SoftBank's Vision Fund Plans SPAC, Vows It Is Not Behind Nasdaq Melt-up

SPACs (it stands for Special Purpose Acquisition Vehicle) raised a ton of money over the summer as the craze that seemingly started with Bill Ackman and Chamath Palihapitiya (already on his third SPAC). It's already drawing in big-name celebrity investors (Shaq is in the process of launching one), which might evoke unflattering parallels to the ICO bubble of 2018.

On Monday, Rajeev Misra, the head of SoftBank's ill-fated Vision Fund and Vision Fund 2 (which almost entirely comprises money from SoftBank's balance sheet) told a Bloomberg reporter during an interview at the Milken Institute's virtual conference that the Japanese telecoms giant with a VC arm attached is planning to announce its own SPAC within the next 2 weeks.

Twitter users responded to the news with humor, much of it directed at the retail investors who will seemingly inevitably be left holding the bag.

SoftBank was a progenitor of the Silicon Valley valuation mania that peaked with the IPO flops of Uber and Lyft. But it's perhaps best known for the disaster that was the aborted WeWork IPO. SoftBank backed to a valuation of nearly $50 billion, only to see that number dwindle to less than $10 billion (according to leaked reports) as institutional investors refused to pay anything near that valuation.

With SoftBank hopping on every other investment bankwagon, why not this, too?

SB could even cite the SPAC success of one of its portfolio companies, Opendoor (which was taken public via one of Palihapitiya's SPACs) as inspiration.

The amount of money SoftBank expects to dedicate to the SPAC wasn't revealed, but Misra said the company would try to recruit some outside investors to back the deal.

SPACs have been around for decades, but many are just becoming familiar with the idea. Basically, a sponsor, typically an investor with expertise in a given industry (tech, for example) raises money from institutional backers then enlists underwriters to sell shares of a "blank check" company to the public.

The buyers of these shares aren't aware of the target when they buy; they're essentially betting on the sponsor's reputation. Money raised in the IPO goes into an interest-bearing trust account, and can only be used to hand money back to investors, or complete an acquisition.

Typically, SPAC sponsors have a target in mind before they list. But the beauty of SPACs is they allow investors to quickly raise massive amounts of cash and complete a deal without all of the messy oversight and red tape that typically accompanies an IPO.

Money for the SPAC would be taken from SoftBank's Vision Fund 2. Previously, SB's VF1 backed some 80 companies, including WeWork, Uber, Wag and the Pizza robot (formally known as Zume).

But its disastrous losses last year prompted most of its backers to cut ties with SoftBank, which is probably why Misra now sees a SPAC as a suitable option for the fund.

Moving on: Back in September, we identified SoftBank as the rumored "Nasdaq Whale", the mammoth trader sinking billions of dollars into Nasdaq 100 call options to force dealer buying of the underlying and drive the Nasdaq on a torrid, but entirely manipulated, summer rally that drove the tech heavy index to fresh all time highs.

When asked about the incident, Misra claimed the press reports had greatly exaggerated SoftBank's role. He chalked SoftBank's call-buying up to "diversification", using the proceeds from sales of some of its Alibaba stake (it also recently agreed to sell Arm to chipmaker rival Nvidia).

Some attributed a recent run-up in the value of tech stocks to SoftBank’s purchases. Misra dismissed that idea in the interview Monday.

“Are we buying a few billion of other stocks to diversify away from the Alibaba we sold in the past six months?” Misra asked.

“We’re still sitting on a lot of cash. It’s a liquidity-management strategy, it’s a diversification strategy."

"Nobody buying $10 billion of Nasdaq over a few weeks is going to move the Nasdaq. We’re not even a dolphin; forget being a whale.”

Misra must be relying on the ignorance of his audience here, because $10 billion in Nasdaq calls - with a notional value far higher - purchased strategically and during relatively illiquid periods in the trading day could potentially induce dramatic swings in markets.

As speculation turns to the object of SoftBank's desire, one twitter user remarked that SoftBank may have finally found a way to reshape one of its most embarrassing failures.

Total proceeds from special purpose acquisition companies raised $10 billion in August after a record of $10.5 billion in July, compared to a total of $17 billion funding from traditional initial listings for the past two months, according to data from Refinitiv. More than $40 billion via SPAC deals has already been raised on US stock exchanges this year. 

Then again, perhaps SoftBank Chairman Masayoshi Son sees an opportunity to immediately restore his sullied reputation by turning around one of the most ill-conceived of the last decade's richly funded startups: Quibi.