Crypto SPAC Launch Looks To Heat Up Blockchain Acquisitions
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Crypto SPAC Launch Looks To Heat Up Blockchain Acquisitions

The success of the first crypto SPACs will set the tone for this investment model moving forward.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

For institutional investors awaiting spot-traded Bitcoin ETFs, crypto-focused SPACs could present another opportunity. Filed on November 12 with the Securities and Exchange Commission (SEC), a $201 million fund has been announced by a newly formed group called Crypto 1, which will soon begin approaching crypto firms with investment proposals.

Crypto SPAC Set for $201 Million Funding

Venture Capitalist (VC) funds are dominating the blockchain scene, with the industry being seen as ripe for investment. SPACs (special purpose acquisition companies), or blank-check companies, have grown in popularity in recent years. A SPAC is a shell company created by notable investors to raise funds, which are then used to acquire another company.

With a maximum investment ceiling of $230 million, the Crypto 1 SPAC consists of 23 million units, each priced at $10. It holds 23,000,000 Class A ordinary shares, with 17,250,000 redeemable warrants. The latter allows investors to buy stock shares at a fixed price in the future. Because of this, stock warrants provide an extra incentive to take part in the shell company.

The entity that filed the S-1 form is called Crypto 1 Acquisition Corp — a blank-check company recently formed within the Cayman Islands’ legal framework.

Crypto 1 will have its pick in approaching crypto firms that have not gone public to raise funds. Previous examples of crypto SPAC mergers include eToro’s $10 billion SPAC merger that took place in March this year. Crypto 1 was founded by Dr. Najam Kidwai, with a set goal of $201 million to acquire a crypto target.

“The net proceeds of this offering and certain proceeds from the sale of the private placement warrants, in the amount of $201,000,000, will be held in an interest-bearing trust account.”

Who Is Dr. Najam Kidwai?

Dr. Najam Kidwai is a known FinTech/blockchain investor and is currently a committee member of Frontier Ventures — a VC fund that also works in the sector. The fund has invested in over 50 tech startups, totaling $4 billion of injected capital.

Likewise, Dr. Kidwai has served as either advisor or a board member at Fusion Foundation, Boxed, ForgeGlobal, Fusion.Org, Neurable, Alpha Square Group, G3NiU7, Hello Genius, and Asia Innovations. His highly-sought expertise comes from his Bachelor of Science (BSc) degree in Technology Management, Honorary Doctorate in Business Administration from the University of Lincoln, and a Masters in Business Innovation.

So far, Dr. Kidwai has founded two IPOs (Initial Public Offerings) successfully, so it will be interesting to see how he brings this experience to Crypto 1.

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How Does a Crypto SPAC Work?

A SPAC is a shell company created by notable investors to raise funds via an IPO that are then reinvested into other companies.

For 2021, average SPAC IPO size is $273 million, an 18% decrease from the year prior at $336.1 million. (image credit: SpacInsider.com)

In other words, a SPAC is not strictly a company; it does not have products or services to sell. Instead, it is a financial vehicle to collect IPO funds to invest in other companies. This has led to controversy, as the main beneficiaries of SPACs are professional, institutional investors, and not retail investors who may already hold stock before a merger takes place.

(image credit: SpacInsider.com)

A Stanford study from October 2020, showed that retail investors end up with a median amount of $6.67 per share after SPAC merges with the target. In pre-IPO deals, they have no way of knowing the SPAC’s acquisition target and if that company will be successful. Typically, SPAC sponsors receive around a 20% stake in the merged company.

As is the case with Crypto 1, SPAC IPOs are most commonly priced at $10 per share. After the funds have been raised, the founders (Dr. Kidwai and CEO Michael Zhao in this case) deposit the money into an interest-yielding trust account. Then, it is a matter of selecting the right crypto company to merge with. Crypto 1 is set to be listed on Nasdaq under the ticker symbol DAOOU.

Note: Since this article was published, eToro has subsequently delayed its plans to go public via SPAC.

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Do you think smaller crypto firms will become the first-tier targets for Crypto 1? Let us know in the comments below.

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