Indian venture capital investors Ravi Adusumalli, the founder and managing partner of VC firm Elevation Capital, and Shashin Shah, founder of Think Investments, have partnered to launch a special purpose acquisition company (SPAC) for investments in Indian tech startups looking to list in the US in the near future.
With companies in the US jumping on the SPAC bandwagon, Indian startups are also considering public listing in the US without going through the IPO process themselves. A SPAC is a blank cheque company that launches an IPO with specific investment criteria and then merges with or acquires companies that fit that criteria. This allows acquired companies to get listed without going through the IPO process. Startups such as Flipkart and Grofers are said to be considering a public listing in the US through SPACs.
According to a report by Renaissance Capital, Adusumalli and Shah’s SPAC named Think Elevation Capital Growth Opportunities is a blank cheque company backed by Think Investments and Elevation Capital targeting tech in India, filed on Friday (March 19, 2021) with the US Securities and Exchange Commission (SEC) to raise up to $225 Mn in an initial public offering. Think Elevation Capital Growth Opportunities was founded in 2021 and plans to list on the Nasdaq under the symbol TEGAU. Morgan Stanley is the sole bookrunner on the deal.
The San Francisco-based company plans to offer 22.5 Mn units of shares at a target price of $10. Each unit consists of one share of common stock and one-fourth of a warrant, exercisable at $11.50. At the proposed deal size, Think Elevation Capital Growth Opportunities will command a market value of $281 Mn, as per the publication.
SPAC Catches Indian Startup Fancy
Startups such as Zomato, PolicyBazaar, Flipkart, Droom, Grofers, Delhivery among others are planning for IPOs in 2021. Although some of the IPO-bound companies are looking at dual listings in India and the US, others are solely considering overseas listings, and SPACs can give their IPO dreams a big boost.
SPACs have been around for decades, but the pandemic-driven economic downturn and uncertainties have rekindled people’s interest in stock markets and IPOs thanks to the guaranteed returns on investments offered by the process. SPACs raise their initial IPO capital by selling a share and a warrant at $10 which can be redeemed with interest if the shareholders do not approve of the target company before merger.
Last month, the Indian Ministry of Corporate Affairs clarified that Indian companies that choose to list on overseas stock exchanges would not be considered listed companies at home. Hence, they need not comply with the stringent norms meant for listed companies.
Target companies can also raise some much-needed funding via SPACs without waiting for six-eight months to comply with the regular IPO process. The US witnessed $83 Bn worth of collections by 248 SPACs in 2020 alone, and by January 2021, the country saw another $26 Bn. In contrast, only $13 Bn worth of collections were reported by 59 SPACs in 2019.