Daily Brief: Two Months Into 2021, And SPACs Are Already Chasing Last Year’s Record

Daily Brief: Two Months Into 2021, And SPACs Are Already Chasing Last Year’s Record

almost 3 years ago3 mins

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The UK announced on Wednesday that it’ll act fast on proposed changes to make the country a totally dope place for young, fast-growing companies to list their stocks.

What does this mean?

With London-based listings only accounting for around 5% of all global stock market debuts between 2015 and 2020, the UK is well and truly on the back foot – not to mention at risk of losing investors’ money to frontrunners and up-and-comers alike (think New York and Amsterdam). A report released Tuesday, then, proposed a couple of changes to help the country raise its game. First, it recommended letting founders hold onto more control of their businesses than they get to at the moment. And second, it suggested making the rules around special-purpose acquisition companies (SPACs) – the back-in-vogue investments that use the money they raise to buy another, usually private, company – more favorable.

Money raised in initial public offerings
Source: The Wall Street Journal

Why should I care?

Zooming out: SPACs are going global.

The UK’s not the only country hoping to woo SPACs: Hong Kong – which has previously kept them off limits – is thinking about finally giving them the A-okay. And it’s easy to see why it might’ve changed its mind, with investors having put $60 billion into SPACs in the first two months of this year – already more than 70% of 2020’s total.

SPAC IPO volumes have continued to surge

For you personally: Retail investors still have to wait in line.

The review was just as noteworthy for what it didn’t include – namely proposals that would get retail investors more involved in initial public offerings, despite a recent push from the UK’s three biggest trading platforms. That means institutional investors are still the only ones that get to buy in at the company’s listing price, while retail investors will generally have to wait to buy shares at a premium once it starts trading.

Keep reading for our next story...

Instacart Doubled Its Valuation

Instacart image

Is it a bird? Is it a plane? Nope: it’s Instacart’s valuation, which the grocery delivery app revealed earlier this week has doubled twice since the pandemic began.

What does this mean?

In a time when everyone’s trying to avoid the local store as much as possible, Instacart’s found a lucrative niche in grocery delivery: the company has increased orders sixfold, added hundreds of thousands of new workers, and raised almost $1 billion from investors since last March.

In fact, a new financing round this week valued the private company at $39 billion – up from $18 billion last November, itself up from $8 billion before the pandemic. That officially makes Instacart the second-biggest private US startup, just behind Elon Musk’s SpaceX. No surprises, then, that it’s reportedly preparing to hit the stock market sooner rather than later.

Why should I care?

Zooming in: Is Instacart flawed?

On the face of it, Instacart’s impressive valuation makes sense when you consider that the US grocery industry is worth as much as $1.3 trillion. But that market slims down real fast when you’re at the bottom of the food chain: Instacart picks up groceries for delivery after the retailer has stocked the shelves and after it’s paid by shoppers. In other words, after the retailer’s made its already notoriously low profit. That leaves Instacart with a market worth just $45 billion, and makes it difficult – if not downright unlikely – that it’ll earn enough profit to justify its valuation.

US grocery market size

Zooming out: is Instacart really flawed?

Instacart is facing fierce competition on all sides too – whether from delivery apps like Uber, online grocery players like Walmart and Amazon, and, of course, grocery retailers themselves. The latter in particular might’ve been galvanized by the pandemic to start investing more in their own ecommerce systems – and if they get them right, those customers might be able to ditch Instacart altogether…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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