Bill Gurley, partner at Benchmark and an early investor in the neighborhood social network, said Nextdoor’s decision to go public through a special-purpose acquisition company was largely the result of favorable pricing compared to a traditional IPO.
Gurley has been one of the most vocal proponents of direct listing, another IPO option in which companies go public without selling shares to new investors at a steep discount. He added that the average IPO in 2020 came with a cost of capital of 57%.
“SPACs are remarkably cheap compared to mispriced IPOs,” Gurley told CNBC’s “TechCheck” on Friday.
Nextdoor earlier this week announced plans to pursue SPAC, sponsored by an affiliate of Vinod Khosla’s investment firm Khosla Ventures. In SPAC, a so-called blank check company raises capital through a public offering and then makes purchases for a potential target, which becomes the operating entity after the transaction closes.
The pace of the new SPAC slowed earlier this year after breaking a record in 2020 and setting a new high in the first quarter of this year. The pullback came after the SEC issued accounting guidance, which would classify SPAC warrants as liabilities rather than equity instruments.
However the activity has resumed. In addition to Nextdoor, fintech company Circle, space companies Planet Labs and Satellite and solar power firm Heliogen all announced deals this week. Nevertheless, the proprietary CNBC SPAC Post Deal Index, made up of the largest SPACs that have announced a target or who have completed a SPAC merger within the past two years, fell to 3.8 in 2021, after declining in February and March. % is down. .
The Nextdoor transaction would bring in $686 million and value the company at $4.3 billion. Benchmark first invested in 2011 at a post-money valuation of just over $30 million, according to PitchBook.
The company says its site is now used in more than 275,000 neighborhoods around the world and in approximately 1-in-3 U.S. homes. It allows users to organize events, sell or give away items, and alert neighbors to danger. Earlier this year, Nextdoor launched an anti-racism notification after facing prolonged criticism for racist comments on its platform.
In 2018, Nextdoor appointed Sarah Fryer, who was head of finance at Square, as its new CEO, replacing company founder Nirav Tolia. Prior to that, Fryer spent more than a decade at Goldman Sachs.
Gurley said Fryer ran all the numbers and considered the IPO closely before making a final decision.
“Sarah Fryer is a highly experienced CEO who has Wall Street experience, having worked as both an investment bank and CFO of a public company,” Gurley said. “She double-tracked it, was looking at the IPO and just said I have more control and get better economics by going the SPAC route.”
Investments to address labor shortage
Gurley appeared on “TechCheck” with Sumir Meghani, co-founder and CEO of online job marketplace Instaworks. Instaworks announced Thursday that it has raised $60 million in a financing round led by Craft Ventures.
The start-up connects workers in the restaurant, hospitality and retail industries to hourly jobs at companies in need of labor. US Chamber of Commerce CEO Suzanne Clark told CNBC that the biggest problem facing American businesses is hiring enough qualified workers. He pointed to a lack of skilled labor, jobless benefits of the Covid-era, inadequate access to child care and work visa restrictions.
“Our professionals earn almost twice the minimum wage,” Meghani said. “Our best professionals can earn even more. They can get paid immediately when they exit a shift. We at Instawork are rewarding quality with fast pay, high pay but all the flexibility.”
Gurley, one of Uber’s early backers, said Benchmark is focusing heavily on the category and has made about eight investments in “these types of markets.”
— CNBC’s Piya Singh contributed to this report.
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