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Hi Friend,

Happy Friday. It has already snowed and hailed today in Minnesota. The leaves are still turning colors, and the snow melted within an hour...but still. Welcome to the Midwest!

Today's Contents:

Weekly Song: No Rain
SPACs
Good Reads

Weekly Song: No Rain

This is the song. The music video has the little girl in the bumblebee outfit.

This song is such an easy listen. It's about persevering, even when you are pushed down. The lead would play it for change on the Venice Beach boardwalk for over a year before it was produced and became a hit. It was the biggest single from Blind Melon.

"The song is about not being able to get out of bed and find excuses to face the day when you have really, in a way, nothing. It was like rock bottom. I wasn't even on drugs or drinking. It was just tough. It was just a tough point in my life."

And the cool thing about that song? I think a lot of people interpret those lyrics properly and can connect with the sentiment of when "I don't understand why I sleep all day and I start to complain that there's no rain." It's translation is akin to "I'd rather it be raining so I can justify myself by laying in the bed and not doing anything. But it's a sunny day, so go out and face it."

No Rain by Blind Melon

And I don't understand why I sleep all day
And I start to complain that there's no rain
And all I can do is read a book to stay awake
And it rips my life away, but it's a great escape
Escape, escape, escape

All I can say is that my life is pretty plain
You don't like my point of view and I'm insane
It's not sane, it's not sane

Escape, Escape, Escape: SPACs

The topic of the day: SPAC - Special Purpose Acquisition Companies.

"What do you think of them?" Let's see.

Point 1: There is accelerating SPAC IPO activity. One Wall Street friend predicted that the IPO-underwriting business by traditional investment banking will mostly vanish.

Point 2: It's easy to see why they are attractive to SPAC sponsors. The sponsors have to put up a limited amount of capital (2-3% of the SPAC) and get founder-like terms.

Point 3: It's easy to see why they are attractive to companies. Negotiate the price with one party. Lock it in. Disclosure is a lot less involved than the S-1/IPO process.

Point 4: Should you invest in a publicly-traded SPAC? It's a company like any other one. So, pick wisely.

The phenomenon is distinctly applicable because the low-interest rate environment is driving the demand for tech equities hoping for good returns in the long term. As a finance friend remarked recently, "with zero percent interest rates, your money is either in equities or going to be in equities."

Chamath Palihapitiya, one of the most active and early SPAC sponsors, called this trend early last year in his 2019 annual letter. He writes: While interest rates tomorrow are less than or equal to interest rates today, then focus on Years 5+ of any model and if it shows growth, however unbelievable, you should buy the stock.

VCs want to go full-stack into public markets. Obviously. Of course, they would. More money, more management fees, more forever upside? That’s how I read the latest from Reid Hoffman on the SPAC launch from FirstMark. Here's an interview with the co-founder of the FIrstMark SPAC.

In this post, Reid references the latest research from McKinsey showing the outperformance of operator-led SPACs. See the chart below. I'll note that almost all research I've seen from McKinsey on company value creation shows the outperformance of strong operators vs financing engineering.

That's it. That's what I got. What do you think?

Sensible Investing: Good Reads

Howard Marks describes the investor conundrum caused by low-interest rates in his latest memo 'Coming Into Focus'. This newsletter always recommends you read Howard Mark's memos.

Global Covid Valuation: Liked this latest edition by Verdad. Particularly the chart below, which is a comparison of the TOPIX (Toyko Price Index) to the Nasdaq. From Verdad: The TOPIX looks like a negative bubble, with the vast majority of stocks trading at less than 1x sales, while the NASDAQ looks like a classic bubble, with over 30% of companies trading at >9x sales.

Distribution of EV/Sales Multiples Topix vs. NASDAQ

The Economics of Vending Machines: Fascinating read. $7.2Bn revenue/year industry, highly fragmented with a ton of small-time operators.

Etsy - Deep-dive and long-thesis here. Passion economy meets the microbusiness trend.

It went from sunny to windy to snowy to hail to rain to sunny here in the Mini-Apple (Minneapolis). So, I have no excuse but to go out and get at it. :)

Thanks for reading, friends. Please always be in touch.

Katelyn

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