Matt’s Top 3 SPAC Targets – Digital Marketplaces

Matt’s Top 3 SPAC Targets – Digital Marketplaces

SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC targets among digital marketplaces. We look at why they are compelling and why each could be a fit for a blank-check merger.


A defining trend for a large portion of SPAC deals over the past six months has been in combining with companies that represent the way business is to be conducted in the future. Especially in a year of quarantine, that has frequently meant online marketplaces.

That said, recent SPAC mergers with online marketplaces include both deals that the market loved and those that it didn’t.

Home buying and selling platform OpenDoor (NASDAQ:OPEN) remains the market’s favorite Chamath Palihapitiya target since Virgin Galactic, finishing yesterday above $25 with the combination having closed last month. Meanwhile Silver Spike (NASDSAQ:SSPK) opened Thursday at $19.74 still blazing with enthusiasm for the deal it announced last month with WM Holding, parent of cannabis marketplace WeedMaps.

Public investors have shown less excitement for automotive marketplaces, however. Freshly de-SPAC’d consignment-to-retail vehicle platform Carlotz (NASDAQ:LOTZ) closed at $10.84 yesterday, while used car marketplace Shift (NASDAQ:SFT) yesterday sagged to $8.36, having closed its SPAC combination in October. The market has thus far been even less kind with cars and car parts platform Parts iD (NYSE:ID), which ended Thursday trading at $7.69 after closing its deal in November with Legacy.

As such, B2B and B2C marketplaces are an area that have seen their fair share of SPAC activity, but teams still need to be choosy to take home a winning deal.

Yieldstreet

While Robinhood is having a tense week in the eye of the retail versus hedge fund hurricane, Yieldstreet has been quietly growing as a marketplace for less meme-worthy wealth management asset classes.

Yieldstreet has brought the sort of alternative investments to an online platform that would traditionally only be available to institutions. These include assets with low correlation with the stock market that in many cases are backed by collateral like real estate development and shipping finance.

Prior to 2019, Yieldstreet only served accredited investors but, now have offerings for smaller retail investors as well with durations and minimums as low as six months and $1,000. Since its founding in 2015, the company has returned over $750 million in principal and interest with a net IRR of 12.15% as of January 8.

Alternative investments in general amounted to over $10 trillion in assets in 2020, according to Prequin, which projects the market to grow to $14 trillion by 2023.

Yieldstreet has raised $178.5 million in outside capital itself, according to Crunchbase, and was estimated to be valued at up to $1 billion at the time of its 2019 $62 million Series B by PrivCo.

While Yieldstreet appears on the surface to be more of a crowdfunding platform, it ultimately still is a marketplace as it relies on borrowing businesses to bring deals to them. This is a plus in a time of economic crunch when many companies hampered by the pandemic have had to turn to alternative revenue streams.

But, as with all marketplaces, it also puts some onus on Yieldstreet to vet deals and resolve defaults. Even if loans are collateralized, it can take quite a bit of time to unwind a default and recover funds. Yieldstreet was criticized for poor communication with investors last April when five pools of maritime loans soured but the company tried to quietly resolve the defaults leaving investors wondering where their interest payments were. Around the same time, BlackRock backed out of plans to manage a fund with Yieldstreet, dashing a potentially strong legitimizing event for the company.

That episode indicates why a SPAC combination could be way forward for Yieldstreet, with a few lessons learned. A SPAC team could bring in extra fintech expertise and going public would force Yieldstreet into more regular investor relations practices, while skipping the extra prodding of an IPO process.

Landing

The process of renting a new apartment may be getting slightly easier in some markets with work-from-home migrations opening up urban supply. But, the market still offers few flexible options for a stay longer than a few days or weeks at an Airbnb but shorter than would be convenient for the hassle of signing a lease.

Landing has positioned itself into exactly that gap, offering a platform for subleases of furnished and unfurnished apartments that do not require a security deposit and can terminated with 30 days’ notice. Its stock comes from large corporate landlords who use Landing to fill up new developments and flexibly top off their occupancy rates.

Customers pay a premium for the flexibility with a $199 annual membership fee and rents that are 10-13% higher than market averages. But, that comes with savings for mobile professionals who won’t have to move furniture, pay deposits or be otherwise tied down to the property for long.

Landing has grown from availability in eight US cities to start off 2020 to 74 today. It was initially funded by $15 million in proceeds its founder made in selling his previous venture Shipt to Target in 2017, and has since raised $130 million more in a mix of equity and debt facilities, according to Crunchbase.

This included a raise earlier this month of $55 million in debt alongside a $45 million Series B led by Foundry Group. As such, Landing is not hard up for short-term cash, but many SPAC deals have followed closely on the heels of private rounds, such as the announced $5.4 billion combination of CIIG Merger Corp. (NASDAQ:CIIG) and EV-maker Arrival.

Landing is also well positioned to benefit from continued turnover in housing stock among major landlords and movement by professionals taking advantage from the work-from-anywhere trend. SPACs and retail investors could see the upside in striking before the iron gets too hot and be ahead of the wave rather than behind it.

Fundbox

As Yieldstreet guides non-institutional investors to alternative investments, Fundbox brings the cash of alternative lenders to small businesses.

B2B lending was a hairy market in 2020, with losses on loans forcing lender Kabbage to sell to American Express reportedly at a discount to its previous valuation. Fundbox offers a similar service, but came out relatively unscathed from the height of the pandemic with losses limited to the low single digits.

Fundbox’s CEO Prashant Fuloria has credited Fundbox’s direct relationships with lenders as a key to its resiliency rather than dealing with agents and connecting businesses with loan packages that had their own inflexible covenants.

It has also raised $303 million in outside equity capital to date, about $100 million of which it has invested into its AI tools. These help it analyze client businesses with a constant connection to their bank accounts and be nimble in the how it offers credit lines that match the need and health of the borrower.

This also helps it offer quicker and more competitive terms for factoring and credit lines as clients increase their average order volumes.

Craft.co estimated Fundbox’s valuation at about $750 million at the time of its $20 million Series C in  May. This came just as Fundbox was significantly expanding its base of borrowers as a distributor of PPP loans.

Given that the company has raised equity in each of the last three years, Fundbox likely has open ears for its next big financial step as it stands to process a new wave of stimulus this spring.