Nextdoor’s decision to be listed through a special purpose acquisition company was largely the result of favorable prices compared to a traditional IPO, said Bill Gurley, a partner at Benchmark and an early investor in the neighborhood’s social network.
Gurley has been among the loudest supporters of direct listings, another listing option where companies get listed without selling shares at a steep discount to new investors. He said the average IPO in 2020 came with 57% cost of capital.
“SPACs are remarkably cheap compared to incorrectly priced IPOs,”
Nextdoor earlier this week announced plans to pursue a SPAC sponsored by a subsidiary of Khosla Ventures, Vinod Khosla’s investment company. In a SPAC, a so-called blank check company raises capital through a public tender and then acts according to a potential target, which becomes the operational unit after the transaction is completed.
The pace of new SPACs slowed earlier this year after breaking a record in 2020 and setting a new high in the first quarter of this year. The withdrawal came after the SEC issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments.
However, activity has resumed. In addition to Nextdoor, the fintech company Circle, the space companies Planet Labs and Satellogic and the solar energy company Heliogen all announced offers this week. Still, the proprietary CNBC SPAC Post Deal Index, made up of the largest SPACs that have announced a target or those that have already completed a SPAC merger within the last two years, is 3.8% lower in 2021 after tumbling in February and March.
Nextdoor’s transaction will bring in $ 686 million and value for the company to $ 4.3 billion. Benchmark first invested in 2011 at a cash valuation of just over $ 30 million, according to PitchBook.
The company says its site is now used in more than 275,000 neighborhoods around the world and in nearly 1-in-3 U.S. households. It allows users to organize events, sell or give things away and warn neighbors of danger. Earlier this year, Nextdoor debuted an anti-racism statement after long criticizing racist comments on its platform.
In 2018, Nextdoor hired Sarah Friar, who was CFO at Square, as its new CEO, replacing the company’s founder, Nirav Tolia. Before that, Friar spent over a decade at Goldman Sachs.
Gurley said Friar ran all the numbers and carefully considered an IPO before making the ultimate decision.
“Sarah Friar is an extremely experienced CEO with lots of Wall Street experience, both of whom have worked in an investment bank and as CFO of a public company,” said Gurley. “She double-tracked it, looked at the listing and just said I have more control and get better finances by going the SPAC route.”
Investment to address labor shortages
Gurley appeared on “TechCheck” alongside Sumir Meghani, co-founder and CEO of Instawork, an online job market. Instawork announced Thursday that it raised $ 60 million in a round of funding led by Craft Ventures.
Start-up connects workers in the restaurant, hotel and retail industry with part-time jobs at companies in need of labor. The deal comes a week after Suzanne Clark, chief executive of the U.S. Chamber of Commerce, told CNBC that the biggest problem for U.S. companies is hiring enough qualified staff. She pointed to a shortage of skilled labor, unemployed benefits in the Covid era, inadequate access to childcare and restrictions on work visas.
“Our professionals earn almost double the minimum wage,” Meghani said. “Our best professionals can earn even more than that. They can get paid right away when they go out of a shift. We reward the quality of Instawork with faster pay, higher pay, but most of all flexibility.”
Gurley, who was one of the earliest backers of Uber, said Benchmark focuses heavily on the category and has made about eight investments in “this type of marketplace.”
– CNBC’s Pia Singh contributed to this report.
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