Month: May 2021

The Great SPAC Deluge

By: Jacob Jeifa

What do Bill Ackman, Serena Williams, and Paul Ryan have in common? Would it help if I added in Shaq, Ciara, and former astronaut Scott Kelly? No? Here’s the answer: each is a founder of a special purpose acquisition company, or SPAC.

A SPAC is a shell company that lists on a public stock exchange with the stated purpose of acquiring a private company, thus allowing them to go public without going through the traditional Initial Public Offering (IPO) process.

Recognizable companies like DraftKings, Virgin Galactic, and OpenDoor have embraced SPACs to access public markets. In fact, few trends in the financial markets have been more pronounced than the recent “SPAC boom.” As of mid-March 2021, 296 SPACs have raised $96.4 billion in the US, overtaking last year’s records of 248 SPACs raising $83.4 billion. For comparison, the seven years preceding 2020 saw all of 194 SPACs raise $45 billion.

For much of their decades-long history, SPACs were the exclusive province of financiers, lawyers, and academics. But a combination of political, social, and technological developments has made them more attractive to investors and entrepreneurs. Adding more fuel to their resurgence are the unprecedented levels of capital pursuing private companies and mounting frustrations with the traditional IPO.

How do SPACs work?

We can break this entire process down into three broad phases: (1) SPAC formation, (2) Target company search, and (3) de-SPACing. First, a “Sponsor” raises capital by taking an empty holding company (the SPAC) public through an IPO. The Sponsor is an individual or team that raises funds by trading on little more than its reputation and generalized plans.

Armed with money and SPAC stock, the Sponsor then searches for a real, “target” company to buy. But the clock is ticking. Not only are the gross proceeds from the IPO locked up “in trust” until the Sponsor identifies a target company, but they only have 18-24 months to consummate a merger or else the SPAC dissolves and returns the proceeds.

Finally, de-SPACing refers to the SPAC merging with the target company. This last leg comes when the Sponsor identifies a target company and negotiates an acquisition. Once completed, they present the deal to the SPAC’s shareholders for a vote. While rejection is possible, the shareholders have a powerful incentive to approve, regardless of their feelings on the combination itself. That’s because they can always redeem their shares for their pro-rata amount of the funds held in trust. Upon the deal’s approval, the de-SPACing occurs, whereby the target company merges into the SPAC and becomes public.

How do SPACs differ from traditional IPO?

Until 2020, traditional IPO’s enjoyed an uninterrupted run as the go-to route to the public markets. But recently, SPACs have been outpacing them at a rate of 4:1. Whether SPACs will persist as an alternative remains to be seen, but their recent proliferation has highlighted some key distinctions between the two models. Below are some of the most salient.

Speed

There is little comparison between the two where it comes to the time to go public. For a traditional IPO, the entire process–from pre-planning to public trading–can take about two years. Of this, they can expect to dedicate six to eight months to SEC engagement alone. A SPAC can get SEC approval and start listing in as little as two months. De-SPACing, which is the only part of the process that involves the private company, can take about five months.

Regulatory scrutiny

Before they allow a company to access public markets, regulators seek to ensure that all information needed to make an informed investment decision is available. For traditional IPOs, transparency is the name of the game.  Through this process, the SEC endeavors to ensure that the wannabe public company is disclosing all material information so that potential investors can decide whether or not to buy into it. The back and forth over revisions to the company’s initial registration form, the Form S-1—which details its business operations, financial condition, and use of proceeds, and alone can take as much as five months — takes time .

To the entrepreneur who sees this as more an exercise in tedium than one of earnest due diligence, the SPAC offers an abbreviated regulatory approval process. Being little more than an empty shell company at its outset, the SEC demands a much less detailed S-1. On the de-SPACing end, the SEC treats the combination more like a merger than an IPO. This substitutes certain audited disclosures for the time consuming back and forth discussed above.

Investor scrutiny

As the IPO approaches, the company’s attention shifts to courting investors. Through the “IPO roadshow,” the company pitches to the most desirable, well-resourced investors, and supplies them with the information they need in order to feel comfortable subscribing. While many view the roadshow as the regulatory component’s fun counterpart, motivated investors take this opportunity to dig in and offer candid, if not merciless, observations that directly influence the amount of money the company will ultimately be able to raise.

SPACs open at a uniform share price that seldom fluctuates before they announce a merger. Since you’re investing in a shell company with no operations to speak of, it wouldn’t make sense to wrangle over a share price. Instead, most SPACs open at $10/share, with each investor granted a proportional share of warrants. These warrants allow investors to buy additional shares of stock at a (hopefully favorable) price if certain future milestones occur. There is also a role reversal when it comes time to de-SPAC. The private company becomes the beneficiary of the SPAC’s self-imposed spending deadline, which gives them leverage to negotiate favorable terms.

Conclusion

The difference between the traditional IPO and SPAC lies in the journey and not the destination. However, regardless of where you choose to put your money, you would be wise to listen to the SEC when they say,

“It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.”

This post has been reproduced with the author’s permission. It was originally authored on March 29, 2021, and can be found here.

Jacob Jeifa, at the time of this post, is a rising third-year law student at Penn State Dickinson Law. He is a graduate of the University of Delaware and is interested in corporate law. Prior to law school, Jacob ran a property management company and was a research assistant with the Weinberg Center for Corporate Governance.

 

 

Sources

https://www.wsj.com/articles/the-spac-boom-visualized-in-one-chart-11612962000?mod=searchresults_pos9&page=1

https://www.ft.com/content/caa33f44-fd08-4049-a20e-3c3fde778b50

https://corpgov.law.harvard.edu/2021/02/07/sec-issues-guidance-in-light-of-ongoing-surge-in-spac-ipos/

https://www.mergersandinquisitions.com/great-spac-scam/

https://www.wsj.com/articles/the-celebrities-from-serena-williams-to-a-rod-fueling-the-spac-boom-11615973578?page=1

https://www.sec.gov/oiea/investor-alerts-and-bulletins/celebrity-involvement-spacs-investor-alert

https://www.ft.com/content/2d5775f0-d3e8-4da2-95d2-0021a8cf863a

https://www.ft.com/content/321400c1-9c4d-40ac-b464-3a64c1c4ca80

https://www.sec.gov/oiea/investor-alerts-and-bulletins/what-you-need-know-about-spacs-investor-bulletin

https://www.mofo.com/resources/insights/210203-spac-101-selected-q-and-a.html

https://www.sec.gov/oiea/investor-alerts-and-bulletins/celebrity-involvement-spacs-investor-alert

Influencing Your Business: Utilizing Affiliate Marketing

By: Aaron Holland

Social media, email, online shopping, Do-It-Yourself (or DIY) videos, and direct-to-consumer subscriptions are exceedingly changing the way people do just about everything. The vast majority of people are on their computer or smartphone throughout the day for one reason or another, and businesses are utilizing this access to potential customers in every way: ads on social networking sites, content on popular video sites, business websites, and the increasingly popular affiliate marketing campaigns. Entrepreneurs should be aware of what affiliate marketing is, the different forms this type of promotion can take, the pros and cons of affiliate marketing, and the legal considerations that come with affiliates.

Links or Coupons: What is Affiliate Marketing?

Affiliate marketing, sometimes labeled as affiliate partnerships, is a model of advertising that allows brands/businesses to partner with individuals or companies that can easily promote to wanted consumers. While somewhat interchangeable, the associated individuals or companies can be known as endorsers, influencers, publishers, or simply affiliates. These affiliates typically earn a commission based on sales of a product or service that they are endorsing through various channels.

Channeling Your Inner Market

Affiliate marketing can find its form through different channels using different types of endorsers. Social media influencers usually utilize a product or service, post about its use, and contain a unique coupon code in their post to be used when purchasing said product or service. Every time that unique coupon code is used by a consumer, (which is beneficial to the customer) the influencer gets a percentage of the profit for that sale.

Website backlinks are a popular type of affiliate marketing that is usually a win-win for all involved. Similar to the coupon code structure, popular websites, social media influencers, or online videos can include a hyperlink that directs a consumer to a specific product or service. The link is tracked, and if a purchase is made (or sometimes even just when the link is clicked), the affiliate receives a commission. It is beneficial to all companies because the publisher receives a commission, and the business receives visitor traffic.

Is Affiliate Marketing for your Business?

There are many benefits to affiliate marketing. However, because no marketing solution is perfect, there are a few flaws and drawbacks to it.

The major benefit of this type of marketing is the cost to begin or even maintain. Typically, affiliates are paid on a commission basis. Other than some free products or services that are given to influencers or bloggers to review, there is no upfront cost to acquiring affiliates. This type of marketing is sometimes referred to as revenue-sharing since the promoters only receive a payment if your business gains revenue from their link or coupon code.

A significant drawback to affiliate marketing is the sometimes difficult task of setting up the infrastructure to track the number of consumers that affiliates bring to your business. While coupon codes can usually be measured, backlinks are generally more difficult to maneuver, since the data must be tracked, and internet privacy issues can become apparent. However, there are affiliate networks that can do the legwork for you for a fee. 

Affiliating Your Business With The Law

Many of the legal considerations that come with affiliate marketing stem from internet privacy concerns that are rampant throughout the internet-based world that we live in today. Being acquainted with the major players (legislation) that impact internet privacy can help your business avoid pitfalls when utilizing affiliates for promotions.

Legislating Privacy for Consumers

A robust Privacy Policy that explicitly states data collection and usage policies is a necessity for any business website. Three major regulations that involve the protection of consumers’ personal data online are the California Online Privacy Protection Act (CalOPPA) of California, the Personal Information Protection and Electronic Devices Act (PIPEDA) of Canada, and the General Data Protection Regulation (GDPR) of the European Union. CalOPPA requires any company whose website collects personally identifiable information to feature a conspicuous privacy policy, specifying the exact information collected. Canada’s PIPEDA requires companies to obtain an individual’s consent when they collect, store, use, or disclose personal information. Think of the “Cookies Disclaimers” that litter the websites you visit nowadays. The EU’s GDPR generally relates to the technical and organizational measures that enterprises must adhere to for protecting personal information.

These laws and others like it also require companies to disclose the use of affiliates. These disclaimers should be found in your website’s privacy policy and each affiliate should have a disclaimer to post as well. Some examples can be found here.

 Mind Your (Affiliating) Business

The United States’ Federal Trade Commission (FTC) regulates the compliance of data collection, privacy policies, and advertisements for businesses. According to the FTC, it is the responsibility of the business to make sure that they and all of their affiliates are in compliance with applicable regulations. This means that your business needs to make a reasonable effort to monitor everything that your affiliates say and do online with regards to your business or products.

Final Impressions for Influencing Growth 

  • Growing form of marketing due to an increase in social media and online shopping
  • Usually cost-effective, especially when starting out
  • Utilize the channels and affiliates that best suit your business
  • Provide robust privacy policies that include an affiliate disclaimer
  • Receive legal assistance for explanations of legislation or privacy statements

Aaron Holland, at the time of this post, is a rising 3L at Penn State Dickinson Law. He currently serves as Event Coordinator for the Federalist Society and is interested in entrepreneurship law and litigation. Aaron is a devoted husband, father of a two-year-old daughter, and a United States Marine.

 

Sources:

https://www.forbes.com/sites/stephanieburns/2020/09/01/affiliate-partnerships-why-you-should-consider-them-and-how-to-get-started/?sh=3ebde29f78c1

https://www.privacypolicies.com/blog/affiliate-marketing-legal-considerations/#What_Is_Affiliate_Marketing

https://www.accelerationpartners.com/resources/guides/affiliate-marketing-101/

https://marketingland.com/compliance-affiliate-marketing-industry-211439

https://www.ecommerce-nation.com/5-examples-affiliate-marketing/#:~:text=eBay%2C%20The%20Home%20Depot%2C%20Amazon,financially%20beneficial%20to%20the%20company.

https://www.businessofapps.com/affiliate/networks/

https://www.privacypolicies.com/blog/caloppa/

https://www.privacypolicies.com/blog/pipeda/

https://www.privacypolicies.com/blog/gdpr/

https://www.ftc.gov/

Photo Sources:

https://allaround.digital/blog/what-is-affiliate-marketing/

https://www.privacypolicies.com/blog/affiliate-marketer-privacy-policy/

Customers with Disabilities and You

By: Bryan Gogg

Today I will address how to best accommodate customers with different types of disabilities.  I will be taking into consideration areas in which there is clear guidance from the government, as well as areas in which there is only guidance from individuals with disabilities themselves.

The Law and You

Most likely your small business has to be Americans with Disabilities Act (ADA) compliant with Title III, which covers who you serve, and possibly with Title I, which covers who you hire (which I do not plan to go into detail about here).  Title III covers, “any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.”  This language has been read to cover everything except some private clubs and religious institutions.

However, even if you don’t have to comply with the ADA, you should still want to.  There are millions of people in America, and a good percentage of people in your area, with disabilities.  These people with disabilities go shopping just like everyone else.  Thus, by making your place of business and your business website accessible, you will be increasing your customer pool a great deal.

The Place of Business

ADA guidelines, last released in 2010, cover several ways to easily make your business more disability-friendly.  These primarily address physical disabilities, deafness, and blindness.  These don’t include some other disabilities such as autism, but I will speak more about that later.

One of the simplest things to do is to go around your place of business and imagine what it would be like for someone in a wheelchair to get around your business.  Are all the aisles wide enough?  Is there enough room to turn the corners?  Can they reach everything they might want to buy?  Is there a way for them to easily check out?  If you have a bathroom, can they get into and out of it easily?  If not, think of ways to make your place more accessible.

Other issues to consider have to do with other disabilities.  Is there a way for people with certain disabilities to speak to you, such as with a pencil and paper or with communication devices?  Does your business accommodate service dogs?  Do you have enough handicapped-accessible parking spots (generally the rule is one accessible parking spot for every 25 total parking spots)?  These are the sorts of questions you should ask when trying to make your place of business ADA compliant.  More suggestions can be found here.

Website and ADA

When it comes to business websites, the law is messy, to say the least.  Some courts have said that a website needs to be attached to an actual business, some courts have said all websites count, some courts have yet to rule on this, and of course, the Supreme Court has yet to address it at all.  While the government did release some guidelines, these are only guidelines state and local governments must follow, and they are more than a decade old, so not that useful to a business owner like yourself.

Instead, what has generally become the accepted standard for private businesses is the Web Content Accessibility Guidelines (WCAG).  These guidelines were created by a private consortium but have generally been recommended by courts in settlements about websites, and therefore are likely what you should follow when developing your own website.

There are some simple things you can do to make sure you are meeting these guidelines.  For one, if you have pictures on your website, make sure to describe what the picture is conveying in the text below (text to speech software used by those with visual problems can translate the text but not the picture).  Another example is not having audio play for too long as it can interfere with other software.  More suggestions can be found here.

What ADA Does Not Address

One thing that ADA guidelines fail to cover (which I hope it will cover soon), that I feel is important to cover here, is accommodating people with autism and other sensory disabilities.  Autism affects millions of children and adults here in America today.  Those are millions of potential customers that all need things too.  Autistic people need stores to be mindful of  sensory issues.  Loud sounds, smells, crowds, etc., will all make autistic people not want to visit your store.

For some stores, that might be hard to manage.  If for example, you run a store that sells coffee, you might have a hard time running a store that does not lead to sensory overload.  However, many stores can manage these issues by just having less clutter, sensory hours (one hour a week where you limit customers), not having lights so bright, less overloading websites, and other small things.  Look at your business and see if there is anything you can do to help.  In addition to that, if there is no way to avoid sensory overload in your store, having a way for people to not have to enter your store such as curbside shopping, might be a good idea.

Below is a good example of what becoming overstimulated is often like, while this involves a child, adults can and often do experience much of the same thing (even if they have developed coping strategies over the years):

This post has been reproduced with the author’s permission. It was originally authored on March 29, 2021, and can be found here.

 

Sources:

https://www.ada.gov/smbusgd.pdf

The Muddy Waters of ADA Website Compliance May Become Less Murky in 2019

Photo Sources:

https://www.ada.gov/business/retail_access.htm

https://www.aruma.com.au/about-us/blog/6-facts-about-sensory-hypersensitivity

Video Sources: 

https://www.youtube.com/watch?v=aPknwW8mPAM

Angela Merendino | Entrepreneur of the Month | May 2021

By: Mari Boyle

“Connect to your Foundation” is the mantra of Angela Merendino’s yoga studio, Red Brick Yoga, LLC. This mantra guided Angela, or as her friends call her “Ange,” as she created Red Brick. Navigating a difficult time in her own life, Ange had a simple yet profound goal – to help others. She wanted to create a safe haven where people could come together, escape the stressors of daily life, and heal mentally and physically through yoga practice. Ange’s innovative yoga studio quickly gained popularity and developed a loyal, close-knit community, winning the 2020 Best of the Best Award for Best Yoga Studio in Westmoreland County, Pennsylvania. Amidst COVID-19’s impact, Ange was able to successfully transition her company during the pandemic. Despite being forced to practice yoga remotely, Ange’s animated personality and unrivaled determination maintained the Red Brick community’s connectedness, allowing her company to evolve and thrive.

Ange’s Journey to Red Brick Yoga

Two things are indisputable about Ange: her independence and her natural ability to teach. The combination of the two make for a terrific entrepreneur. While Ange always knew she wanted to start her own company, she never could have guessed as a graphic design major at Seton Hill University, that her company would be a yoga studio.

Red Brick Yoga was not Ange’s first business. Prior to Red Brick, Ange worked as a graphic designer for Kennametal, an industrial materials supplier. After working for Kennametal for roughly fifteen years, Ange began her own freelance graphic design business. However, a tumultuous 2008 forced her company to hit the backburner. Following the fiscal crises of 2008, Ange lost a significant amount of business. In addition, Ange was raising her son while also caring for her mother whose illness was taking its toll.

During this difficult time, it was Ange’s yoga practice that helped her stay strong for those she was caring for. She frequently practiced yoga with a close friend and eventually completed her yoga teacher training. Ange and her friend hoped to someday own their own yoga studio which they would lead together. Unfortunately, within the same year, Ange lost her mother and her close friend. It was then that Ange decided she would open her own yoga studio, and thus, Red Brick Yoga was born.

An Undeniable Entrepreneurial Spirit

Ange has an undeniable entrepreneurial spirit. She is a self-starter, refuses to quit or give up, and has a creative and innovative vision. When Ange created Red Brick Yoga, she didn’t just create another yoga studio. She invested in infra-red lights for her studios to add additional health benefits for yoga practice. She created unique programs like “Red Brick Rocks” featuring good music, beer, and a chance for people to interact after class. She partnered with other local businesses to provide events outside of her own yoga studio. This commitment to community is evident in Red Brick’s loyal, close-knit clientele.

Connecting to Your Foundation…Remotely

COVID-19 forced businesses across industries to reassess how they operate. Red Brick Yoga was no exception. But, navigating this period of uncertainty, Ange saw a unique opportunity for her business. For some time prior to the pandemic, Ange wanted to establish a greater online presence for Red Brick Yoga. When COVID-19 restrictions made in-person yoga classes impossible, Ange immediately began exploring a new path – virtual yoga. Despite being remote, Ange found a way to stay true to Red Brick Yoga’s mantra of connectedness. Ange kept the Red Brick Yoga community connected through social media, videos, and other methods of communication. She started teaching her classes via Zoom, allowing those in her classes to practice yoga from the comfort of their own home. Recently, she began an on-demand yoga series full of pre-recorded yoga classes that can be taken at any time. She has also implemented outdoor yoga retreats allowing participants to have a deeper experience in their yoga practice.

Ange also maintained her genuine commitment to her community by collaborating with other local businesses to support one another during this turbulent time. It is a testament to Ange and the company she created, Red Brick Yoga, that her community is able to remain so well-connected despite being unable to practice in a studio together.

Ange’s Keys to Success

“Do what you say you are going to do and do it well” is one of Ange’s entrepreneurial mottos.

Ange’s success is in large part due to her commitment to hard work, consistency, and going the extra mile. When you start a business, you are never “off the clock.” You are always thinking about your business and your work hours feel endless. Thus, being an entrepreneur requires fortitude, dedication, persistence, and a lot of sweat equity.

Her advice to aspiring entrepreneurs is to not start a business solely based on passion. While passion is integral, owning a business requires wearing many different hats. Some days you are going to love the hat you wear and other days you will hate it. Ange is not afraid to admit that there were some tough days where she didn’t want to be a business owner. But to be a successful entrepreneur, “you have got to stick with it.” What keeps Ange going is remembering the difference she can make in other people’s lives and in her community. Speaking from personal experience, Ange warns aspiring entrepreneurs to not think you can do it completely on your own. As someone who is inherently independent, Ange wanted to build her business herself. However, talking with friends, other small business owners, and members of the community can be a great way to build a strong foundation for your business.

“Listen to their advice but still have your own vision” Ange advises. “Oh – and get a good accountant, banker, and lawyer!”

Mari Boyle, at the time of this post, is a third-year law student at Penn State Dickinson Law. She is interested in corporate and business litigation and will graduate with a certificate in Entrepreneurship Law.  Mari serves as president of the Business Law Society, Senior Editor to the Dickinson Law Review, and is a member of the Moot Court Appellate Advocacy team. Upon graduation, Mari will begin her legal career as a judicial law clerk at the Delaware Superior Court.