SPACs for the Long-Term with True Wind Capital's Scott Wagner & Tom Hegge

Hello everyone. Welcome back to Know Who Drives Return, the podcast brought to you by Boardroom Alpha. I'm David Drapkin. Today, it's my pleasure to have Scott Wagner and Tom Hegge from Truand Capital join us on the pod. Truand has a long history of private technology investing. has also become one of the most successful SPAC sponsors out there with 3 successful de-SPAC transactions to date, which we'll talk about on today's pod. Scott Wagner joined Truend this year to lead its SPAC effort. Tom also joined as the Director of Strategic Capital. Scott and Tom, thank you both so much for taking the time today.

David, thanks for having us.

This is—

it's great. It's our pleasure to be here.

Awesome. So let's just get started on Truend. You know, there's a lot of SPAC sponsors out there. Truend is obviously making a name for itself, but what makes Truend a trusted SPAC sponsor and what differentiates you guys from some of the other players in the market?

Well, hey, this is Scott. And I think there's several things, one of which is, it's a real effort to treat this as a business versus a hobby and a business, not just in the moment, but One that's going to help steward companies for 3 to 5 years. And so what does that look like in practice? Really from the jump, Truewind has focused on really designing the SPAC economics that it's aligned to CEO and public investors' interests. So that looks like out-of-the-money promote, longer lockups, more permanent capital through different vehicles, whether it's backstop or things we're doing now to investigate permanency of capital. And so again, it's structure design for companies to be able to not only raise capital, but succeed 3+ years into the public market. And then in terms of capability, we got a dedicated team with a different background. I'm an operator and a longtime private equity guy. Tom's a public investor with private equity experience, dedicated finance and legal people. There's really institutional scale around the efforts and attention that we can put into not only the transaction and the ability for a company to go public, but the things that they're going to face going forward.

Exactly. It's a good point. You talk about, you know, the one side is, you know, just the literal transaction of becoming a public company, but the second and almost more important side is, you know, the operation of that company going forward. And so do you think, you know, given your history as, you know, CEO of GoDaddy, Tom, as a public company investor, do you think it's imperative for a SPAC sponsor to have some of that public company operating experience to really help shepherd these companies into the future?

Well, you're talking to us and we'd like to say, yeah, but it helps. And so what's a big thing and what does that look like in practice? Because at the end of the day, the CEO and the management teams of companies run the companies and they build those companies into whatever they're going to become and whatever success they have. So what can, you know, Tom and I, even in, you know, 2 hours with a company, be helpful on? You know, I think one very clear thing is recognizing that being public is an event. It's, you know, it's just, it's the new world, and success for it is going to be a CEO and a company laying out milestones of how they're going to evolve the business and then delivering against them. And frankly, both my experience at GoDaddy, Tom's on the public side, you know, can help both what metrics are provided, which ones aren't, how you actually put some things out there, and then how you basically go have that conversation and find investors that fit your company, right? Not every investor is created equally. And, you know, from our backgrounds, we can do those things, not just help a CEO represent his business, but then go find investors where there's a real match. So that you're going to have people with you over top.

And I would say just, you know, helping to craft a story, right? Having experience, you know, Scott's experience telling that story as, you know, the operator of a very successful business, and then some of my experience beyond the other side of the table, right? What resonates with the public investor, their expectations, some of the metrics that you need to provide, and how you communicate such that, you know, you're set up to have a long-term relationship with them Um, you know, and a long-term, uh, success as a public company.

If there's any, uh, if there's a quick, you know, comment or word of advice I could give a CEO who's thinking about going public, public readiness often ends up 95% admin and governance. And I'm, I'm not disparaging any of those things that are super important and very real, but it becomes very process-oriented when really the 5%, which is, hey, what's the trajectory of your business? Are you able to communicate, both communicate those milestones, they're going to drive success or not? That's real public readiness. And when you're able to do that and then deliver against it, then congratulations, you're ready to be a public company and, you know, have public investors judge your progress.

Right. Yeah, I'll refrain from asking the, the the operational questions of what literally has to happen about going public, but you're talking about public readiness. And obviously, at least in the SPAC world, a lot of pre-revenue companies, early stage, that are typically shielded from public reporting of earnings or guidance. So obviously a theme in recent months has been some de-SPAC companies almost immediately slashing guidance numbers that they had reiterated and also marketed their deals on. How do you look at that scenario? And I just want to get your thoughts on that dynamic a little bit.

Tom, from your public side, talk about what your reaction to that is as a public investor.

Yeah. I mean, it's also from a general perspective in life, your reputation is the most important thing you have. And once it's gone, it is hard to get it back. And you think about All the things you have to do to get a PM's attention and get, you know, the incremental dollar out of his book, you're probably going to have to replace something that he put in there because he really likes that company, right? So you have to tell a compelling story and be very credible, right? And if so, if you come right out of the gate and don't hold up to your word, it's very easy for them to put you in the bucket of, you know, not credible, they don't understand their business, even if that's true. And it takes a lot to get back into that consideration set again. So it's just very important coming out of the gate to understand your business, execute against what you're gonna say, and build that credibility over time with public investors. And it does take time, as Scott knows.

Yeah, and it's interesting what that actually means for the inside of a company. often companies can get into this, frankly, trap where, you know, you try to shield yourself from public investors or feel like, oh, I, you know, there's, there's some different perspective and I'm not— we're running our company, but, you know, oh, those investors are out there. And to Tom's point on credibility, you know, that's aligned, which is, you know, if you think about your own life, the people you're around, like the people that you really want to be with, are those who do what they say they're going to do, right? They do a lot, they do it well, and they, they're dependable, they're trustworthy. And as a CEO, just thinking about, you know, one's own organization and team and company, you know, doing, you know, being able to deliver, right, to build, to grow. And it doesn't mean that everything has to work out, but, you know, that frankly discipline of Doing what you say you're going to do and doing it really well and being honestly right and having things work more often than not are what makes great companies. And so that dynamic of financial guidance in the public market, it's just another part of credibility that I think is just more an indication of, oh, okay, well, what does it mean to build a great company over time?

Right. And lack of credibility is hurtful to the market. And so it just brings me to thinking about SPAC targets. I would say peak crazy SPAC, 6, 8 months ago, I imagine you were fielding hundreds of calls from companies clamoring to go public via SPAC. Can you talk a little bit about what the pipeline looks like now and how you're thinking about sourcing deals for your next transaction?

Well, it's certainly— the world's changed and it's changed in our view for the good in that the froth is in the process of weeding itself out, both the froth in companies, the froth in valuation. And it's playing out real time and it's going to continue over the next several months. And what that means is that it's harder to both find a great company and then execute what's a de-SPAC or use a SPAC to usher a company to being public. And by the way, that's a good thing. And so what we're particularly focused on are, again, finding a great company that is in position to succeed in the public eye for multi-year periods of time. And those companies exist. And they, you know, I think relative to a traditional IPO, may have a different cap table and needs, you know, from early investors versus current. Maybe their face of their P&L and their trajectory through COVID looks a little different than just straight up into the right. You know, maybe they have a business model and a little bit of a transition that requires frankly, some work to understand, but fundamentally is strong. And those are the characteristics, frankly, of a business that we think the sponsored IPO, which is really how we think about this, applies and will apply. And that's the kind of companies that we're thinking about and trying to sponsor. And they certainly exist. And we're having those dialogues and conversations with them. While also shoring up things like the permanency of capital, which every company should be asking about that's going through this process.

Right.

And so what do you think makes an attractive SPAC target? Is it pre-post revenue, massive growth? Does it not really matter? Is it TAM? What are you looking for?

We look to partner with great businesses, right? They market leaders in defensible niches with world-class management teams. And I think we were able to find 3 businesses in our first 3 transactions that fit that bill. And those are the kind of companies that we want to help steward through this process. There are pre-revenue companies with great potential and exciting 5-year forward projections, but we kind of stick to what we do and what we know, which is our history in investing in market-leading established technology businesses. I think these days the market is a little more biased towards growth. So there's going to be— you're going to need to have some sort of a long-term growth trajectory and story, but it doesn't have to be exponential. As long as you can tell that to the market, that you're a durable business with a large TAM that you can grow into over time, they'll be receptive.

Big points. The first principles are dead on right. relative to companies going public in the traditional way, truly having a sponsored IPO, everything Tom said's right. And I do think that there's value for companies who, again, may have different issues in their cap table around what they want to do with a particular event. I think there are a number of companies in the technology landscape whose, again, business models and trajectory may not be 3 years of up into the right, where Tom's point of the bias towards growth in the conventional process is, in some ways, might be crowding out the company who fundamentally might be a 15% to 20% grower, but had a COVID pre-post hiccup or a business model in some level of transition. And I think those are the kinds of things that were particularly looking for because there's a way to create attention credibility that might get lost in a conventional way.

Right, right. Um, and so, you know, Truist, as you mentioned, has 3 very relatively successful, uh, the way they're trading, uh, de-SPAC transactions. Do any of the 3, do they have anything in common that makes them similar or, or, or they just independently strong companies that are set up for the future?

I think each of them are very good businesses that required at the time one click down to be able to really understand the advantage and trajectory. And it's a little different between Open Lending, Rover, and Celebrite in terms of their maturity, but Rover's earlier stage, but again, had a COVID pre-post thing, but you kind of had a market TAM belief. Celebrite is in an industry niche that frankly has some complexity, but again, is super defensible with really elegant technology. And I'd say Open Lending was a software business with similar characteristics to Celebrite, where you just had to understand both the market context and what made Open Lending great. And then Gosh, being able to then articulate it. And then most importantly, the companies now, particularly Open Lending, just gone out and they're becoming what they said they were going to do. And lo and behold, the stock price reflects that. So again, thanks for it. Those are 3 great examples of, I think, the themes that Tom and I are trying to represent for what we want to do going forward.

Right. Shifting to the public market reaction to SPACs in general a little bit, Obviously, sentiment seems to be not as high as it once was, but probably for the better, as we mentioned. But how do you help shift the narrative from every de-SPAC transaction's trading not so great? I mean, there's obviously outliers and stuff, but how do you help refocus the narrative on ignore the fact that this company's a SPAC, this company is just an awesome company that I think is going to do really well? How do you help change that in the public?

Well, I think, you know, the truth. You just go tell the truth and don't worry about, you know, what's happening in the outside world. And you just go focus on first principles. I think, you know, said differently, it's you, whether it's an individual company, you know, go represent and describe the company and for what it can be. And, you know, that's what we're trying to do. Now, relative to what that means for the industry, I think it means that we're, you know, that's the distinction and that's the difference because there is and has been a lot of froth. And our fundamental belief is, you know, that's going to create a vetting. It's going to vet, you know, not only sponsors but the market in general and winnow down to what's probably a relatively small number of repeatable, credible sponsors, again, for companies who have a valid life and that can achieve success in the public markets, but that might be a little different than what you call a conventional IPO or a late-stage funding round. So we think this vetting In some ways, our responsibility is greatly to every individual company that we represent and not at all to the overall market, if that is said differently.

Right. Yeah, I also think it comes back to alignment, right? Like, if you look at what— where the sponsor's interests lie, you know, are they deferring their promotes such that they're only going to benefit if shareholders benefit, right? And then you look at someone like us, Done this 3 times. We've invested in the team. We want to continue to do this. We want to build a franchise, right? And that takes relationships. And just like we talked about with public companies, it takes credibility and trust, right? So, if we do deals that aren't aligned or pushing to do questionable deals, we're going to lose that trust and we're going to be out of business, right? So, it's a repeated interaction where you're going to know that our interests are aligned with yours.

Right.

And so to that point, you're thinking about making sure the sponsor, make sure you guys are investing in the PIPE, putting up more at-risk capital. And so you're saying you're going to do deferment of sponsor shares based on performance hits, essentially?

Yeah. That's the structure of both the SPACs that have been done, the recent combinations, the one that's in the market and open right now have all those characteristics.

So, you know, having recently joined, what's, uh, what's, what's, what are the objectives that, you know, for the next, call it, 6 months here for you too?

Yeah, well, personally, my, uh, my interest in hooking on with the TruWind team is, you know, I've been spending time with growthful companies advising them on ways to build their business, um, and that's inevitably also come up around CEOs and private investors saying, how should we think about a conventional IPO versus a SPAC? And personally, I looked at everything around the SPAC environment and it made me shudder a little bit. And I thought, wait a minute, you should do this the right way. There are ways, again, with companies of certain characteristics that you're sponsoring into the public market and you're really believing in them. And I have a set of kind companies that I think fit that bill that frankly should— that I'm interested in sponsoring. And so hooking on with the Truen guys, who I think are doing this the right way, where I could sit in front of a CEO or a public investor and say, here's why this business is great. Here's why interests are aligned. And having it be true, that's the most important thing for me.

So My—

over the next 6 months, I, you know, for me, it's going and again, having discussions and relationships with these companies that, again, you believe in, and can design something for a CEO that you can look at with a straight face and say, you know what, our interests are totally aligned, and they're aligned with your public investors.

I think for me, you know, it's— we're definitely looking at the next 6 months. We're also looking at the next 6 years, right? And we want to be one of a handful of firms when a great company is thinking, gosh, an alternative road to the public markets makes a lot of sense for me. We want to be one of those top-tier sponsors, and we think we are, that gets that first handful of calls. And again, as Scott said, that comes through doing what we say we're going to do, having great alignment, building those relationships over time. And so, that's what we're working on.

Got it.

Cool. And in this landscape, you know, that's going to take the form of a lot of companies who are thinking about this, us telling them you're not ready and you should go raise a private round.

Right.

Having had that conversation earlier this week that, you know, is a little odd and, you know, is the— it's certainly the anti-sell, but we're not selling. Like, we're trying to actually, again, steward good companies on multiple years in the public market that we believe Right, right.

I like that. And so, one more on the market before we wrap. So obviously there's, I don't know, for the number, 400 SPACs out there that are pre-deal looking for targets. I think you have a few pre-IPO, you have a couple of SPACs on file that have yet to price. Are you going to wait a little bit for things to clear out before you rush back in? Or how do you think the market's going to look here in the next year or so?

It's going to be interesting to see how it develops. You certainly have— if you just look at the supply of SPACs and the number of deals that have to be done to satisfy the demand, I'm not sure there's enough great companies to fill that demand. So you're going to see a culling, whether it's in the form of liquidations or maybe suboptimal deals or people having to give up a lot of economics and structure just to get a deal done. We do have a vehicle out there now, Bylander, looking for a deal. So we're open for business, looking to talk to companies and having those conversations. But as we think about it, it's a long-term game, right? So the next one doesn't have to come right on the heels of this.

Awesome. Love it. Any parting words, final thoughts on either Truend or what we're seeing in SPACs or the private company landscape?

I think broadly there's been this incredible volatility in capital raising and valuations over the last 18 months and in our lives in general, right? It's like getting whipsawed all over the place. And first principles always do win out around companies, right? Their evolution, their valuation, and just having those things aligned at every point in time is what really over a longer term creates great businesses that succeed just in and of themselves for their customers, and then certainly make a lot of money for investors, both private and public. And I think from a Truewind standpoint, you're around a bunch of people that have been through cycles with different levels of expertise, both running companies, valuating and investing them both privately and publicly. And I think our perspective is again aligned with those first principles, which is, you know, we're not trying to chase or be opportunistic at any point in time. It's about finding good companies that, you know, again, are ready to be public or helping them with needs that we really believe in over time, whether it ends up as a late-stage private round or whether they're ready to go public. And, you know, we're sort of advocating and finding them a good set of public investors that can help them succeed at that point.

Yeah, and we're huge believers in the SPAC product, obviously. We've invested in a team and invested in a brand, but the market is changing every day, and we want to be leaders in helping push it towards where we think it needs to be and doing it the right way. So we're going to be out there and innovating the product and trying to find that next great company to help steward through that process.

Scott and Tom, uh, really, really fun talking to you. Um, Truend's doing great stuff here and, and exciting to see what, what's next. So thanks again for, for taking the time. Really appreciate it.

Loved it. Thanks for having us, David.