Proptech catches SPAC bug

VC Fifth Wall has raised $345m in the IPO of its first SPAC as tech companies take advantage of the boom in ‘blank cheque companies’.

Trading as FWAA on Nasdaq, Fifth Wall Acquisition Corp 1 was launched to acquire one or more businesses within the proptech industry. As a SPAC, a special purpose acquisition company, it will give businesses in the sector another, potentially faster, route to going public.

VC firm Fifth Wall increased its initial IPO target from £287.5m due to “extraordinarily high” public demand, according to co-founder Brendan Wallace.

In an extensive blog post following the IPO, Wallace wrote: “We’re obviously humbled by this reception and thrilled that the market has such confidence in the SPAC.

“We believe that the SPAC is well-positioned to introduce to the public markets the very same calibre of real estate technology company that is characterised by Fifth Wall’s portfolio of market-leading proptech businesses, some of which have now gone on to become unicorns.”

Boasting a $1.3bn portfolio comprising more than 60 property companies, Fifth Wall plans to leverage its experience of the proptech market in these future investments.

SPACs appeal

SPACs are shell companies that raise money to acquire or merge with a private company sometime in the future. The target company is not necessarily known and, typically, SPACs have two years to complete a deal after the IPO.

By investing in one, investors signal to the sponsor – the management team that launched the SPAC – that they trust the team’s ability to find and strike the right deal. If a deal does not pan out, investors will get their money back, reducing some of the downside risk.

There has been a recent surge in SPACs, which collectively raised $83bn in 2020, up from $13.6bn in 2019. This year is set to be dramatically more active: at the time of writing, such vehicles had already raised $44.5bn in six weeks.

Part of the attraction for target companies is the relative ease with which businesses can go public through a SPAC. Traditional IPOs can take a lot of time and effort to get off the ground. Pricing can also be uncertain, especially when there is broader market volatility and uncertainty as there is now.

By contrast, a company looking to get listed through a SPAC will agree a set price with the sponsor through a deal that broadly resembles a reverse merger, where a public company buys a private company.

Wallace said: “With the right SPAC sponsor to tell their story and serve as a conduit to public market investors with an appetite for high-quality technology growth stories, great businesses started to see SPACs as legitimate – even preferable – avenues to go public.”

Tech time

Last week, Matterport, the 3D virtual tour provider, announced it was going public through a deal with Gores Group.

In the same week, Archer, an urban air transport company that develops all-electric vertical take-off and landing aircraft, merged with the SPAC Atlas Crest Investment Corp. The deal will result in Archer becoming a New York Stock Exchange-listed company. It was the first company from venture capital firm Greycroft to go public through a SPAC.

Smart lock developer Latch announced last month that it was going public through a SPAC. Opendoor, one of Fifth Wall’s portfolio businesses, went public this way in December.

Meanwhile, on the sponsors’ side, major real estate players like CBRE and Tishman Speyer have launched their own blank-cheque companies to target industry-specific businesses.

In his blog post, however, Wallace said that, outside of a few exceptions, Fifth Wall was “hard-pressed” to find high-quality sponsors, IPOs or investors in the proptech space.

He said: “To be honest, the proptech SPAC world looked a lot like the real estate technology venture capital ecosystem when we started Fifth Wall: a handful of non-institutional sponsors, lower quality IPOs and a few inexperienced corporates dabbling in the SPAC space.”

But whether from SPACs sponsored by traditional real estate players or by ones backed by the likes of Fifth Wall, growing interest in proptech-focused SPACs reflects the rise in private equity investment in these sectors in recent years. With more private equity capital locked into startups, an increasing number of these firms will be looking for an exit in the coming years. For them, traditional IPOs might not be the answer, and so they could turn to SPACs.