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16 n e w h a v e n B I Z | A p r i l 2 0 2 1 | n e w h a v e n b i z . c o m perspective, it's great for our portfolio companies because they're raising a lot of money at very rich valuations." As a public venture investor, CI also cares about economic impact. McCooe said SPACs, which are shell companies with no other operations, are preferable to stan- dard acquisitions in which an out-of-state company might buy a Connecticut firm and move some of its functions to a new location. "In an IPO they tend to stay here," he said. William Fish, a Hartford partner at law firm Hinckley Allen, which has worked on several SPAC transactions in Massachusetts, said some of his Connecticut clients are sniffing out possible deals with blank-check companies, drawn by potentially higher valuations that allow companies to access more investor capital. "Because SPACs seem to be driving up the revenue multiples, they are thinking 'wow, maybe we shouldn't be waiting, let's test the waters and see what kind of numbers we get,' " Fish said. Many predict the high valuations will eventually lead to a market correction that will drive down some SPAC share prices, but it remains to be seen how individual companies might be impacted. Even McCooe, who is bullish about CI's specific SPAC holdings, sees it coming. "SPACs will be subject to the whims of the public markets," he said. "I think it's fair to say SPAC stocks will be hurt in the next 12 to 24 months." While there are only a few SPAC deals in Connecticut, there are plenty of blank- check companies that have formed in the state, mainly in Fairfield County, a hub of A unique and relatively rapid pathway for companies to raise capital and get listed on a public stock exchange has seen a national resurgence, and Con- necticut is getting in on the action. In the past few months, three Connecti- cut-based private companies — all in the medical technology space — have an- nounced merger deals with publicly-traded firms called "special purpose acquisition companies," which also go by the catch- ier acronym "SPAC" or the synonymous "blank-check" company. Initial public offerings by SPACs, which raise money from investors to go hunt- ing for acquisition targets, have already surpassed their record 2020 totals, with 296 IPOs so far this year as of press time, to- taling $95.8 billion in proceeds, according to SPACtrack.net, which counts more than 550 SPACs actively vetting targets. Locally, the largest SPAC deal by value involves genomics-testing provider Sema4, which has added hundreds of jobs at its Stamford and Branford facilities since 2018 with the help of a $6 million state loan. e other two SPAC mergers involve companies founded by Jonathan Rothberg, a pioneer in speedier DNA sequencing who is perhaps Connecticut's most prolific scientist-entrepreneur. His Butterfly Network makes a pock- et-sized ultrasound machine, while Quan- tum-SI is developing a protein sequencing SPAC Attack CT companies get in on blank-check merger rush By Matt Pilon platform that promises to lead to better ways to diagnose and treat can- cer and other diseases. e combined value of the three local deals is nearly $5 billion and the companies are all being acquired by New York-based SPACs. For the merged or acquired companies, experts say SPAC deals generally mean higher valuations, more certain pricing and access to greater amounts of capital, as well as a faster path to the market compared to a traditional initial public offering process (three to six months vs. one to two years). With hundreds of SPACs hunting for acquisition targets across the country, and securities laws only giving them a limited amount of time to spend their capital or risk giving it back to investors, experts say the situation is creating intense demand, driving up valuations and lead- ing some earlier-stage companies to go public. Matt McCooe, CEO of quasi-public venture capital investor Con- necticut Innovations, which holds stakes in both Quantum-SI and Sema4, said SPACs have been making overtures to a number of CI's venture portfolio companies. "ere's so much capital out there, it's a feeding frenzy," McCooe said. "From our private equity and hedge funds. According to an analysis of U.S. Securities & Exchange Commission filings, there are at least 15 SPACs that have formed here in the past two years. One is in New Haven. imble Point Acquisition Co. raised $240 million in a February IPO. e SPAC is tied to the Pritz- ker Vlock Family Office, which was founded by billionaire philanthropist and Hyatt hotel heir Karen Pritzker. Growth path David Ethridge, U.S. IPO services leader for Big Four accounting firm PwC, began to take note of growing SPAC transactions in 2019, which saw 60 deals and about $12 billion raised in total. "To me at the time, that was kind of zany because it was five times what I'd ever expe- rienced as a capital markets professional in the past," Ethridge said. en came 2020, and the global COVID-19 pandemic. Major companies began pulling their earnings guidance as the future became impossible to predict. Meanwhile, interest rates plummeted and the government flooded the economy with stimulus money. Amid that extreme uncertainty, SPACs offered investors what appeared to be a safer bet with more upside, Ethridge said. at's because investors can pull their capital if they ultimately dislike a SPAC's acquisition target. SPAC investors are also largely making a bet on seasoned manage- ment teams. "It was kind of the perfect product at the perfect time," he said. e dynamics that emerged in 2020 con- tinue at an even stronger pace in 2021, with almost 300 SPAC IPOs already completed, compared to 248 in all of 2020. "ese are really historic numbers," Ethridge said. Jonathan Rothberg Matt McCooe William Fish PHOTO | BUTTERFLY NETWORK Connecticut startup Butterfly Network, which makes a pocket-sized ultrasound machine, is going public through a special purpose acquisition company -- one of the hottest investment vehicles on Wall Street.

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