Spencer Rascoff knows quite a bit about taking a company public. He helped launch Zillow in 2005 and led the Seattle real estate giant through an IPO in 2011. Rascoff was on the board of Zulily when the online retailer went public in 2013, and is a board member at Palantir, which completed its IPO last month.
Now, the former Zillow Group CEO is trying his hand at one of the hottest trends in tech today: SPACs, or special purpose acquisition companies.
Also known as “blank check” companies, SPACs typically do not have an established business and are used to raise funds via public offering for a future merger or acquisition by a specific deadline.
Rascoff, along with a group of veteran tech execs and investors, just raised $350 million for its SPAC: Supernova Partners Acquisition Company (SPNV-UN). There was high demand as the company increased its initial offering by $50 million.
More companies such as Zillow rival OpenDoor and DraftKings are using the tactic as an alternative to the traditional IPO process. There have been 151 SPACs this year, up from 59 last year, according to SPACInsider. The Wall Street Journal reported this week that “SPACs could be the bubble that never quite pops.”
Rascoff started the SPAC with Alexander Klabin, Robert Reid and Michael Clifton. Klabin formerly led Senator Investment Group and will soon become executive chairman of Sotheby’s. Reid spent 21 years at Blackstone. Clifton was most recently a senior investment professional at The Carlyle Group.
“We intend to partner with an advantaged growth company that benefits from thematic shifts and tech-enabled trends,” Supernova Partners Acquisition Company wrote in its IPO filing. It is looking at companies in the broader tech sector valued at between $1 billion and $5 billion.
The company’s board members include Ken Fox, founder of growth equity firm Stripes; Damien Hooper-Campbell, chief diversity officer at Zoom; Jim Lanzone, CEO of Tinder; Gregg Renfrew, CEO of Beautycounter; and Raj Singh, CEO of Accolade.
Rascoff helped start Zillow in 2005 after selling Hotwire.com to Expedia. He was CEO for nearly 10 years before stepping down in early 2019. Rascoff resigned from the company’s board in April.
Last month he launched a new startup called Pacaso that aims to make it easier for more people to own a vacation home. Rascoff is also chairman of dot.LA, a Los Angeles-based media venture he co-founded in January.
We caught up with Rascoff to learn more about Supernova and the advantages SPACs offers over the traditional IPO route. The interview is edited for brevity and clarity.
GeekWire: How did the idea for Supernova start?
Spencer Rascoff: I’ve known about SPACs for a long time. My co-founder from Hotwire, Karl Peterson, returned to TPG after we sold Hotwire and became their SPAC lead. So I’ve always learned about them and paid attention to them because he was my business partner. But it wasn’t until recently that very high quality companies started considering going public by merging with SPACs. It is starting to create a virtuous cycle where high quality companies are attracting high quality sponsor groups, high quality sponsor groups are merging with high quality companies, and one begets the other.
I started to see that trend about a year ago. At the time, I reached out to my friend Alex Klabin. We worked at Goldman Sachs as fellow analysts in the M&A department many years ago at our first job out of college. I told Alex that what I kept hearing in the founder community and in the venture capital community is a growing interest in this third way of taking a company public. There’s the traditional IPO listing process. There’s the direct listing process. And increasingly entrepreneurs and venture capitalists are interested in this third wave, a SPAC.
The reason that there’s interest in it is because the traditional listing process is broken. It has so many shortcomings, not the least of which is the fact that the typical tech IPO trades up 43% on average. The media usually misreports that as a success; I look at that as failure. I look at that as having left an enormous amount of money on the table. Only recently did luminaries like Bill Gurley start to point out that the emperor has no clothes, that the IPO process, wherein stocks trade up wildly after the offering, represents an enormous amount of lost value handed by the issuers at the tech company over to the hedge fund community.
I’ve been a buyer of SPACs as a public market investor for the last 10-plus years because Alex ran a $10 billion hedge fund, Senator, for many years. He had stepped down and retired, and we started talking about what putting together a SPAC might look like. We quickly agreed that there was a third missing piece of this puzzle, and that was the private equity experience. At its core, a SPAC is an M&A exercise. A SPAC raises money from the public markets, puts it in trust, and then goes and finds a company to buy and merges with that company, thereby taking that company public.
So it’s an M&A deal, a big M&A deal. And nobody’s better at M&A than private equity investors who see hundreds of companies and do dozens of deals over their career. We partnered with Robert Reid, who ran tech private equity at Blackstone and was there for 21 years, and with Mike Clifton from Carlyle — two of the best private equity firms.
GeekWire: What gets you excited about a SPAC, versus the traditional path, both for companies and investors?
Rascoff: There are specific benefits. One is the mentoring and counsel that the merger company gets from partnering with the SPAC. Two, it is a much faster way to go public. A SPAC IPO merger can be completed in a matter of weeks, versus a traditional IPO process which can take over a year. Three, there’s price discovery through a SPAC IPO process. When we merge with the private company, they’ll know exactly what their company is worth at that time and there will be a negotiation. That’s compared with going public through a traditional IPO process, where they tend to leave a lot of money on the table. It’s a very inefficient way to discover the price.
And four, SPAC mergers allow for sharing of projections at the time of the SPAC merger, whereas a traditional IPO does not. This is one of the reasons why you see some high growth companies in particular drawn to the SPAC IPO process. They can share their projections two, three, five, seven years out, and allow investors to have more information and more transparency in order to value that company. With a traditional IPO process, they can only give backward-looking results, so it’s harder for investors to see the optimistic future that the company is trying to convey.
GeekWire: Your IPO filings don’t reveal much about what type of company you’ll try to acquire. Can you share more about that?
Rascoff: I’ll answer that just by talking about why I’m interested in this personally. As I look back on my career, the one year before taking Zillow public and the several years after were some of the most interesting, challenging, fun, dynamic times of my career there. I’m trying to find the right company to help recreate that point in time, where I can add a lot of value as they inflect during that growth stage.
The type of company that we’re looking for is a company that is IPO-ready and would make a good public company. It could be in a number of different sectors in tech — direct-to-consumer, e-commerce, ad tech, B2B software, e-commerce marketplaces, real estate, travel. We intentionally kept this pretty broad in order to cast our net wide.
The company will probably be high growth. It’ll probably have a management team that thinks they would benefit from having a player-coach like myself involved in the company. We’ve also assembled a really differentiated board. We’re going to be saying to a private company, ‘look, here are four people in management and five people on the board. Here are nine talented people — whose skillset do you think would be most useful for the challenges that lie ahead? For a private company looking at going public, a sponsored IPO — which is another way to describe a SPAC — presents a very attractive alternative to the traditional listing process.
GeekWire: Talk more about how your experience at Zillow and other companies will come into play here with the SPAC.
Rascoff: The transition from being private to public changes the level of transparency at a company. It can also present a lot of challenges and potential distractions for the employees. That’s something that we worked really hard on at Zillow, making sure that the employees were focused on the long term and the employees didn’t get overly excited when the stock went up and overly depressed when the stock went down. Maintaining that view of the long-term horizon and staying unswayed by the short term vicissitudes of the stock market is very important for any public company, especially a newly-public company.
There are also a lot of learnings around the relationship that the management team builds with the investment community in those first couple years as a public company. In this regard, it’s not just my insight, it’s also Alex’s insight from having been on the other side as a public market investor. It’s communicating to investors what the key goals of the company are, what the key strategies are. It’s building the right relationships with the right shareholder base, curating the shareholder base so that you have the right shareholders in the right amounts to set the company up for stability and success.
Zillow Offers (Zillow’s home-buying arm) was also an area of enormous learning for me and will help me be a player-coach to whichever company we take public through our SPAC. That was a huge business pivot, switching from being a media company that sold advertising to being a transactional company that bought and sold houses. It was similar to the Netflix move from being a DVD-by-mail company, from which they became a streaming business. Or even what Disney is undergoing right now, where they’re building out Disney Plus as a direct-to-consumer business.
Making that that change with Zillow Offers while publicly traded was a very heavy organizational lift. We had to think about how we navigated that change with our relationship with the real estate industry, with our relationship with the investor community, and with our own employees, among whom there was a lot of skepticism about that strategy.
So whichever company we end up taking public through Supernova, I can help that management team with whatever transition periods they go through, whether it’s simply their private to public transition, or some more existential challenge that they face.
GeekWire: What’s up with the name, Supernova? Any deep meaning there?
Rascoff: We thought it sounded cool. It’s also the brightest collection of stars in the sky, and we hope to let our merger partner burn bright.
GeekWire: Finally, what’s your take on the tech industry right now, going through this pandemic period?
Rascoff: It’s obviously a very challenging time for the country. But it’s a very innovative and exciting time for the technology industry. What tends to happen during periods of significant change, is new opportunities arise. We saw this in 2008 with the financial crisis and we saw this in 2001 following 9/11. All the cards are thrown up in the air, and new winners frequently emerge through these periods of prices.
For example, look at the changes in consumer behavior of how they consume entertainment. There’s been a radical shift in a very short period of time. We’re not going to live entertainment in stadiums or movie theaters anymore; we’re consuming in-home entertainment. That’s creating a new category of winners in streaming, it’s creating a new category of winners in social media.
Rascoff on the “hybrid workforce” of the future: Look what’s happening with companies around office space, and software and employee engagement. Companies have shrunk their office space to zero as most have shifted to work from home. They’re going to start opening offices again, and we’re going to start having a hybrid workforce where employees are there one day a week or one day every couple weeks.
Companies are going to save hundreds of millions of dollars in commercial real estate. I believe they’re going to turn around and spend some of that on software to improve employee engagement and employee morale and team effectiveness. So one of my personal angel investing themes is HR tech, trying to invest in startups that are helping with employee engagement and providing software solutions to this new hybrid work from home environment.
Through these periods of crisis, new winners emerge, and that’s why you see a lot of venture funding happening. That’s why you see a lot of startups forming right now, even though it’s such a challenging time for the country overall.
