Tusk Ventures Founder & CEO Bradley Tusk joins Yahoo Finance Live to discuss why the SPAC boom may bring riskier companies to market amid pandemic.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." If there is a word so far to be crowned the word of 2021, I think SPACs might be that. At this point, I'm not sure I need to tell you what it stands for, but Special Purpose Acquisition Companies have been raising a lot of money out there, taking a lot of companies public. In fact, for the month of July, we saw the number of dollars raised by SPACs alone soaring 20 times, $24.26 billion. That was more than all of the money in SPACs in 2019.

It's raising interesting questions about how that's impacting VCs out there, who normally would have all of these startups basically to their own. And a lot of questions for what it means for retail investors out there. As well as opportunities to get into some of these companies a little bit earlier are now out there. Joining us to discuss all that, with us is Bradley Tusk, Tusk Ventures founder and CEO.

Bradley, appreciate you hopping on here to chat, man. I mean, it's interesting because these are new. I mean, not a lot of people had really even heard of facts before, I guess, halfway through 2020 when they started to take off. But talk to me about how it changes the way investors should be looking at some of these companies looking to go public.

BRADLEY TUSK: Yeah, I mean, I think if you're a VC, you know, like anything, they are kind of pros and cons to the SPAC boom, right. So a con could be that you might have now more competition in terms of who wants to invest in different startups. That's probably especially good for growth equity venture capital investors, more so than early stage. But at the same time, I think that I've had this conversation with my team, and I bet every other VC has too, which is, by definition, when you're a venture capitalist, you know, 40% of your stuff is going to go to zero or pretty close to it. And you just accept that as a cost of doing business.

And now, all of a sudden, you're like, look, there's so many SPACs chasing so few companies. Maybe, all of a sudden, these things that we just kind of assumed were going to go to zero now have a second life for them as a SPAC target. And so it also may be a way to get liquidity on things that you had already in your mind written off.

AKIKO FUJITA: Bradley, I thought you had some interesting comments recently when you were talking about the competition that you referred to in this space. Give me a sense of how competitive it is behind the scenes. To your point, there are so many SPACs who are really targeting specific companies. And oftentimes these companies have their pick in terms of how they want to come to the market.

BRADLEY TUSK: For sure. I mean, you hear all the time now when you talk to different startups not just that they've heard from one SPAC, but they've heard from three or four or five. And it actually gets to I think kind of a key point of all of this, which is if you raise a SPAC and you then have real strategic value to the company that you want to do the acquisition or merger with, then it makes a lot of sense, right.

If you can give them something that they need-- access to a new market, new types of expertise, new types of products, whatever it is, then, all of a sudden, you know, you're an attractive partner for them. If all you have to throw at them is money-- and there's all these SPACs now that are raised because someone else raised one, so people just kept doing it-- and you have nothing to offer other than that your money is green, I think you're either going to not get something or you're going to overpay. And in either situation, you risk the SPAC not being approved and losing the money you put in.

ZACK GUZMAN: Yeah, when we talk about risks, it's interesting because a lot of people would point at this being a risk by itself, of all this money pouring into SPACs right now. And they can look at it, and they look at the graph, and they say, generally, that trend would point out or stand out to us as maybe alarming. And then other people might point out that it's an easier route to trade publicly, might not have to go through the same process to check all the facts and figures. How alarming is it actually though when you step back, maybe retail investors now having access to this, that might not be as nuanced in that relative to normal VCs?

BRADLEY TUSK: Yeah, I mean, look, overall, I think it's not super alarming to me. Here are the two kind of risks out there. Risk number one is SPACs are raised and then they can't find the right company to combine with. Or the valuation they have to provide in order to do the deal is so high that the original SPAC investors reject it. In that case, the people who ran the SPAC will lose the money they put into the deal.

But the retail investors and everyone else gets their money back. That's part of the attractiveness to SPACs in the first place. So there's risk. But it's really mainly the sophisticated parties who should be knowing what they're getting into.

The second area would be you're just going to see a lot more companies now become public companies. And there's at least a concern that some of those are brought to market prematurely. Or the standards for which it takes to become a public company will go down.

And as a result, people who then invest in that company may long-term lose money, simply because it's not as vetted or as strong as other things that are out there. So, look, that's certainly a risk. But with that said, if you're going to invest in any sort of public equity, you're holding that risk, and you've got to do your homework, and your diligence. And you better have a good reason for anything you do.

AKIKO FUJITA: How do you think this shifts the game for VCs then? I mean, you understand both sides of the coin, as somebody who invests on the private side, but also helps companies go public. I imagine you've got a lot of portfolio companies who are looking at just the boom saying, well, maybe we can think about our exit. We can think about going public five years sooner than we thought we could.

BRADLEY TUSK: Yeah, well, look, it's two things. Some of them companies say that we can go public sooner. Or hey, here's a solution because we're not getting the interest we need from VCs in later funding rounds. Or the other thing is, you know-- and I'm sure every VC has sort of a similar story of, how do you politely email, text, call up your portfolio companies and be like, have you ever considered a SPAC? Because when you're saying that in a way, you're probably saying, you know, we're not super confident in your ability otherwise to take this all the way through.

This seems to be the easier path. Why don't you pursue that? So I think you've got to approach it in the right way. But there are definitely founders getting calls like that from their current investors. And there are also founders who are saying, you know, I can get liquidity and move my timeline up by two years, five years, whatever it is, and it makes sense for them.

ZACK GUZMAN: Yeah, I'm sure some very awkward conversations might be happening here as we see maybe companies going this route.

BRADLEY TUSK: Sure.

ZACK GUZMAN: But always interesting to get your take. Bradley Tusk, Tusk Ventures founder and CEO, thanks again for joining us on that.