Do SPACs Make Sense for Startups?

Matt Crisp decided in May to take Benson Hill public using an unconventional tool—a merger with a special purpose acquisition company (SPAC) that will yield $625 million in capital and value the crop genomics startup at nearly $1.4 billion. It was the right structure at the right time for Benson Hill.

SPACs are shell companies that go public with no assets but then look to merge with a private business, resulting in a new, publicly traded entity. Typically, they’re created by a team of institutional investors trusted by share purchasers to steer the shell company toward a winning marriage.

Although SPACs have been around for about 30 years, they proliferated last year as a faster alternative to traditional IPOs. COVID-19 accelerated the rush to these so-called “blank-check companies” because the IPO market dried up as companies feared market volatility would spoil their stock’s public debut.

Food SPACs

There have been a few food industry SPAC mergers in the past year, including snack maker Utz Brands last August and vertical farming startup AeroFarms in March. Cereal giant Post Holdings this spring created a SPAC to find a CPG partner and, in June, Post bought the ready-to-eat cereal business of TreeHouse Foods for $85 million, in what observers said were related moves.

For his part, Benson Hill founder and CEO Crisp, a former venture capitalist, wanted to scale up quickly and had established an internal public market readiness committee long before SPACs began approaching his company last year. One of them, Star Peak investors, “had built their organization around a sustainability thesis” and wanted to find “a category-defining company in food and ag,” Crisp says. “We matched that.”

Benson Hill, which uses CRISPR gene editing, AI, and data analytics to identify new seed varieties, has focused on optimizing yellow pea and soy proteins for applications in the burgeoning plant-based food sector. Crisp says a SPAC deal “provided more certainty” than a traditional IPO. “There was also a degree of expeditiousness that we could go through the process quickly and get our team focused on our business and good execution.”

SPACs aren’t without controversy. The food sector came late to the party compared with other verticals, and some argue that the punch bowl already is empty. Although SPACs raised more than $100 billion through the first few months of 2021, some analysts say momentum is leaving the phenomenon now that more than 400 blank-check companies are seeking private firms to take public. SPACs must find a company to buy, usually within about two years, or give their cash back to investors.

Plus, in April the Securities & Exchange Commission questioned the optimistic revenue projections that have been issued by many startups that are merging with SPACs.

But SPACs continue to court CPG and ag-tech startups seeking to tap into strong investor interest in the nutritional and digital transformation of the industry.

Beyond Meat board member and former executive chair Seth Goldman insists he wouldn’t have allowed a SPAC to get within 100 yards of Beyond Meat, which saw its shares triple in price on the first day of trading and now has a market value of $9 billion.

Saying No

“We never seriously looked at a SPAC,” says Goldman, who is also co-founder and former president of Honest Tea. “I’ve had literally dozens of other opportunities to become involved in a SPAC, and I’ve declined each time.”

Goldman is wary of SPACs because he believes that “a financing event should be a step along the journey, not the end result. You have to look at what that financing event actually does for the business and how it transforms it. You can get access to capital and get investors liquidity, but a SPAC doesn’t give you access to new markets or distribution.”

SPACs “have started to lose their luster,” says Ken Harris of Cadent Consulting Group, “because some of them haven’t been able to find the acquisition targets they were looking for. So their reason for being goes awry.”

Still, food financing lawyer Mitchell Presser, co-head of the food and ag group for Morrison & Foerster, insists that SPACs “aren’t going away. They’re going through a bit of a digestion period.”