Know Who Drives Return

SPACs for the Long-Term with True Wind Capital's Scott Wagner & Tom Hegge

October 06, 2021 Boardroom Alpha / True Wind Capital's Scott Wagner and Tom Hegge Season 1 Episode 7
Know Who Drives Return
SPACs for the Long-Term with True Wind Capital's Scott Wagner & Tom Hegge
Show Notes Transcript

True Wind Capital's track record as a SPAC sponsor is about as good as it gets. Open Lending Corp (LPRO) is an absolute rock star deSPAC up over 240% since IPO, Rover (ROVR) is up 30% since IPO, and there is more on the way from them with Bilander Acquisition (TWCB) looking for a deal and 3 more in the queue to IPO.

Boardroom Alpha's David Drapkin is joined by True Wind Capital's Scott Wagner and Tom Hegge. Listeners will remember Scott as the ex-CEO of GoDaddy and  Tom is a long-time public market investor with private equity roots.

Listen in as the three discuss the SPAC market, what makes True Wind special, and how a SPAC sponsor can successfully build a track record of taking companies public and driving return for all stakeholders.

Learn more about True Wind Capital: https://www.truewindcapital.com/

David Drapkin (Boardroom Alpha):

Hello, everyone welcome back to know who drives return the podcast brought to you by boardroom alpha on David drapkin. Today, it's my pleasure to have Scott Wagner and Tom Hegge from True Wind Capital join us on the pod. True Windhas a long history of private technology investing has also become more and more successful SPAC sponsors out there with three successful deSPAC transactions today, which we'll talk about on today's pod. Scott Wagner joined True Wind this year to leads SPAC efforts and Tom also joined as the Director of Strategic Capital, Scott and Tom. Thank you both so much for taking the time today.

Scott Wagner (True Wind Capital):

David, thanks for having us. This is a it's great to our pleasure, bigger.

David Drapkin (Boardroom Alpha):

Awesome. So let's just get started on True Wind. You know, there's there's a lot of SPAC sponsors out there. True Wind is obviously making a name for itself. But what makes True Wind into a trusted SPAC sponsor and what differentiates you guys from some of the other players in the market?

Scott Wagner (True Wind Capital):

Well, hey, this is Scott. And I think, I think there's several things, one of which is, it's a real effort to treat this as a business versus a hobby. And a business, not just in the moment, but one that's going to help steward companies for three to five years. And so what does that look like in practice, really, from the jump through and has focused on really designing this back economics that it's aligned to CEO and public investors interests, so that looks like out of the money, promote longer lockups, more permanent capital through, you know, different vehicles, whether it's backstop or things we're doing now to investigate permanency of capital. And so again, it's structure design, for companies to be able to not only raise capital, but succeed three plus years into the public market. And then, you know, in terms of capability, we got a dedicated team with a different background, you know, I'm an operator and a longtime private equity guy, Tom's a public investor, with private equity experience, dedicated finance and legal people, there's really institutional scale around the efforts and attention that we can put into not only the transaction and the ability for a company to go public, but the things that they're going to face going forward.

David Drapkin (Boardroom Alpha):

Exactly, it's a good point you can talk about one side is, you know, just the literal transaction of becoming a public company. But the second almost more important side is, you know, the operation of that company going forwards. And so do you think, you know, given your history as CEO of GoDaddy, Tom, as a public company, investor, do you think it's imperative for a SPAC sponsor to have some of that public company operating experience to really help Shepherd these companies into the future?

Scott Wagner (True Wind Capital):

Well, you're talking to us? And we'd like to say, Yeah, but it helps, right? And so what, what's, what's a big thing? And what does that look like in practice, right? Because at the end of the day, the CEO and the management teams of companies run the companies, and they build those companies into whatever they're going to become, and whatever success they have. So what can you know, Tom and I, even in, you know, two hours with a company be helpful on, you know, I think one very clear thing is recognizing that being public is an event, it's, you know, it's just, it's the new world. And success for it is going to be a CEO, when a company laying out milestones of how they're going to evolve the business and then delivering against them. And, frankly, both my experience at GoDaddy Tom's on the public side, you know, can help both what metrics are provided, which ones are how you actually put some things out there, and then how you basically go have that conversation and find investors that fit your company, right? Not every investor is created equally. And, you know, from our backgrounds, we can do those things, not just help a CEO represent his business, but then go find investors where there's a real match, so that you're gonna have people with you over time.

Tom Hegge (True Wind Capital):

And I would say, just, you know, helping to craft a story, right, having experienced, you know, Scott's experience telling that story, as you know, the operator of very successful business, and then some of my experience being on the other side of the table, right? what resonates with the public investor, their expectations, some of the metrics that you need to provide, and how you communicate, such that you're set up to have a long term relationship with them, you know, and long term success as a public company.

Scott Wagner (True Wind Capital):

If there's any, if there's a quick, you know, comment or word of advice I could give a CEO is thinking about going public, public readiness often ends up 95% admin and governance. And I'm, I'm not disparaging any of those things that are super important and very real, but it becomes very process oriented, when really the 5%, which is, hey, what's the trajectory of your business? Are you able to communicate both communicate those milestones, they're going to drive success or not? That's real public readiness. And when you're able to do that, and then deliver against it, then congratulations, you're ready to be a public company. And, you know, public investors judge your progress?

David Drapkin (Boardroom Alpha):

Right. Yeah, I'll refrain from asking the the, the operational questions of what literally has to happen about going public, but you're talking about public readiness, and obviously, at least in this back world, a lot of pre revenue companies early stage that are typically shielded from, you know, public reporting of earnings or guidance. So obviously, a theme in recent months has been some destock companies, almost immediately slashing guidance numbers that they had reiterated and also marketed their deals on. How do you look at that scenario? And I just wanna get your thoughts on that dynamic a little bit.

Scott Wagner (True Wind Capital):

Tom, how did you know, from your public side, talking about what your reaction to that, that is, as a public investor? Yeah, I

Tom Hegge (True Wind Capital):

mean, it's also, you know, from a general perspective, in life, your reputation is the most important thing you have, right. And once it's gone, it's hard to get it back. And you know, you think about all the things you have to do to get a PMS attention and get, you know, the incremental dollar out of his book, you're probably going to have to replace something that he put in there, because he really likes that company, right. So you have to tell a compelling story, and be very credible, right? And if so, if you come right out of the gate, and don't hold up to your word, it's very easy for them to put you in the bucket of, you know, not credible, they don't understand their business, even if that's true. And it takes a lot to get back into that consideration setting. And so it's just very important coming out of the gate to, you know, understand your business, execute against what you're going to say, and build that credibility over the time over time with with public investors. Yeah, and it does take time. God knows.

Scott Wagner (True Wind Capital):

Yeah, and it's interesting, what that actually means for the inside of a company. So often, companies can get into this, frankly, trap where, you know, you try to shield yourself from public investors or feel like oh, I, you know, there's, there's some different perspective, and I'm not, we're running our company, but you know, those investors are out there. And to Tom's point on credibility, you know, that's a lie, which is, you know, what, if you think about your own life, the people you're around, like, the people that you really want to be with, are those who do what they say they're gonna do, right? They do a lot, they do it well, and they, they're dependable, they're trustworthy. And as a CEO, just thinking about, you know, one's own organization, and team and company. Yeah, doing, you know, being able to deliver right to build the grow, and it doesn't mean that everything has to work out. But you know, that, frankly, discipline of, you know, doing it doing what you say you're going to do, and doing it really well. And, you know, being honestly, right, and having things work more often than not, are what makes great companies. And so that dynamic of, you know, financial guidance in the public market, you know, it's it's just another part of credibility that, you know, I think is just more an indication of Okay, well, what is it? What does it mean to build a great company over top?

David Drapkin (Boardroom Alpha):

Right, and lack of credibility, you know, is hurtful to the market? And so just brings me to thinking about SPAC targets, right? I would say, peack crazy SPACs, six, eight months ago, I imagine you were fielding, you know, hundreds of calls from from from companies clamoring to go to go public feasts back, can you talk a little bit about what the pipeline looks like now, and how you're thinking about sourcing deals for your next transaction?

Scott Wagner (True Wind Capital):

Well, it's certainly the world's changed, it's changed in our view for the good and that the froth is in the process of weeding it's of both the froth and companies the froth and valuation right, and that's, it's playing out real time, and it's going to continue over the next several months. And what that means is that it's harder, right to, you know, both find a great company and then execute, you know, what's a deSPAC or use this back to, you know, assure a company to being public. And by the way, that's a good thing. And so what we're, you know, particularly focused on are again, finding A great company that is in position to succeed in the public eye for multi year periods of time. And those companies exist. And yeah, and they, you know, I think relative to a traditional IPO may have a different cap table and needs, you know, from early investors versus current, maybe their face of their p&l and their trajectory through COVID. looks a little different, different than just straight up into the right, yeah, maybe they have a business model and a little bit of a transition that requires, frankly, some work to understand, but fundamentally, is strong. And those are the characteristics, frankly, of a business that we think, you know, the sponsored IPO, which is really how we think about this applies, and you know, will, will apply, and that's the kind of companies that we're thinking about and trying to sponsor, and they certainly exist, and we're having those dialogues and conversations with them, while also shoring up things like the permanency of capital, which every company should be asking about, that's going through this process.

David Drapkin (Boardroom Alpha):

Right. And so what do you think makes an attractive SPAC target? Is it, you know, pre post revenue, massive growth? Does it not really matter? Is it tam, what are you looking for?

Tom Hegge (True Wind Capital):

We look to partner with great businesses, right they're market leaders and defensible niches with world class management teams, you know, and I think we were able to find three businesses in our first three transactions. That's that, that bill, and you know, those are the kinds of companies that we want to help steward through this process. You know, there are pre revenue companies write with great potential and exciting five year forward projections. But, you know, we kind of stick to what we do and what we know, which is our history and investing in market leading established technology businesses. Right, I think, these days, the market is a little more biased towards growth. So you know, there's going to be, you're going to need to have some sort of long term growth trajectory and story. But it doesn't have to be exponential, right, as long as you can tell that to the market, that you're a durable business, you know, with a with a large tam that you can grow into over time, they'll be receptive.

Scott Wagner (True Wind Capital):

Big points, right. The first principles are dead on right. Relative to companies going public in the traditional way. Right, that's truly having a sponsored IPO everything Tom said is right, and I do think that there's value for companies who, again, may have different issues in their cap table around what they want to, you know, do with a particular event. I think it's very, I think there are a number of companies in the technology landscape whose again, business models and trajectory may not be three years of up into the right where Tom's point of the you know, bias towards growth in the in the market in the conventional process is, you know, in some ways might be crowding out the company who fundamentally might be a 15 to 20% grower but had a COVID pre post hiccup or, you know, a business model and some level of transition. And I think those are the kinds of things that we're particularly looking for, because there's a way to create attention, credibility that might get lost in a conventional way.

David Drapkin (Boardroom Alpha):

Right, right. And so your True Wind as you mentioned, has three very relatively successful the way they're trading deSPAC transactions. Do any of the three they have anything in common that that makes them similar? Or are they just independently strong companies that are, that are set up for future

Scott Wagner (True Wind Capital):

I think each of them are very good businesses that required at the time one click down to be able to really understand the advantage and trajectory and it's a little different between open lending rover and celebrate in terms of their maturity but you know, rovers earlier stage, but again, had a COVID pre post thing but you kind of had a market Tam belief, Cellebrite is in an industry niche that frankly has some complexity, but again, is super defensible with really elegant technology. And and I'd say Open Lending was a software business with similar characteristics to Cellebrite where you just had to understand both the market context and what made open lending great and then, gosh, being able to then articulate it and then the most importantly, the companies now particularly Open Lending, you know, just gone out and you know, they're becoming what they said they were going to do, and lo and behold the stock price reflects that. So, you know, again, three, thanks for it, hose are three great examples of I think that the themes that Tom and I are trying to represent for what we want to do going forward.

David Drapkin (Boardroom Alpha):

Shifting to, to the public market reaction to SPACs in general, a little bit. Obviously, you know, sentiment seems to be not as high as it once was, but probably for the better, as we mentioned, but how do we how do you help, you know, shift the narrative from every deSPAC transactions kind of trading? You know, not so great. I mean, there's obviously outliers and stuff, but how do you you'll help refocus the narrative on, you know, ignore the fact that this company is a SPAC, th s company is just an aweso e company, I think it's going o do really well. How do you, h w do you help change that in t e publi

Scott Wagner (True Wind Capital):

Well, I think you know, the truth, just go tell the truth. And don't worry about, you know, what, what's happening in the outside world, and you just go, you go focus on first principles. I think, you know, said differently, it's you, whether it's an individual company, you know, go represent and describe the company and for what it can be. And, you know, that's what we're trying to do. Now, relative to what that means for the industry. I think it means that we're, you know, that's the distinction. And that's the difference, because there is and has been a lot o froth. And our fundamenta belief is, you know, that' going to create a vetting i 's gonna have that, you know, ot only sponsors, but the market in general and winnow down to, ou know, what, what's probabl a relatively small number of, of repeatable credible sponso s, again, for companies who hav a valid life, and that can achi ve success in the public marke s, you know, but that might b a little different than what ou call a conventional IPO, o a late stage funding round. So we think this vetting in some w ys our responsibility is greatly to every individual company that we represent, and not at all to he overall market. If that s id different

Tom Hegge (True Wind Capital):

Right. Yeah. I also think it comes back to alignment, right? Like, if you look at what were the sponsors interests lie, you know, are they deferring their promote, such that they're only gonna benefit if shareholders benefit, right? And then you look at someone like us, done this three times, we've invested in the team, we want to continue to do this, we want to build a franchise, right? And that takes relationships. And just like we talked about with public companies, it takes credibility and trust. Right, so if we do deals that aren't aligned or pushing to do questionable deals, we're gonna lose that trust. And we're gonna be out of business, right? So it's, it's a repeated interaction, where you're going to know that our interests are aligned with yours.

David Drapkin (Boardroom Alpha):

And so to that point, you're thinking about, like, making sure the sponsor, make sure you guys are investing in the pipe, you're putting up more hours capital. And so you're saying you're going to do deferment of sponsor shares based on on performance hits, essentially.

Scott Wagner (True Wind Capital):

Yeah, that's the structure of Bilander of you know, both the specs that happened done, right, the recent combinations, the, you know, the one that's in the market and open right now have all those characteristics.

David Drapkin (Boardroom Alpha):

So, you know, having recently joined what, what's what's, what are the objectives, you know, for the next call it six months here for you two?

Scott Wagner (True Wind Capital):

Yeah, well, personally, my, my interest in hook it on with the True Wind team is, yeah, I've been spending time with growth for companies advising them on ways to build their business. And that's inevitably also come up around CEOs and private investors saying how should we think about a conventional IPO versus a SPAC and personally I looked at everything around the SPAC environment, and it made me shudder a little bit. And I thought, Wait a minute, you should do this the right way. Like there are ways again, with companies have certain characteristics that you're sponsoring into the public market. And you're, you're really believing in them, right. And I have a set of companies that I think fit that bill, that it frankly, should, that I'm interested in sponsoring and so hook it on with the True Wind guys who I think are doing this the right way. Where I could sit in front of a CEO or a public investor and say, Here's why this business is great. Here's why interests are aligned and having it be true. That's the most important thing for me. So, my, over the next six months, I you know, for me, it's going and again having discussions and relationships with these couples bunnies that again, you you believe in. And can design something for a CEO that you can look at with a straight face and say, you know what our interests are totally aligned, and they're aligned with your public investors.

Tom Hegge (True Wind Capital):

I think for me, you know, we're definitely looking at the next six months for alpha within the next six years, right. And we want to be one of a handful of firms when, you know, a great company is thinking, gosh, you know, an alternative road to the public markets makes a lot of sense for me, we want to be one of those top tier sponsors, and we think we are that gets, you know, that first handful. And you know, and again, as Scott said, that comes through doing what we say we're going to do, having great alignment, building those relationships over time. And so you know, that's what we're working on.

David Drapkin (Boardroom Alpha):

Got it. Cool.

Scott Wagner (True Wind Capital):

In this in this landscape, you know, that's going to take the form of a lot of companies who are thinking about this as telling them you're not ready, and you should go raise a private round. Having had that conversation earlier this week. That, you know, is a little odd, and, you know, is the it's certainly the anti sell, but we're not selling like we're trying to actually, again, steward good companies on multiple years in the public market that we believe in.

David Drapkin (Boardroom Alpha):

Right, right. I like that. And so you're just one more on the market before you're out. So obviously, there's, you know, I don't know what the for that I'm 400 SPACs out there that are there that are pre-deal looking for targets. I think you have a few pre IPO, you have a couple of SPACs on file that have yet to price, are you going to wait a little bit for things to clear out before, you know, you rush back in? Or how do you think that the markets going to look here in the next year or so?

Tom Hegge (True Wind Capital):

You know, it's gonna be interesting to see how it develops, right? You certainly have if you just look at the supply of SPACs and the number of deals that that have to be done to satisfy the demand, I'm not sure there's an upgrade companies to fill that demand, right. So you're gonna see a culling, whether it's in the form of liquidations, or maybe sub-optimal deals, or people having to give up a lot of economics instructor just to to get a deal done. You know, we do have a vehicle out there now Bilander looking for a deal. So you know, we're open for business, looking to talk to companies and having those conversations. But I, you know, as we think about it, it's a long term game, right? So the next one doesn't have to come right on the heels of this.

David Drapkin (Boardroom Alpha):

Awesome. Love it. Well, any, any parting words, final thoughts on either True Wind, or what we're seeing in stacks, or, you know, the private company landscape?

Scott Wagner (True Wind Capital):

It's, I think, broadly, there's been this incredible volatility, and capital raising and valuations over the last 18 months, and in our lives in general, right? It's like getting whipsawed all over the place. And it, at first principles always do win out around companies, right, their evolution, their valuation, and just having those things aligned to every point in time, is what really over a longer term creates great businesses that succeed. You know, just in and of themselves, for their customers, and then certainly make a lot of money for investors, both private and public. And I think from a True Wind standpoint, you know, you're you're around a bunch of people that have been through, you know, cycles with different levels of expertise, both running companies valuating, and investing them both privately and publicly. And I think our perspective is, again, aligned with those first principles, which is, you know, we're not trying to chase or be opportunistic at any point in time, it's about finding good companies that, you know, again, are ready to be public are helping them with needs that we really believe in over time. Whether it's, you know, ends up as a late stage private round, or whether they're ready to go public. And, you know, we're sort of advocating and finding them a good set of public investors that, you know, can kind of help them succeed at that, that point.

Tom Hegge (True Wind Capital):

Yeah. And we're, we're huge believers in this back product. Obviously, we've invested in a team and invested in a brand but the market is changing every day, you know, and we want to be leaders and helping push it towards where we think it needs to be and doing it the right way. So you know, we're going to be out there and innovating the product and you know, trying to find that next great company to help steward through that process.

David Drapkin (Boardroom Alpha):

Scott and Tom, really, really fun talking to you. True Wind is doing great stuff here and It's exciting to see what what's next. So thanks again for taking the time. Really appreciate it.

Scott Wagner (True Wind Capital):

Loved it. Thanks for having us.