Photographer: Michael Nagle/Bloomberg

With $600 Million 'Blank Check' IPO, VCs Experiment on Startup Listings

Social Capital, Hedosophia create vehicle that targets taking unicorns public with a twist

A $600 million initial public offering Thursday hopes to test one venture capitalist’s theory that leaving the details of a listing to others will provide a smoother path to public markets for venture-backed companies.

Social Capital Hedosophia Holdings Corp., a “blank check” company created by venture firms Social Capital and Hedosophia, priced 60 million shares Thursday at $10 a share. The stock rose as much as 4 percent on its first day of trading.

The idea behind the special purpose acquisition vehicle is to invest the funds in one or more late-stage companies—likely those valued at $1 billion or more, dubbed unicorns. Social Capital has several such companies in its investing portfolio, including Slack, Survey Monkey, and Clover Health. Chamath Palihapitiya, managing partner of venture firm Social Capital and an owner of the Golden State Warriors basketball team, said the idea offered several advantages over the traditional path to an initial public offering, including giving employees a way to cash out their shares sooner and more easily, and allowing leaders of venture-backed companies to skip a distracting regulatory and marketing process.

“You cannot ask a CEO to spend half their year in a registration process,” Palihapitiya said. “It makes no sense.”

Instead, he has asked investors to essentially give Social Capital Hedosophia a blank check to invest funds in late-stage startup companies that the holding company believes are promising, with the twist that it will lend expertise to help the companies grow.

“We, i.e. the team that helped build Facebook, will help you build a bottom up understanding of product market fit,” Palihapitiya said. “That’s a far superior way” compared to a traditional IPO, when companies place their fate into the hands of a few hundred initial investors who are looking for a trading “pop” and then may bail on the stock, he said.

Palihapitiya led user growth for mobile and international at Facebook Inc. until 2011, and has many former employees of the social network working on his team. His dissatisfaction with the IPO process is underscored by Facebook’s experience after it hit the public markets in 2012. The company’s shares sold at $38, traded as high as $45 the first day, then dropped for more than a year before regaining their initial price.

“Just a bunch of disaffected investors who did get that manipulative price pop, who then acted against the company,” he said at the Latticework investor conference last week in New York. 

Investors are taking a leap of faith that Social Capital Hedosophia will find the right company or companies to agree to go public their way. The firm plans to systematically approach the top 25-30 unicorns to gauge if there is a fit, Palihapitiya said, but not yet. Regulations prohibit overtures until Oct. 1. 

The holding company’s shares, trading under the ticker IPOA, gained 3.6 percent to $10.36 at 2:44 p.m. in New York. More than 4.7 million shares had been traded. Credit Suisse First Boston was the sole underwriter.

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