Thread by @nsheth12

Yesterday, I bought $DGNS (Dragoneer’s 2nd SPAC) and $AGCB (Altimeter’s 2nd SPAC) at $10.65. Seemed pretty asymmetric at that price. 👇

Max downside is $0.65 per share (assuming you hold until deal announcement/SPAC expiry).

Upside is essentially a call option on tech froth or a good deal announcement.

On tech froth, Altimeter/Dragoneer SPACs have traded at $15+ pre-deal. That’s pure speculation, but if that happens again, the upside on the SPAC is almost 7x the downside.

The good deal announcement case is also pretty simple. Most tech IPOs in this market have been underpriced out of the gate. If these guys do a deal that is similarly underpriced, there is potential for it to rip to $15+ as well.

Even the deal is not underpriced, if it’s retail-friendly, retail could push the price way up. Many examples of this over the past year (Chamath’s SPACs, TRNE, etc.). Again, upside far greater than downside.

Quality of sponsors is pretty important here. Altimeter/Dragoneer brand names were the only reason their SPACs traded $15+ pre-deal, and brand name is theoretically what allows them to bring legit, quality companies public. I wouldn’t trust a less reputed sponsor to do that.

SPACs are also a bit of a "wild west" vs. traditional IPOs (way less regulated), making trust in sponsors even more important. Going w/ trustworthy sponsors is how you avoid a Clover Health type situation.

To be clear, this was a trade, not an investment, but I thought it was an asymmetric way to deploy excess cash that I won’t need for a few years.

At the current price, risk-reward is less clear. As always, do your own work and this is not investment advice.

You should also be aware that redemption for $10/share is only guaranteed if you wait until deal announcement/expiry. SPACs can trade below $10 in the interim, so if you need the money pre-expiry, you might take more than a 6% loss.

Any other SPACs run by ultra-high-quality sponsors that are trading below, at, or slightly above NAV? Closer to expiry, the better.