SPAC Surge Is Fueling Proptech Growth

SPACs, also known as a special purpose acquisition company or blank check company, are exploding. In 2020, there were 248 SPACs, which was four times more than the previous high of 59 in 2019, according to Spacinsider.com. Already in 2021, there have been 189 SPACs, as of press time.

One of the primary beneficiaries has been proptech.

For instance, in February, real estate tech company Matterport announced it was being taken public via a special purpose acquisition company by Gores Holdings VI in a $2.9 billion deal. 

“There is this abundance of capital that is seeking targets, and so much of it is within proptech,” says Zak Schwarzman, a partner at MetaProp.

Schwarzman says there were a number of proptech companies in the IPO pipeline. “That could have taken quite some time to clear itself out because there is just a huge backlog of companies that were in the IPO pipeline, irrespective of whether they were proptech or not,” he says.

But SPACs provide another exit by allowing companies to go public by bypassing the traditional IPO process. They are publicly-traded shell companies that are formed to pursue deals in the private sector by raising capital in an IPO and then searching out acquisition targets. The acquired companies then use the SPAC to sell shares to the public.

“So far, I think it [the number of SPACs in proptech] is a real net positive,” Schwarzman says. “If you look at stocks as a whole, you had this huge build-up of private market companies—all these unicorns that had been created. Even if a bunch of them are overvalued, there is still a tremendous amount of value that was captured.”

As these companies go through the SPAC process, they’ll suddenly have the funding to develop new products, pursue acquisition opportunities and make investments to acquire customers.

“Just because these companies are going public, it gives them a huge war chest to continue their growth,” Schwarzman says. “So you will see continued rapid growth from some of the companies that just a couple of years ago were curiosities. Now, they’ll have big public market war chests to continue their expansion.”

Overall, Schwarzman thinks it is healthy for growing companies to have a SPAC exit that allows them to hit the public markets earlier.

“There are elements of this SPAC process that are favorable to younger companies that can talk about forward-looking statements,” Schwarzman says.

Schwarzman says some of the early SPAC targets don’t fit the cookie-cutter mold of the public incumbents in the proptech space. “They’re generally software, marketing and data companies,” he says. “If you look at the Opendoors of the world and the Latches of the world, that’s not what those companies are. And so they will offer a greater range of comps to private companies.”