Singapore's Vickers Venture Partners plans up to four more SPACs

Singapore

VENTURE capital (VC) firm Vickers Venture Partners could launch as many as four more blank-cheque companies to ride on investor appetite for high-growth tech companies.

Vickers Vantage Corp I, the firm's first special purpose acquisition company (SPAC), raised US$138 million in an initial public offering (IPO) on Nasdaq in January. It was sponsored by Vickers' sixth fund, which has a targeted closing of US$500 million.

Vickers' founding partner and vice-chairman for Asia, Jeffrey Chi, said a successful merger for the first SPAC will help differentiate Vickers from other sponsors in a crowded market and pave the way for successful launches of future SPACs.

Subsequent SPACs will be sponsored by a Vickers fund too.

Global SPAC IPOs this year raked in US$93.3 billion in proceeds, already eclipsing the US$81.2 billion raised in all of 2020, according to Refinitiv data. But out of the 567 SPACs launched since 2020, only 25 have merged with a target company.

"Increasingly, it's about...whether you have the ability to find a good deal, or are you just another one of those guys who is trying their luck? Everyone's looking for a successful de-SPAC track record," Mr Chi, who is chief executive and chairman of Vickers Vantage Corp I, said.

He sees SPAC deals as complementary to Vickers' core business, allowing the firm to use its deal flow for late-stage companies. "Where in the past we would have passed on them, now they would be possible SPAC targets," he said.

The firm had considered launching a SPAC as early as 2007, but dismissed the idea as the structure was substantially riskier back then.

As a private market venture investor, Vickers backs deep tech companies globally. Its portfolio includes San Diego-based biotech Samumed, valued at US$12.4 billion in 2018 according to PitchBook data; UK-based synthetic vaccines maker Emergex; and Singapore-based biodegradable plastic maker RWDC Industries.

The company has a few merger targets in mind - "it's just about negotiating for the right deal and doing the due diligence", Mr Chi said. Vickers isn't ruling out its own portfolio companies for future SPACs, although the default is to look at external deals and avoid conflicts of interest.

Vickers' foray into the public markets comes as VC firms start to chase the favourable economics of SPAC sponsorship. Over a dozen venture firms, including Foundry Group, General Catalyst and Khosla Ventures, have launched vehicles of their own in recent months, according to PitchBook.

Singapore's B Capital, co-founded by Eduardo Saverin of Facebook fame, recently launched a SPAC aiming to raise US$300 million.

SPACs promise high returns with little risk. Sponsors contribute 2-4 per cent of IPO proceeds but get 20 per cent of post-IPO equity - a "fee" they take in return for finding a company to bring public.

Nick Davies, a partner at law firm King & Wood Mallesons, said VC firms have a natural relationship with SPACs. Some of the most highly sought-after merger targets are VC-backed companies.

And if fund managers carry out SPAC mergers with their portfolio companies, it allows the fund to benefit from the upside of the company's growth for a longer period compared with a traditional IPO.

SPAC sponsorship could also be viewed as a cheaper way of lowering the risk of a late-stage funding round, Mr Davies noted.

Some venture capitalists have, nevertheless, chosen to sit out the frenzy and focus on earlier-stage investments, often regarded as the sweet spot for outsized returns.

One reason is the crowded SPAC market. Another is that some of the VC fund's capital is effectively locked in for up to two years while the SPAC seeks a merger.

"It is also not unheard of for sponsors to need to be prepared to commit a greater amount of capital to help ensure that a SPAC transaction does not fail," Mr Davies said.

"So it is yet to be seen whether the new breed of VC fund sponsors will be able to deliver successful SPAC transactions while keeping their limited partners happy."