Search Funds and SPACs EXPLAINED

All right, all right. Today we're going to talk about search funds and SPACs or blank check IPOs. We're going to talk about how this whole concept works. Bill Ackman just launched a massive, massive SPAC, blank check IPO is what they call them. So we're going to walk through the entire thing in today's episode. All right, so we got 2 vehicles I mentioned in the intro here. So what we're going to talk about first, search funds, and then we're going to talk about blank check IPOs or SPAC. So on the first one, search funds, what is that? How does that work? So essentially what a search fund is, is a different model. You have hedge funds, private equity, I mean, all different types of funds. This model fits into probably the more private equity space, but what happens is me and you get together, we say, hey, we're smart managers, we've got a great expertise in X, Y, and Z. We want to go and acquire a company in the maybe $10 to $25 million range. We want them to have certain amount of EBITDA and a certain amount of stuff. We don't know what company we want to acquire yet, but give us some money right now. We've got 18 months or 1 year, and we're going to search the marketplace and scour the world for a perfect company to buy in the $10 to $25 million space. So, a search fund, what happens is they set up the fund first. This is kind of opposite to the fund launch formula. They set up the fund first. They get money or capital committed to that fund, and the fund managers go out for a year, and they're looking to just acquire 1 business usually. A private equity firm is looking to acquire a handful of businesses, manage together. A search fund says, hey, we're looking to take over a business, and we are going to manage it. Me and this guy, once we buy the business, we're going to step in, we're going to manage the whole business, we're going to set up a new C-suite executive team, all this kind of stuff. We're going to do XYZ to help take this company from $25 million to $100 million. We're going to sell it and everyone gets paid. So it's a very interesting model. One guy, Chris Hendrickson, out of Stanford University, when he was graduating, most of his buddies was going to— they were going to go work in Facebook or Google or hedge fund somewhere. He said, I want to be the CEO now. So what they did is they set up a search fund Got investors to commit capital to him, and they went out and after it took them a long time, a year to acquire a company, found a company, and they were, I mean, they were just cold calling owners. Hey, do you wanna sell? Do you wanna sell? Do you wanna sell? And they were negotiating, and this one fell through, and they negotiate. So you're getting a huge range of M&A deals, and sometimes you're gonna maybe merge with another company as well. But finally, they found a company, went and acquired it, and now he was the CEO at 28 years old, right? And they took over the business, and now he runs that business full-time. So this is the model of a search fund. Now, after that year, let's say they didn't find anything in a year or 18 months. They usually have something in their documents that says, hey, if we don't find a business in 18 months that fits the parameters, we will release you of your capital commitments or we'll send all the money back if they've taken any money originally. So the search fund investors are really almost 100% betting on the jockey, on whoever the management team is. And this is a similar concept for blank check IPOs, okay? So this week you've probably heard about Bill Ackman, huge hedge fund manager on Wall Street. If you haven't heard of Bill Ackman before, go look him up. I think I have an episode actually that goes through his story, but Bill Ackman just launched a blank check IPO. So what it is, very similar model. However, instead of raising money privately, they just take a shell company, they call it a shell company, public, and investors can buy shares in the public company. And the public company's sole goal is to go and acquire or merge with another company. And they've got, I think his has 1 year to do this. This is similar to, if you guys have heard of a reverse merger. A reverse merger follows a similar model, but it's already set up for 1 company. Vivint Smart Home just did a reverse merger a little bit ago. They set up a public company. They don't— a typical IPO, you do the dog and pony show for 8 months, you're getting everybody hyped up and you have this big IPO day and you're hoping your stock will jump like crazy. That's fine, but if in economic uncertainty like we have in this year, what some companies will do is reverse merger. They set up, they quietly set up a public company, they just file it publicly, it's a shell company, and that shell company acquires Vivint Smart Home and now Vivint all of a sudden is a public company. It takes about 3 weeks to do. Someone 2, 3 weeks and they don't do a big— they just quietly become public and people can start buying and selling these shares. Now, you'll see a lot of people are interested in these silent IPOs, I guess you'd call them, because there's not a lot of hype around them. You can find undervalued businesses that have done a reverse merger into the space and they didn't do the big hype, you know, Snapchat IPO where they were worth $8, $20 billion, whatever their evaluation was when they IPO'd. These guys quietly enter and sometimes A lot of investors don't even know they exist. So that is the benefit of that. Now, sorry, I got sidetracked on a reverse merger like squirrel, you know, off track a little bit. But, uh, but back to a blank check IPO. So Bill Ackman just launched this and has a lot of hype around it. A lot of investors have put money with him, and now we are just betting that Bill Ackman is smart enough and that he has a good enough management team that he can buy a business and hopefully do very well, and that stock price will jump. So this is an interesting concept. Blank check IPOs have become more and more popular recently because it's actually relatively low risk for the person putting it out. You could put out an IPO, pay your filing fees, pay lawyers, put it together. You got to pay those upfront fees but you put it out there and then investors, hey, you want to come buy? Well, we're publicly traded on X stock market. Just come and buy our shares. It's, you know, $3 a share and in 1 year, we're gonna go out and try to acquire a company and if we don't acquire a company, you can just sell your shares and get out of the business. So, to recap, you've got 2 options here. You have a search fund. A search fund is private investors put money into a fund You go and search and then take over and manage the team usually privately. A blank check IPO or SPAC is what they sometimes call them. Is you have a public company, a shell company that investors buy into that shell company and that shell company can go and buy or merge with other companies and this is to close up. This is what I love about finance is there are so many ways and little niches of finance that you can figure out and do. It's not just 4 big blocks, you got to play one of these areas. There's actually a lot of these little niches in the cracks where you can make millions and millions of dollars coming up with new or interesting strategies to launch and scale funds, to launch and scale certain products or businesses. If you've seen our red ocean, blue ocean analysis, it's where you can find true blue oceans out in the marketplace. So I wanted to walk you through search funds, SPACs, or blank check IPOs, what those are, what's going on. Keep your eyes open. These are happening a lot this year, these blank check IPOs. You'll see if you go to Google, do a little simple Google search, so you'll see a lot of these happening in the space right now. Anyways, that's all for me. If you like our content, click on the subscribe button, hit the bell so you get notified whenever we go live, do all this kind of stuff. If you want to learn more, go to investmentfundsecrets.com. We got whole free training and stuff on there, and I'd love to hear you guys' feedback on this video. Thanks, and I'll see you later.