Forge’s SPAC deal is a gamble on unicorn illiquidity – TechCrunch

As Warby Parker, Freshworks, Amplitude and Toast are looming in the coming weeks, we must not forget the boom in PSPC. This week, for example, Forge Global (Forge), a tech startup that taps a marketplace for secondary transactions in private companies, announced it would go public via a combination of blank checks.

And while we don’t unwrap every SPAC suit that crosses our radar, the Forge Accord is good for spending time analyzing.

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Why? Many reasons. First, we are curious about how the business generates income and how diversified its income is. We’re also looking at the size of the market for trading unicorn secondary stocks – late-stage tech startup equity is popular on secondary exchanges. Additionally, we want to know if the deal seems expensive, as it can help us achieve thermal control in the PSPC market more broadly.

First, a few details about the transaction. Then we have fun. Work!

La Forge SPAC

Forge merges with Motive Capital, a blank check firm that raised $ 360 million in December 2020.

According to the company’s calculations, the combined entity will have a valuation of approximately $ 2 billion on “fully diluted equity value on a pro forma basis.” The company anticipates business it’s worth less than $ 1.60 billion thanks to an expected $ 435 million in cash after the deal is done, although that number changes a bit before it’s negotiated.

Skipping the nuances of the deal – there’s a PIPE, a 90% rollover of existing shareholders’ equity and more, in case you want to get in – what matters is that Forge will be worth around $ 2 billion. dollars in terms of equity and will have hundreds of millions of dollars in the bank after the transaction.

The resulting valuation is remarkable not only for making Forge a unicorn, but also for representing a dramatic upward movement in the value of the company. Data from PitchBook and Crunchbase agree that Forge was last valued at $ 700 million (post-money) when raising $ 150 million earlier this year. Thus, the company appears poised to offer a solid return to more than its early backers; even private investors who have invested money in the business fairly recently should be successful in the business.

This brings us to the company and the business model of the company. Forge helps pre-IPO companies trade before they go public. It’s somewhat ironic that price discovery is something the company claims its platform can help businesses before they debut, when the company is expected to see its private valuation quickly beaten by a public debut.

Regardless, let’s talk about unicorns.

A solution to the unicorn traffic jam?

One of my favorite long-term issues with the late-stage startup market is that it’s much better at creating value than finding an exit point for that accumulated value. Put simply, the startup market is great for creating unicorns but poor enough to make them public.

The fact that antitrust regulatory issues have made it harder for wealthy tech companies to snatch up promising startups that might challenge them is only part of the problem. There are simply not enough IPOs, even this year, to offset the growth in the number of global unicorns.

This pressure is a big part of why Forge is such an interesting company. The more non-existent unicorns in the world, the more likely there is demand for markets like the one it operates, allowing existing shareholders of valuable private companies to generate cash for themselves before they go. possible debuts on the public market.

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