Chamath Palihapitiya, the former Facebook executive, had an extremely awkward exchange with Andrew Sorkin on CNBC this week, over how much he was making in fees through his SPAC / Opendoor deal (“$70m in fees”).
When sponsors first launch a Spac, they will pay a nominal price for what is known as “founder stock”. If the Spac executives don’t find a target, they won’t get proceeds from the liquidation of the Spac — unlike investors who buy shares on the public market — so it acts as a reward (often, a generous one) for putting money at risk. On the other hand, if a deal is done, the founders receive shares equivalent to 20 per cent of the Spac’s proceeds for putting the deal together. It can therefore be a huge windfall for relatively little capital.