What Institutional Investors Actually Look For in a DESPAC Candidate — Christine McNerney

Chaz Churchwell: 0:23

What's going on, everybody? My name is Chaz. I'm fired up right now. I have Christine McNerney from Periscope Capital. So you guys, if you don't know, uh, Christine, it's because you just don't know SPACs that well. She is one of the most popular people in the SPAC ecosystem. Christine, welcome. How are you today?

Christine McNerney: 0:46

I'm good, thank you. How are you?

Chaz Churchwell: 0:48

Living the dream. Life is well. So okay, first of all, I have to give you some props and let everybody know. Um, if you've know- known Christine for a while, you probably know her as the assistant portfolio manager for Periscope. Mm-hmm. But she's big time now. She's leveled up. Christine, congratulations, you are now the portfolio manager for Periscope Capital.

Christine McNerney: 1:13

Yes, and I, I will asterisk it. I have a co-PM. We do it together, but yes, we are

Chaz Churchwell: 1:18

right now- We really know who's wearing the high heels. Come on.

Christine McNerney: 1:22

That is fair. That is fair. Yeah. I am definitely the only one in the heels on the team, so I'll take that.

Chaz Churchwell: 1:28

Right. Right on. So okay, starting off, just tell us a little bit about you and about Periscope, and what you bring to the SPAC ecosystem that a private company that's looking to do a DESPAC would be concerned with.

Christine McNerney: 1:43

Yeah. So Periscope is a Toronto-based fund. We have a multi-strat that has a big focus in SPACs, and we've been active in the SPAC market for over 10 years now. So if you have done a SPAC or if you have done a De-SPAC, you have probably come across us. Uh, I focus on the SPAC teams, the sponsor teams that are doing the IPOs, but then I also meet with everybody on the back end. So I'll meet with the target teams and when they're, you know, matched with their sponsors, and they'll come, they'll kind of present their investment to me, and we'll do, you know, some back and forth and give some feedback. And, you know, I'll probably be one of the earlier institutional investors that, uh, De-SPAC teams will meet with before they hit the public markets.

Chaz Churchwell: 2:30

That's huge. Mm-hmm. And specifically, I'm excited to hear some of that feedback that you typically find yourselves kind of- Yeah … giving. So we'll, we'll dive into that here in just a little bit. But-

Christine McNerney: 2:42

Mm… Chaz Churchwell: before we even do before we talk about feedback when they're at, at the end of the process- Mm-hmm… Chaz Churchwell: what do you think, capital, like you're literally the person who they care about so deeply. Because at the end of the transaction, it's about what is in the trust, what capital do they have to go execute their strategy and their vision that they have now that they're gonna be a public company, and that's where you come in. So in your eyes as an investor, what makes a good candidate for a SPAC transaction? You know, it's funny you say that, you know, they're using the capital to execute their strategy, because that is one of the key things that I look for, and you'd be surprised to know that that's not a given with every team. Yeah. I think for some people, doing an IPO, going public, like that's the end game. They wanna be the CEO of a public company, and it's a bit of an ego thing, and that's always a bit of a red flag for me. I wanna know, you know, what are you gonna do with this capital that you get? Is it going to be helping you execute some portion of your long-term strategic plan, whether that's, you know, product expansion or, you know, maybe it's M&A. Maybe you're expanding into a new geography. You're gonna take that capital and use it well, not just, you know, put it in your pocket and go parading around and say that, you know, "I'm the CEO of a public company." It's gotta be about more than just your ego.

Chaz Churchwell: 4:18

Okay, so I'm not gonna even lie to you. My, part of me says, "You know what? A, a CEO of a public company, they gotta have a little ego and a little bit of swagger," because, I mean, you're gonna have people trying to knock you down a peg day after day after day. So you gotta have a little confidence in yourself.

Christine McNerney: 4:35

Mm-hmm.

Chaz Churchwell: 4:36

But at the same time, um, how often do you see that to where literally that's just the end game of, we want to be public?

Christine McNerney: 4:44

I mean, I will frequently sit with a team and say,"Okay, so what do you need the capital for?" And they'll say, "Well, we don't. I don't need capital. I have all the capital I need. I'm great." I was like, "Well, then why are you doing this?" Because, you know, there's a lot of stuff that comes with being a public company. Like, it- Yeah … it's not the same as being a private company, only now you're just talking to new people. It's like there's a lot more reporting requirements and eyeballs on you. So, you know, don't do it unless you need that money and you're gonna use it for something that's gonna help benefit the investors that are giving you the money. I don't want it to sit in your bank account while you twiddle your thumbs and pat yourself on the back, you know? It's, it's, you're in the big leagues now, so.

Chaz Churchwell: 5:31

So what about the people- Why do you have to be- What about…'Cause I've seen this before We don't need the money, we just want the, we just want the marketing and the visibility and the notoriety that comes with a listing. When they say that to you, does that still… That doesn't, that doesn't cut it for the investor. So, I mean- You know that they're gonna, they're gonna take the money and run and do something great.

Christine McNerney: 5:53

I want you to do something great with the money, but I do- Mm … understand that element of being a public company. Um, you know, you need to have a plan in place for doing that, though. A lot of de-SPACs, they go public and they kinda languish a little bit, so make sure that you have a good strategy to actually be getting yourself in front of the institutional investors and telling your story over and over and over again.

Chaz Churchwell: 6:20

I, I know, I know somebody who they went public, and then the CEO went to Japan for a month to play every major golf course in Japan. He- That was their- This

Christine McNerney: 6:33

is not what I want to hear. That's not what

Chaz Churchwell: 6:34

you're jamming with. That's not what you're looking for, right?

Christine McNerney: 6:37

No.

Chaz Churchwell: 6:37

The… For some reason, that was like a thing for them. They wanted to play every golf course in Japan. I was like, "That's a first. I haven't heard that one." But okay.

Christine McNerney: 6:44

No, I'm, I'm sure it was great. I'm sure they had a lovely trip.

Chaz Churchwell: 6:48

I bet they did, and I bet that there was some business expenses happening there.

Christine McNerney: 6:53

Yeah.

Chaz Churchwell: 6:53

So okay, let's keep on this, 'cause like I wanna talk about some of the signals to where a company, maybe they're not ready to be a DESPAC target. Like, what are some of the, like the, some of the things where you're like,"Hey, no, these guys, they need to contend with this toxicity, or they still need to level up their game a little bit. They're not there. They're not ready." Like, what are some of those things?

Christine McNerney: 7:18

I mean, there have been plenty of de-SPACs where I think that the company is in very early stages. I think that you need to have some operating history behind you, not just, you know, "I have a patent for a cool product." Like, that's a little bit too early stage for me to get very excited about it. You know, I, I will say, and I've said this before, if you're feeling down about the world, you need to go look at de-SPAC target companies because so many of them are solving these amazing, like these big problems, and they're solving them in these amazing and creative ways. So you know, I think that that always hits an interesting niche where it's like, I don't know, data centers are a big issue right now, or like space debris, things that… Or- Yeah … like lots of biotech things where it's like these de-SPAC companies have interesting solutions to these problems, and they're bringing those to the market, and that gets me quite excited.

Chaz Churchwell: 8:18

I love that. Do you realize at all, like, you are my, I think you're my 43rd podcast, and out of all of that, you're the first person to speak with such, like, optimism about saying, "Look at all of these companies that are…" Because they don't fit in the typical IPO box. Mm-hmm. And they're doing these and out of the box, remarkable, creative things. And like, just saying, like, "You're having a, you're having a rainy day. Look at these guys that are doing remarkable stuff." Kudos. I love that. I love that.

Christine McNerney: 8:53

Honestly. Okay. It gets me, it gets me excited about the industry and about the world. And, you know, to the earlier point of something that's very early stage, like, I don't wanna discourage anybody that has this good idea, but you need to run with it a bit before you hit the public markets. You know, get some private financing, get a little bit of experience under your belt, then hit the public markets, and I'm sure that you'll succeed in that regard. But it, you gotta, you gotta run with it a bit on your own first.

Chaz Churchwell: 9:24

So, okay. I 100% agreed. 100%. So talk at me a little bit more. Like, what are… You said, uh, like you said that they're just not really ready 'cause they need to get some more legs under 'em. What else?

Christine McNerney: 9:38

So sometimes I'll meet with companies that are extremely experienced in the industry in which they're operating. So, you know, maybe let's go back to biotech. They're, you know, scientists and they're geniuses, but that doesn't mean that they are the right presenters for the public market. Right. So I think that you need to have a really good critical eye on your management team and say, you know, "Do we have somebody in place that can take our story and translate it to the public markets?" Yeah. Talk to the institutional investors. Bridge that gap. You need that team in place to really help transition you into the IPO route.

Chaz Churchwell: 10:20

I think that's so well said. I, uh, I, I see time and time again to where you've got the guy with so many letters after his name, the gal- Mm-hmm… with so many letters after her name, and then you look at their pitch deck, and it's literally, like, 50 pages long.

Christine McNerney: 10:38

Mm-hmm.

Chaz Churchwell: 10:38

And you're just like, "No."

Christine McNerney: 10:41

Yeah." Chaz Churchwell: No." And it's like you that long If you can't t- if you can't explain it to a child, like, you need to be able to do this concisely. Yeah. And if you can't even do that, then how in the world are you gonna lead a team, execute, inspire people, cast vision, and, like, and be able to make decisions without having paralysis of analysis and get stuff moving? Yeah. So I think that that's really critical. And so if you're listening right now and you happen to be a private company looking to go public, considering a DESPAC, if you fit into that page to where you wanna build a 50-page pa- deck for a, for a pitch deck, like, I want you to think, if you're that person, bare minimum, you need a consultant. Bare minimum. And, and if, if that isn't even enough, that consultant may actually tell you that, like, if they, if they truly respect you and wanna do their job excellent, um, don't be insulted if they tell you that you should bring in a CEO and then you sit in as chairman, something of that nature. Yeah. And you should be okay with that because if your passion is to really scale the company, don't be the thing that gets in the way of it. Yeah.

Chaz Churchwell: 11:58

So-

Christine McNerney: 11:58

I, I would also say it's something that the sponsor team should be able to help with. You know, if you are- Yeah … partnering with a sponsor team that wants to actually have you succeed, not just get a deal done, they should help you bridge the gap between where you are and what they know investors wanna see. So they should be helpful in that regard, if you've partnered with the right sponsor team

Chaz Churchwell: 12:22

I 100% agree with that. In fact, um, I know that I, I have a philosophy of I don't need to find a perfect company to do a deal with. My philosophy is find a company that's maybe a 7.5 or an 8 out of 10, but then you have a team that's able to step in there, and you, like, you pick them up at the value of a 7.8 or, like, a 7.5 or an 8. But then what you bring to it, you're able to rapidly deploy some tools that turn them into a 9, 9.5, maybe a 10, you know? And you've, like, you've got that instant valuation bump that's there to where the stock can perform better whenever it's in front of people like Periscope and you, you know? So I- so true.

Christine McNerney: 13:12

Yeah.

Chaz Churchwell: 13:12

Why- such a wise sage. That's why you got pro- the promotion. I get it. I get it.

Christine McNerney: 13:18

Yeah. So what else? And, and I re- realistically, and, like, that's what SPACs were designed to do. Like, you should be looking at it, as opposed to a more traditional way, IPO, as a way to partner with a sponsor team that's going to help bring, you know, new things to your team. So maybe they can help you suss out your management team and say, "You know, we're, we're missing X, Y, and Z." Maybe they have institutional relationships that they can introduce you to. You know, maybe they have connections in the industry in which you operate, so they can help expand. But I mean, that's why you are doing a SPAC as opposed to a more traditional IPO, so that you get the chance to partner with the right sponsor team that can really lift you up and grow your company into what it really ultimately can be.

Chaz Churchwell: 14:02

By the way, speaking of, like, speaking of lifting someone up and speaking into them, I actually want to derail the conversation for a moment, and I wanna say thank you for something.

Christine McNerney: 14:13

Okay.

Chaz Churchwell: 14:13

Uh, at, at the SPAC conference this year, you and I ended up in a conversation over by the Churchwell Insurance Agency booth. And I did not even know that apparently my face was on the screen on the main stage, 'cause there was a Jeopardy! competition that was happening- Oh, fun … on the stage. And, like, and I end up finding out that apparently I was on there valued at $100. And I was like, dang. I'm like, I was the intro guy, like, the cheap one? That, that sucks. But it was, category was bald men in SPACs. And, like, I mean, I own it. I've, whatever, you know, I'm follically challenged. It is what it is. But, but I was, I was bummed about it, and you were like, "Chaz, don't you realize that the, that the $100, that's the one that's the layup? It's the easy answer that everybody knows." Yeah. And I'm like, "Aw, thanks." You're like," Christine McNerney: Maybe- You Obviously don't think anybody's gonna know who he is, and nobody did. You were like, "You're the only one that people got." Yeah. And that was like- Oh, okay. Now I feel good. Okay. It's nice to be… It, it's nice to at least be known, so-

Christine McNerney: 15:26

Well, I'm glad to have helped.

Chaz Churchwell: 15:28

No, that was… It was an uplifting moment. I appreciate it. And, and- … and it's… And I, I say that because I want private companies to know that whenever you end up across the table from them or when you end up on a Zoom with them and that moment comes, like, you actually really are insightful. Um, there's just a lot that you, that you're gonna bring to the conversation. And I know sometimes you may end up saying things that might be some hard truths.

Christine McNerney: 15:57

Yeah.

Chaz Churchwell: 15:57

And, and so I just wanna encourage anybody, whenever they do end up across the table from you or, or on the screen with you, to, to take it with a, as a teachable moment and with a bit of humility because you're not new at this. You've been crushing it for a long time, and there's a lot of value in what you have to say. So- Yeah … wanted to throw that out there.

Christine McNerney: 16:19

I get it. Yeah. Us at Periscope, like, we really care about the SPAC ecosystem as a whole, which means that when individual teams come to me, I want to see them succeed. And, uh, you know, every setback, every de-SPAC that does poorly, it's a drag on the SPAC market as a whole. It's gonna stop really strong target companies from wanting to go public via de-SPAC. So we wanna see everybody succeed. Yeah. If I'm giving feedback, it's because I'm trying to be helpful. I never do it in a mean way, so, you know, I'm trying to help everybody get pushed forward.

Chaz Churchwell: 16:55

So here's a crazy thing because you actually talked about, like, really caring. And so I know that whenever you get involved that you have a propensity to spend a lot of time with any of those targets that you do get involved with. And so, like, I wanna know, whenever you look at a DESPAC target, what makes you say, "That's a company that we want to spend time with"?

Christine McNerney: 17:18

Yeah, and I mean, realistically, I'll come across a lot of de-SPAC companies, and as much as I'd like to, I can't spend a ton of time on all of them. Yeah. So, you know, one of the first things I look at is, like, if- Is this a compelling story? Is it solving an interesting problem? Is it something that's gonna go out into the world and get people fired up? You know, that's kind of point one. Am I excited when I hear about this? And maybe-

Chaz Churchwell: 17:45

I love getting fired up.

Christine McNerney: 17:47

Yeah. Like, and it'll be something that maybe I've never heard of before or never considered before, but I'm just like, "Oh my God, that is the coolest thing. I need to spend some time with these people." I also, when I speak to the teams, I wanna hear them tell me their story. I want to hear that they are fired up about it, that the sponsor team's fired up about it, but also that they're being realistic. Yeah. Sometimes I'll talk to a team and they'll tell me, "Okay, you know, we have these revenue projections for the next two or three years, and in order to hit them, we need perfection, perfection, perfection, perfection." And it's like, that gets me nervous. Like, that's just… We're not in a world where everything goes perfect and then you get your revenues. Like, there's gonna be some setbacks, and I need to know that you are realistically looking at things so that if these setbacks happen, you're not gonna be just completely thrown by it, and you can't handle it, and now the company goes belly up because we just couldn't manage that. So, you know, are you being realistic about what you're doing, what it's going to look like, what being public is gonna look like? And you know, overall, it's just a back and forth. You know, you tell me about your company, I'm gonna give you feedback about how I think that myself and other investors are gonna perceive it, and then you can do what you want with that information. You can use it- There is a red flag … or you can throw it away.

Chaz Churchwell: 19:09

So, like, tell me this. Like, whenever you start talking to these companies and you're trying to figure out if you want to invest with them-

Christine McNerney: 19:16

Mm-hmm … I

Chaz Churchwell: 19:16

mean, I know we kind of alluded to a couple of things earlier, but are there any things to where if a, if a leadership team is listening to this right now and they're considering doing a DESPAC, to where they would want to take an inventory of themself as you answered this a- Yeah as you answered this?

Christine McNerney: 19:33

Mm-hmm.

Chaz Churchwell: 19:33

Are there anything whenever you have that conversation with the leadership to where they'll say certain things and they're red flags for you?

Christine McNerney: 19:41

I mean, one of the red flags that I'll have is a lack of consistency. I might meet with a team three times, and then they'll tell me three different stories with three different projections. And it's like, "Ugh, guys, like, let's get this ironed down before we get out to investors." So that always makes me a little bit nervous. Um, you know, meeting with them five times and the valuation's changed five times. Like, there's frequently valuation reassessments. That's fine, but it, it probably shouldn't be a ton of times. Uh, and then also just do kind of an internal audit. Everybody, everybody talks about audited financials, which is a given. Like, you better have your audited financials. But do you also have, you know, an investor relations team? Do you have governance metrics in place? Do you have those types of things that institutional investors are gonna start looking for that a lot of private companies don't have? So start putting those plans in place, start executing on that element of your overall program before you hit the public markets.

Chaz Churchwell: 20:42

Yes. In fact, uh, like if, again, if you're a private company that's actually looking to go and, and go public, SPAC, IPO, direct listing, whatever, um, if, if you know that you don't have- Or if you're not sure if you have, um, public-ready discipline on your governance, uh, I would just recommend National Association of Corporate Directors is a really great place to start. Reach out to them, join, get into a group. Um, they have online courses you can take. They'll even do specific classes just for your squad if you wanted them to. But, uh, but you've got to, got to h- have everything dialed in on governance for your leadership. Have your board public-ready. And I… Christine, I mean, tell me this. Like, if, if I… if, if a company came to you and you asked them about governance and about their board, and they w- and they told you, "Actually, yeah, um, three of our IDs are members of the National Association of Corporate Directors, um, and they've got certifications from them on governance, et cetera, et cetera," would that be something to where you would be like, "Okay"? I mean-

Christine McNerney: 21:56

I would like that 'cause it shows that they've put thought into this. They're not just saying, "Okay, you know, we have an existing team, and we're just gonna keep them through. We don't need to add. We don't need to change." You know, I- it shows that they've taken a critical look at what they have and said, you know, "How can we fill in the gaps, and how can we present better to the public markets?" So, you know, doing things like that just really shows that they're being thoughtful about this process.

Chaz Churchwell: 22:20

Yeah. And, and I will tell you this. Whenever you're dealing with a SPAC team, if you already have that locked in with your squad, whenever you even come to the table with a SPAC team, they're gonna be like, "How you doing, man?" You know what I mean? It's gonna be like, you know, a little bit of extra. They're, they're gonna be like- Yeah … "These guys know what's up. They're disciplined." Mm-hmm."They're really ready. They want this." So I, I agree with you 100%. So, um, a- any other red flags before we jump onto the next thing I've got?'Cause you, you talked about valuation, and I wanna get to that. But if there's any other key red flags that when they do an inventory of themselves they need to be thoughtful of.

Christine McNerney: 23:01

Yeah. I mean, I think really you just need to be critically assessing what you have already done internally and make sure that you've checked the boxes so that when you come to the public markets, you don't need me to tell you what you're missing. You've already flagged it yourself.

Chaz Churchwell: 23:18

Got it. Now, let me ask you this. Whenever somebody like you comes to the table, and I'm gonna use an analogy that most of us are familiar with.

Christine McNerney: 23:24

Okay.

Chaz Churchwell: 23:26

I- if I go to buy a house, like actually if I was gonna sell my house- Mm-hmm … I already just assume that even if my house is, like, brand spanking new, the inspector that the buyer has, they're gonna find something, 'cause they just- Mm-hmm have to. Like, they're being paid to find something wrong with it. And you as a portfolio manager, you're like, I mean, maybe that's kind of like how they're gonna think of, of you is that, "Man, she's being paid to find something wrong with us," you know? Like, is, like is it that same kind of thinking that's there to where they should, to where they should say and not, not take it too hard because you're… like, that's your job is to find everything that's wrong with them? Or-

Christine McNerney: 24:10

I mean, I wouldn't say it's to find everything that's wrong with someone. It's kind of like, like approaching it from the negative. I do want to make sure that, you know, 'cause anything that I suggest or I recommend as an investment, I'm going and I'm bringing to my teammates and saying, "I wanna do this. I wanna give more money to this," which means now it's on me. So if there are things that are not great about the company, I want to address them early and I want to address them honestly. And you know, there are times where I'm looking at a company and just saying like, "This won't fit in our portfolio."

Chaz Churchwell: 24:43

Yeah." Christine McNerney: But let me help you people are gonna flag." So I mean, I wouldn't say that I'm just looking for all the things that are wrong. I'm also looking for all the things that are right. But you know, if there are glaring omissions or big things that are wrong or your projections are just crazy, then yeah, I, I will bring that up with you. I'm just, I'm envisioning you pulling out a Jerry Maguire, "Help me help you!"

Christine McNerney: 25:10

Yes.

Chaz Churchwell: 25:12

Exactly. Okay. So let's talk, let's talk valuation real fast. Mm-hmm.'Cause you mentioned- Mm-hmm … you're like, "I see valuations that'll flip like five times." Yeah. Yeah. So, okay Let's talk like how important is valuation whenever you make your- when you ink your initial deal?

Christine McNerney: 25:29

I mean, it's, it's critically important. Um, I understand that there's a fine balance for the, you know, target team between giving their company away, but also having a realistic valuation that allows for some room for growth. Right. I mean, you don't wanna be pricing at the absolute peak of your potential valuation because that's just not gonna be a well-performing stock. We wanna see some, you know, some ability to improve in the stock price performance. So, you know, that needs to be taken into account. Like, I really think that a strong SPAC sponsor team that you're working with will really help guide you in the valuation. Hopefully, they have some, you know, institutional or M&A experience, and they can help lead you towards a realistic valuation. It always helps when there's public comps, you know, so that us on the institutional side can say like, "Okay, where does this, m- you know, what can I benchmark this against?" And realistically, you need to, you know, say, "Here's the public comp," and have a little bit of a discount just so that we have that, you know, the room for improvement. It's just don't price at the absolute peak, you know? If you're, you're looking at your valuation range between, you know, X and Y, like pick something in the middle. Like, it doesn't need to be- It's

Chaz Churchwell: 26:53

so, so this is something that I was actually thinking about like probably three days ago.

Christine McNerney: 26:57

Mm-hmm.

Chaz Churchwell: 26:57

Like I, I had somebody, they were talking to me and they were like, "Oh, we, we have a fiduciary duty to our shareholders." And I'm like, "Yeah, you do, but not just in this moment." Yeah. Are you going to be a short-sighted leader, or are you going to be a v- a leader who a- actually is operating from a position of vision and where you want your shareholders to be in a year from now? Yeah. Because if you want your shares to be in the toilet end in a year from now, get primo right now.

Christine McNerney: 27:29

Mm-hmm.

Chaz Churchwell: 27:29

But if you get primo right now, your shareholders are going to be punished a year down the road, and they may turn around and try to punish you.

Christine McNerney: 27:40

I mean, really if you're trying to price at the absolute peak on your IPO, then what you're asking is for your existing shareholders to sell. And if you wanna flip everybody, I mean, that's not, it's not a great strategy. I think that it's much better to say, you know, our, our current holders, they wanna hold through. They wanna… They're looking at this in 5 years, in 10 years, and they see potential and growth and value in what's gonna happen. But I mean, if you're pricing it for absolute peak on IPO, I think that's quite shortsighted.

Chaz Churchwell: 28:11

Dude, okay. The way that you just phrased that for me, I, I … Everyone, I don't care who you are, l- like, listen to that one more time. If you're pricing at absolute peak, you're pricing for your inside shareholders to sell. Mm-hmm. You're, you're basically telling them, "Now's your moment to exit."

Christine McNerney: 28:35

Exactly. Cash out.

Chaz Churchwell: 28:36

Early. Uh, but I love that. I love that. Instead of saying, "Hey, I know that you could leave right now, but if you do, you're selling yourself short because we're about to go somewhere."

Christine McNerney: 28:47

Exactly. Wow. Exactly. You know, if you believe in your story, then you're pricing in a little bit of goodwill and you're gonna see share price expansion throughout the year, and that's what everybody really ultimately wants.

Chaz Churchwell: 29:00

I love that. Okay. So, um, let's talk real fast on … 'Cause we've, we talked about, uh, valuation from the standpoint- Mm-hmm … of, like, where you set it right up front. Um, talk to me about why it matters that it's gonna bounce around.

Christine McNerney: 29:17

I mean, realistically, uh, we see this more in de-SPACs than we do in other types of investors or investments, but there will be, you know, movement. As they speak to institutional investors and they start getting more and more feedback, and they start hearing people say, "You know, I might be involved in your pipe, but not at this valuation," like, this is your chance to start flipping your shareholder base from the SPAC shareholders to long-term institutional holders, and they're only gonna do that at what they deem is the right price, which might mean that your valuation shifts as you continue throughout the prog- the process. So, you know, this is your opportunity. You do wanna take it. You wanna start seeing people fundamentally believe your story and transition into more long-term, uh, shareholders and have that base.

Chaz Churchwell: 30:11

I love that. Okay. So real fast.

Christine McNerney: 30:14

Mm-hmm.

Chaz Churchwell: 30:15

I wanna, I wanna talk about sponsor teams. A minute ago we kinda chatted about the idea of your sponsor team should be able to add value, you know, and help you do certain things.

Christine McNerney: 30:26

Mm-hmm.

Chaz Churchwell: 30:26

Um, and choosing the sponsor team, because I, I, I feel like the average company is gonna talk to probably, like, four different teams, I feel like. Yes. You know? Like, when they talk to four different teams along the way, um- From an investor perspective, like, what should they be looking for, uh, as that, that is gonna connect back over to you as the investor- Yeah to where you can say, "I like it"?

Christine McNerney: 30:58

So, you know, when I'm speaking to sponsor teams, they tell me, "I have this experience, you know. I've been a CPG exec for 50 years, and I'm gonna go out there and find the next big product." So I never really like it when they then come back and they're like, "I found a quantum company." Like, okay, you know? Like, I was excited by the unique experience that you had that you could then bring to your target team. So I do think that targets are, you know, they should be critical in looking at what experience these sponsor teams have and how are they going to be able to benefit you. Are they getting excited by you because you're in a buzzy industry, or are they excited by you because they really can understand your story and your value? You know, are they kind of vibing with what you're bringing out there as opposed to just saying- Yeah … like,"Okay, everybody's doing that, so I wanna do it that, so let's just jump on that bandwagon." So I think that's a really important thing for target teams to be looking at. I also think that, you know, don't be swayed by somebody that comes to you and says like, "I've done 10 SPACs." Like, who cares about the SPAC IPO? Look at what happened on the back end of it. How many deals did they actually close, and how have they performed since then? Have they been able to help flip the base from the SPAC sponsor or the SPAC investors to institutional long-term holders? I think that's really critical, and it needs to be really looked at before you commit to working with a sponsor team.

Chaz Churchwell: 32:28

So it's so funny you say that. I, like, um, a lot of our listeners probably don't know, I'm, I'm actually leading a SPAC team myself. Um, and it's, it's so funny because when I was interviewing for, uh, for who we were gonna have as our CEO recently, um, I had one guy that I spoke with who basically wanted to command a monster premium for him stepping in and touting his experience and, uh, in the SPAC ecosystem and everything like that. And it was interesting because when I went and looked at the deals that he had put together, um, I, I think if I remember correctly, like, one of them liquidated and the other one was trading for, like, two bucks, and that was- Mm … after some reverse splits. Okay. And, and I was just like Yeah. No. No. You're, no. Yeah. You, you don't get to, you, you don't get to have a, a … Like, I mean, in baseball, if you're, if you're hitting 50% and, and then you still never make it back to home plate, I … It's like you're, you're winning in some regards but not really in others. But this isn't even baseball. Yeah. So

Christine McNerney: 33:45

I don't- I mean, some sponsor teams will have these kind of less successful de-SPAC stories that have happened, but they're able to, you know, really explain what happened and what their learnings were and how they can, you know, progress going forward. And, you know, I think that that's valuable e- or it can be valuable information. Yes, it can be. It can be helpful. You know, I, I'm not saying if you look at a SPAC team and they've, you know, maybe got n- an un-perfect track record to write them off. But, you know, it, it's worth incorporating into your conversation. Say, you know, "What happened here?" And, you know, do you view it as just something that was completely outside your control, or do you say like, you know, "This happened and this is what we can do going forward so that we can fix these problems in the next SPAC"? So I mean, it, it's gotta be a conversation. I, it's like a marriage, you know. Like, pick the right partner. They're not gonna be perfect. Nobody's perfect, but- Yeah … do you mesh well? Do you have the synergies that work together? Do you feel like this can be a long-term relationship for you? Because it really should be.

Chaz Churchwell: 34:49

It all starts with the teams. Yeah. Mm-hmm. It all starts with people. So what else in, as an investor, what else are you looking at in the SPAC sponsor that they, that they bring along?

Christine McNerney: 34:59

I mean, they really need to help you bridge the gap between the SPAC, the SPAC investors and the long-term investors. So they should be putting you in front of, you know, institutional investors that have the potential to be turning into PIPE investors or, you know- Yeah private placement investors. If they are not helping you get there, I think that's going to be quite tricky. Uh, hopefully they have, you know, some sort of connection that will help you get there. Um, but really, you know, it's gonna come down to do they believe in your story? Do they believe in you? Are they excited about your company specifically as opposed to just getting the SPAC deal done? Like, we all know that there's kind of an unequal payout for the SPAC sponsors. You know, they're incentivized to get a deal done. But the really good SPAC teams wanna get a good deal done, so they wanna partner with somebody that they really believe in, and y- I think that that's important that you feel that when you're talking to them.

Chaz Churchwell: 36:07

So let's, uh- Let's kind of talk real quick about … You, don't laugh. This is, like, this is one of those things where you talk about, like, really feeling it. Um- Mm … it, sometimes feelings are good and sometimes they feel like a bee sting. And, and yeah. Yeah, yeah. Uh-huh. So if you, if you don't know, Christine, if, for all of you listening, um, is actually a beekeeper as a hobby. Yeah.

Christine McNerney: 36:37

Yeah.

Chaz Churchwell: 36:38

So, um, uh, could you please unpack that for me? Yeah. Like, I'm just envisioning you with that big, like, outfit- Yeah, yeah … with, like, the big net, like- Yeah … al- almost alien looking hat on your head- Mm-hmm … and, and a big smoker gun. So that-

Christine McNerney: 36:53

100%.

Chaz Churchwell: 36:55

100%.

Christine McNerney: 36:56

That's accurate. Talk to

Chaz Churchwell: 36:56

me about how you ended up being a beekeeper.

Christine McNerney: 36:59

You know what? So, um- SPACs, financial markets, it's all very fast-paced. It's, you know, it can be intense, it can be stressful. I like my hobbies to force me to be slow. Um, if you are not slow when you are around bees, if you are being stressed and aggressive, then you get an immediate feedback of being stung. So, you know, you gotta be chill, you gotta be detail-oriented, and, you know, I don't know. I'm the kinda person that kinda dives deep into things. So I like bees. I started speaking to a couple of, you know, beekeepers at farmer's markets and stuff, and started, you know, I was mentoring with a beekeeper and just kept going, and now I have my own hive. So yeah, it's a, a more niche hobby, but I do enjoy it and, you know, bees are important to the, the world ecosystem, so- Yeah … helping out there.

Chaz Churchwell: 37:59

So okay, so do you tend to send little Christmas gifts out to people of, of honeycomb and stuff?

Christine McNerney: 38:06

So I have in the past when I was mentoring. My, my hive is very young right now and you can't- Okay actually take the honey stores yet, or else they, they will not live through the winter. And I am in Canada, our winters can be a little bit intense, so we, we gotta help them live through the year. But yes, next year everybody will be getting honey.

Chaz Churchwell: 38:25

Nice. I like it. Okay. Sorry, I, I know, I kinda like totally derailed it there, but it was like I, I had that moment and I was thinking about it. I'm like, "I gotta ask about this." So, um, by the way, so I mean, where do you keep all of these bees? Is it like at a neighbor's house that you don't like or what?

Christine McNerney: 38:47

I tell you, bees will not bother you if they are in your backyard. You can have a backyard hive and they are unlikely to bother you, so you know, let's, let's get rid of that misconception. But they are, they are… My parents have a house out in the suburbs. I live in the city of Toronto. They're out in the 'burbs, so I, I go out there and I keep them there. It can be tricky to keep bees. There's a lot of rooftop hives in the city, but keeping them down on the ground can be tough because you can't really go within six feet of the hive, and everybody's yards are very small in the city, so that kind of- Fair enough impedes it, so.

Chaz Churchwell: 39:18

I'm with you. I'm with you. Okay. So let's, let's get back into talking about this for just a few more minutes. So let me ask you this Um, obviously you don't always come in early in the process, right? Like, there's a lot of times to where you're stepping in at the DESPAC, uh, you're stepping in at, like at the b- at just ahead of the BCA announcement, things like-

Christine McNerney: 39:39

Mm-hmm

Chaz Churchwell: 39:39

so what is something that the management team could be doing during the transaction process, maybe even before they know who you are-

Christine McNerney: 39:48

Yeah… Chaz Churchwell: to where they garnering street cred, if you will- Mm-hmm … with investors and- Yeah … and kind of the maybe, like, you guys as an individual or the institutional investors m- more broadly. Yeah. I would say be trans- transparent and be consistent. I think that a big… A, a place where management teams trip themselves up is thinking that they need to present perfection to investors and gloss over areas where there might be some risk or some challenges going forward. You know, as an investor, I understand that there might be challenges or risks or things, and it's not… I'm not gonna immediately write you off because of that. I just need to know what they are so that I can incorporate them into my analysis. Mm-hmm. So the worst thing is when, you know, I'm talking to somebody and I say like,"Okay, well, what about permitting for this thing?" And they're like,"Ah, let's not talk about that. Let's, like, let's move on." And they try to, like, kind of jump away from something that I know is going to be an issue for them. So, you know, that always makes me a little bit nervous because I'm like,"Do they not recognize that it's an issue? Are they not prepared to answer this question, or do they think that we're just, like, not gonna pay attention to these things?" So, I mean, be transparent, be consistent in what you're saying. You know, approach this with integrity and honesty, and investors are gonna respond very well to that. You don't need to be perfect, but you do need to be honest.

Chaz Churchwell: 41:26

I think that's so valuable, and sadly not something common enough in capital markets is, I- is just the honesty standpoint. Like-

Christine McNerney: 41:36

Mm-hmm… Chaz Churchwell: um, it's funny, I used LA for a while, and I lived in San Diego for a while, and I realized that when I, like, when I kind of took inventory, like, people that live in San Diego don't like people that live in LA, typically. And, and, and, and it's interesting, they really don't, because they, they will tell you, and it's this idea that people that live in San Diego, they're just very chill, very laid back. Like, you'll see a guy get out of his Ferrari with a pair of jeans that he's had for 30 years- … that he actually just cut the jeans off and just turned it into a pair of shorts, you know? And he's just, like, wearing, like, a Hawaiian shirt kinda thing. Like, just super chill. You, you don't see people do that in LA, right? But, like, um, but it's this mindset of people just being comfortable with who they are and where they are. Mm-hmm. They have a vision, but, like, they're just gonna work to get there, whereas in LA, nobody tells you about who they are. They tell you about who they're gonna be. Mm.

Chaz Churchwell: 42:33

And, and so it's like they, they want to be perceived of, as what they're gonna be without really acknowledging that they're, like, that even though they might be wearing a, a Gucci T-shirt, and that's, that's $700, what you don't know is they didn't park valet. They parked around the corner in the$10 parking lot, and they're gonna go get into their 1995 Corolla, you know? Or something like that. It's, like, it, but they're trying to act baller drinking $30 drinks at the bar. Whatever. Like- … it, it's just not being honest about where they are in life to get where they need to be. Yeah. So I- Yeah … I get that 100%. And for all of you who just fit that mold of somebody in LA- I'm sorry. It gets better. Um, just know that. But okay, so let's talk about this one final thing, and then we're gonna wrap stuff. So, um, what separates DESPACs that actually get institutional base, because not all of them do-

Christine McNerney: 43:35

Mm

Chaz Churchwell: 43:36

from those that struggle after closing? And, and real quick, before you answer that, I, I feel like maybe I should kinda give some preface to, to our audience. If you're a private company looking to go public, you may not know what I mean by this. Um, redemptions right now are hovering just over 80%, I believe, um, on average. So if you have a, for a frame of reference, if you have a $200 million SPAC, then that means that you're gonna have a $160 million of that $200 million disappear out of the trust, and it's never gonna make its way to you. Then on top of that, you might have the in- the, uh… most likely you have investment bankers that have their hand out on the backside. There's fees that are gonna be out there on the backside, and it may be anywhere between another $3 to $8 million that disappears out of that. So now your $200 million is down to, like, $32 million, and you're like,"What the heck?" But, but that's where, Christine Periscope, other institutional investors come in, and they help to backstop the deal, bolster it. And what it does is it gives validity to your company by saying to the market that institutional investors like what they're seeing in this company and in this deal, so you could have comfort in putting your money into this stock as well. So with that in frame, I'm gonna state it again, Christine. What separates DESPACs that get institutional base on the backside of the deal from those that struggle after closing?

Christine McNerney: 45:11

Yeah, I mean, it's a tricky situation. Uh, I've seen what I consider to be great companies go public via SPAC and then just kind of become orphans. There's no institutional coverage, there's no float. You know, they just kind of languish, and I find that to be very unfortunate. So you really have to use that period of time between the deal announcement and when it actually, you know, the vote and it closes, to, like, really be marketing yourself to the institutional base. Like, this is your chance to get that pipe in place. If you're pitching yourself over and over to, again, to institutional investors and you're either not getting any good feedback or not getting feedback at all, I mean, I think that that's a signal and you need to reassess. And, you know, it's up to you what you do with that information, but it is a sign that, you know, people are not getting as excited about this as they need to be. The sponsor team should be really helping you with this. They should be, you know, putting you in front of people. They should be helping you, you know, present yourself in the best light. But, you know, you really need to be hustling pretty hard. And then once you go public, once you're actually out there, you need to keep that up. Like, it's not done now. You are still out there. I actually went to a pretty small conference yesterday. There was maybe 50 people there, and there was, you know, a de-SPAC CEO there presenting. And it's like, uh, he, you know, he pr- uh, went public a little while ago. The stock is doing quite well. He didn't need to be there, but he is there because he knows, you know, these types of things are worth my time. I need to put my face in front of investors over and over and over again so that they remember me, remember the story, and stay interested and stay invested. So, you know, it's- The hustle just starts at the de-SPAC. It doesn't, it doesn't end then. You need to keep going. You need to keep pushing. You need to keep getting people excited by you over and over again.

Chaz Churchwell: 47:13

Jesse Busch, I had him on here from I-Bankers Securities- Mm-hmm … um, several months ago, and he said something really, like, really good that stuck with me. He said, "If you're gonna take public money, you've gotta be public-facing." Mm-hmm. Don't think that you're gonna take public cash and then hide, and then you're not gonna end up finding yourself in a nightmare story. Yeah.

Christine McNerney: 47:32

You

Chaz Churchwell: 47:32

know? Like, it's, it, it's one of those deals to where if you want public cash, you have to stay in front of the, like, in front of the crowd.

Christine McNerney: 47:41

Yeah. Yeah. So love that. I mean, that's, it's part of the gig. And, you know, if the CEO is not able to do it, then make sure that you have somebody in your management team that is gonna be really good at that and is gonna get out there. You know, the other thing that I think that people really remember is 2020, 2021, everybody's presenting with their little hockey stick saying, like, "This is what my growth is gonna look like." They don't meet those projections. They don't meet those estimates. Confidence gets lost. So, you know, be realistic in what you're presenting to the public, to institutional investors. Like, I don't need to see exponential growth. I need to see realistic projections that make sense and that you're actually going to hit. Like, you now have accountability to your investors, so make sure that what you're putting out there is achievable

Chaz Churchwell: 48:30

And let me ask,'cause I know my philosophy on this. I have a philosophy of you need to, like, you need to be giving deliverables quarterly and, like, and to say, "Hey, over the, over the next three months, we're gonna hit this metric, this benchmark." It doesn't have to be astronomical, blow my hair off my head if I had any kind of thing. But, like, but it needs to be something showing me that you're trending towards your vision and that to where you can execute. And so, like, I feel that every three months it's, "Hey, this is where we're gonna go over the course of the next three months." Three months later, "Hey, guys. We told you three months ago we were gonna do this. We delivered. And now-" Mm-hmm "… I'm gonna let you know that in three months from now, this is what you can expect from my company." And then you come back three months later, "We delivered. Now, here's what you can expect." Mm. Like, I mean, just you talk about consistency- Yeah transparency. And then on a rare occasion, "Hey, guys. We told you three months ago that we were gonna deliver, but now this whole Iran conflict thing, because of that right there, um, supply chain, blah, blah, blah, we have a ship stuck in the Strait of Hormuz. Like, we can't get our product, so because of that, we didn't deliver. You know? Like, and so but whenever this, whenever we're able to cure this deficiency, we're working hard to find out a different place to where we, we can offload something else in a different harbor, and we're gonna get it by land if we have to. We're fighting to find a different way forward." Like, uh, do you agree with that type of mindset for them to approach? Or is there something that's more mind-blowing from you?

Christine McNerney: 50:16

No, I think that you need to be giving, you know, consistent- benchmarks and goals and targets that you will then be hitting. And, you know, that period of time where you're marketing your de-SPAC and you're meeting with the investors, that's a good time to say, like, "This is what I'm gonna look like three months out. This is what I'm gonna look like six months out. These are the things that I'm working towards. This is how I'm going to get there." And then in three months, come back and say, "This is what I've done. This is what we're doing for the next three months." You know, make sure that you're giving a steady flow of information to your investors and, you know, keeping it up, keeping, you know, a- as you mentioned, hit the targets as best you can. There's always gonna be things that are impacting that maybe are out of your control. Investors understand that, but, you know, try to, try to be realistic in what you're saying, and then, you know, you're just gonna build, you know, an atmosphere of credibility. And the more credible you are, the more investors are gonna trust you, and they're gonna wanna give you their money.

Chaz Churchwell: 51:18

True story. True story. Yeah. Okay. Anything that you have as a closing point, wise sage, axiom, golden nugget, whatever you wanna call it, um, for our listeners of these private companies looking at going public through a DESPAC?

Christine McNerney: 51:36

I think just once you're, you know, out there marketing your company, you know, to your point, you, you need to be confident. You need to have a bit of an ego, but also be receptive to the feedback. Accept that, you know, the investors want you to succeed. They want to give you money that is going to grow. So, you know, be receptive to the feedback, and then, you know, go forward with it. And I think that most of the de-SPAC targets are really interesting companies that can go far, so, you know, you've gotta take that feedback and run with it. I

Chaz Churchwell: 52:12

love it. Everybody, once again, Christine, portfolio manager, dual portfolio manager, but the only one really wearing the heels in the office. And so we've got her from Periscope Capital. And so you will likely run across her if, uh, if you hang out in this ecosystem. Make sure you say hi, give her a fair shake, and, and, uh, make sure that you take anything that she says as really good counsel, because I promise you, it is. Christine, thanks so much for being on here today. You're remarkable.

Christine McNerney: 52:48

Oh, thank you so much. This was fun.

Chaz Churchwell: 52:50

Absolutely. Hey, blessings. All the best. Everybody, this is Chaz, your host of The DESPAC Podcast. Myself and Churchwell Insurance Agency thank you for listening.