SPACs, Forward-Looking Statements, and Rule 419: Is SEC Rulemaking Needed?

Authors

Nicholas Vota

Document Type

Note

Abstract

(Excerpt)

On October 8, 2020, FirstMark Horizon Acquisition Corp. (“FirstMark” or “Company”) closed an initial public offering (“IPO”) of 41,400,000 units. Each unit was priced at $10.00 and “consist[ed] of one share of Class A common stock of the Company . . . and one-third of one redeemable warrant of the Company.” Each whole warrant provided its holder with the right to purchase “one share of Class A [c]ommon [s]tock for $11.50 per share.” FirstMark generated $414,000,000 in connection with the IPO. These funds were then placed in a trust account and maintained by a trustee.

In a filing submitted to the Securities and Exchange Commission (“SEC”), FirstMark identified itself as “a blank check company [formed] for the purpose of effecting a merger.” While not mentioning a specific company in its prospectus, the Company shared its intent on merging with a business in the technology industry. The management team of FirstMark consisted of executives from FirstMark Capital, a technology venture capital firm with $2.2 billion in capital commitments. The highly capable management team had backed entrepreneurs in investments such as Pinterest and Shopify.

Nearly a year after FirstMark’s IPO, on October 7, 2021, Starry, Inc. (“Starry”), a wireless technology developer and internet service provider, announced that it was being acquired by FirstMark, a special purpose acquisition company (“SPAC”). In connection with the transaction, Starry provided “rosy forecast[s],” as it projected “annual revenues of over $1.1 billion in 2026” compared to its annual revenue of $13 million in 2020. Moreover, the company expected to provide its services to over twenty-five million households by 2026 compared to the 4.7 million households it serviced as of its second quarter in 2021. Upon completion of the merger, Starry would be listed and traded on a national exchange.

Starry, like many other businesses, grew to such a size that it needed a new source of capital to expand its business operations. Market analysts noted that Starry had not “had the resources to scale as quickly as they would have liked” and that the SPAC deal “could be just what they need[ed].” Starry plans to use the funds from its transaction to provide services across more cities in the United States and pay off existing debt. Notably, instead of pursuing the traditional IPO route, Starry chose to enter the public markets by merging with FirstMark, a SPAC. The U.S. capital markets have seen the re-emergence of this type of transaction where private companies are taken public through acquisition by a SPAC.