technology companies

these were not integrated at the time of the SPAC, so part of the pitch was how robust the "cost and revenue synergies" would be

$GTYH touted its strong management team as another pillar of the investment thesis, all of whom joined specifically for the SPAC

like every SPAC, they pitched their valuation of 7.4x fwd. revenue as "cheap" compared to comparable SaaS companies, particularly when compared to their expected growth rate

so what went wrong?

pretty much every bullet of their "investment thesis"

unlike IPOs, SPACs are allowed to publicly give a detailed forecast which is usually quite outlandish

$GTYH dramatically underperformed their expectations, missing their 2019P revenue figure by > 50% **just 10 months later**

so their "cheap; 7.4x 2019P rev" actually ended up being closer to 16x

that was not only a premium to comps in absolute terms, but a significant premium for the scale and financial profile of the rollup

the members of the management team at the time of the SPAC, who received the SPAC promote, are no longer there

the operational/technical leadership of the acquired companies were elevated to their roles, a natural transition, but different from what was presented

pre-COVID, the stock was down from ~$10 to ~$7, at which time the board decided to try and sell the company

https://www.gtytechnology.com/press-releases/gty-technology-holdings-announces-execution-of-a-definitive-financing-agreement-reaffirmation-of-2020-revenue-guidance-and-a-review-of-strategic-alternatives

since then, the stock is now down to $3 and a sale has not been announced

original SPAC investors all sold in Mar 2019, so they were safe, but anyone who bought post de-SPACing and held has lost 71% of their money

if the post-SPAC investors had invested in any of their own highlighted comps, they would've been better off:

$GTYH: -71%

$TYL: +93%
$IGV: +58%
their vertical software comps basket (equal weight): +41%
their high growth SaaS basket (equal weight): +41%

so the stock is down 70%+ because they missed projections and the multiple contracted from 16x to ~4x revenue. no more SPACs led by this team right?

nope. filed for another one which just announced a 3x larger deal https://www.wsj.com/articles/u-k-betting-firm-genius-sports-to-go-public-in-1-5-billion-spac-deal-11603747945

the original SPAC team kept their shares (or have been given more)

though the stock is 70% lower, they still got $5M+ in equity for free at the current price (excluding other fees)

a pretty nice reward for incinerating $600M+ of market cap

this is why so many have been harping on the incentive misalignment

if you get paid either way and can continue to raise SPACs even after they completely flop, who cares how the deal actually goes?

the SPACs doing deals now have exciting presentations with big projections, but that does not mean they will hit them

the median SPAC loses 30-40% for good reason and the investors doing the deal already got paid even when it fails