Bill Gurley says SPACs ‘remarkably cheap compared to mispriced IPOs
Nextdoor’s decision to go public through a special purpose acquisition company was largely the result of favorable pricing compared to a traditional IPO, said Bill Gurley, a partner at Benchmark and an early investor in the neighborhood social network.
Gurley has been among the most vocal supporters of direct listings, another IPO alternative in which companies go public without selling shares at a steep discount to new investors. He said the average IPO in 2020 came with a 57% cost of capital.
“SPACs are remarkably cheap compared to mispriced IPOs,” Gurley told CNBC’s “TechCheck” on Friday.
Nextdoor announced plans earlier this week to pursue a SPAC sponsored by an affiliate of Khosla Ventures, Vinod Khosla’s investment firm. In a SPAC, a so-called blank check company raises capital through a public offering and then shops around for a potential target, which becomes the operating entity after the transaction closes.
The pace of new SPACs slowed earlier this year after smashing a record in 2020 and setting a new high in the first quarter of this year. The pullback came after the SEC issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments.
However, activity has resumed. In addition to Nextdoor, fintech company Circle, space companies Planet Labs and Satellogic and solar power firm Heliogen all announced deals this week. Still, the proprietary CNBC SPAC Post Deal Index, which is comprised of the largest SPACs that have announced a target or those that have already completed a SPAC merger within the last two years, is down 3.8% in 2021, after tumbling in February and March.
Nextdoor’s transaction will bring in $686 million and value the company at $4.3 billion. Benchmark first invested in 2011 at a post-money valuation of just over $30 million, according to PitchBook.
In 2018, Nextdoor hired Sarah Friar, who was finance chief at Square, as its new CEO, replacing the company’s founder Nirav Tolia. Before that, she spent over a decade at Goldman Sachs.
Gurley said Friar ran all the numbers and closely considered an IPO before making the ultimate decision.
“Sarah Friar is an extremely experienced CEO with tons of Wall Street experience, both having worked at an investment bank and as CFO of public company,” Gurley said. “She dual-tracked it, was looking at the IPO and just said I have more control and get better economics by going the SPAC route.”
Gurley appeared on “TechCheck” alongside Sumir Meghani, the co-founder and CEO of Instawork, an online jobs marketplace. Instawork on Thursday announced it raised $60 million in a financing round led by Craft Ventures.
The start-up connects workers in the restaurant, hospitality and retail industries with hourly jobs at companies in need of labor. The transaction comes a week after Suzanne Clark, CEO of the U.S. Chamber of Commerce, told CNBC that the biggest problem facing American businesses is hiring enough qualified workers. She pointed to a lack of skilled labor, Covid-era jobless benefits, insufficient access to child care and work visa restrictions.
“Our professionals make nearly double minimum wage,” Meghani said. “Our best professionals can make even more than that. They can get paid instantly when they clock out of a shift. We’re rewarding quality on Instawork with faster pay, higher pay but most of all flexibiity.”
Gurley, who was one of the earliest backers of Uber, said Benchmark is focusing heavily on the category and has made about eight investments in “these types of marketplaces.”
— CNBC’s Pia Singh contributed to this report.
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