SPACs are on the rise, and they have developed an interest in “hype” sectors: cannabis, space travel, electric cars, and sports gambling.
Some hyped-up companies demonstrate a potential for growth, but remain unprofitable, whereas other hyped-up companies belong to industries that investors generally avoid, like gambling.
But hype is actually a powerful creative force in the longer arc of tech innovation, says one VC, and funding hyped-up ideas can draw in fresh talent and lead to further innovation.
Elon Musk launched Tesla in 2003 in response to the failure of General Motor’s hyped-up electric cars, which were all recalled from the streets earlier that year.
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What do cannabis, space travel, electric cars, and sports gambling all have in common?
For one thing, startups in these industries have grabbed the attention of SPACs.
But more importantly, these adventurous fields have also generated what some investors call hype, says VC Duncan Davidson.
That hype factor hasn’t deterred SPACs, the so-called blank check companies that give startups a quick route to the public markets by acquiring them.
But for many reasons, more conventional investors are hesitant to back hyped-up companies like Virgin Galactic and Nikola: While both demonstrate a serious potential for growth, they remain unprofitable. It might be a while before Virgin Galactic actually makes money by sending eager travelers into space.
Given that industries like space tourism have never proven to be profitable, it’s easy to see why hyped-up companies get a bad reputation, in and out of Silicon Valley.
But hype is actually a powerful creative force in the longer arc of tech innovation, Davidson said. The seasoned VC said that SPACs can take a chance on far-out tech prospects and put new ideas on the tech industry’s radar.
Even if overstated, the …read more
Source:: Business Insider