- Chamath Palihapitiya’s four SPAC mergers have fallen on average 32% in price in 2021, as investors cooled on growth stocks.
- Palihapitiya’s Social Capital now has six SPACs looking for a merger, and they have all lost ground this year.
- Parts of the stock market have lost their fizz as investors worry about inflation and Fed policy, analysts said.
Investors who bought into Chamath Palihapitiya’s companies at the start of this year are probably regretting their decision right now.
Palihapitiya, a tech investor and former Facebook executive, was dubbed the SPAC King for his full-throated support of special-purpose acquisition companies and his numerous deals.
When Richard Branson’s Virgin Galactic went public in 2019 in a SPAC merger via his venture capital fund Social Capital, it lifted the profile of the system.
But his four Social Capital SPAC mergers – Clover Health, Opendoor, SoFi, and Virgin Galactic – have slumped on average 32% in price this year, as the air leaked out of certain parts of the market.
Their performance sums up trading in 2021. Markets were frothy at the start of the year when investors, flush with cash from central banks, were driving up the value of SPACs. Unprofitable tech stocks also got a lift as they hunted for the next Amazon or Tesla.
But that froth evaporated as doubts set in about valuations in an environment of strong inflation and less-supportive central banks. Star stock-pickers, such as Ark Invest’s Cathie Wood, have had a rough time as many tech bets have faltered.
A SPAC is a shell company that lists on the stock market with the intention of finding a target to merge with. They provide private companies that want to go public with a less costly and faster alternative to a traditional IPO.
The tone is downbeat for Social Capital’s SPAC mergers year-to-date. Healthcare company Clover Health has plunged 76% as of Tuesday’s close, while spaceflight company Virgin Galactic is 38% lower. Property website Opendoor has dropped 35%.
One bright spot is financial services company SoFi, up 20% — though its merger only happened in the middle of 2021.
“Given how easy it was for equity funding, it is no surprise a lot of Chamath’s companies are struggling to come anywhere close to where they traded a year ago,” Edward Moya, senior market analyst at trading platform Oanda, told Insider.
SPACs were the biggest craze on Wall Street at the start of 2021, and are still raising billions of dollars a month.
Right now, Palihapitiya’s Social Capital investment firm has six SPACs on the market looking for targets. All are down for the year, and four are trading below their $10 IPO price amid a general wipeout for blank-check mergers.
Critics note SPACs are good for initial sponsors, such as Palihapitiya, who can receive a big chunk of the final company for a small early investment. But they are much less profitable for later investors.
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The Social Capital SPAC-deal companies have fared particularly badly since the time of their mergers, when many retail investors likely bought in.
Clover Health was down around 70% from its January merger date at Tuesday’s closing price. Opendoor has lost roughly 50% since December 2020, and SoFi has fallen about 30% since June. Virgin Galactic is the exception, climbing around 40% since October 2019.
Yet Palihapitiya is still seen as one of the more successful and trustworthy blank-check investors, according to Julian Klymochko, CEO of Accelerate Shares and an expert in SPACs.
As of Tuesday, 96% of SPACs were trading below the $10 mark at which they went public, Klymochko told Insider. But of the six blank-check companies trading above that level, two were from Social Capital.
Meanwhile, shares in Opendoor, SoFi and Virgin Galactic are still trading above that $10 launch price.
The companies’ poor performance this year has less to do with the SPAC structure than broader market forces, Klymochko said.
“At the start of the year, clearly these companies had insane valuations, and [there’s been] a deflation of this growth stock bubble,” he said.
Social Capital declined to comment.