December 31, 2021
The bottom line is that as a retail investor I feel way more protected investing in a subscription warrant, an opt-in and doesn't require tying a huge amount of cash than in a SPAC, that is an opt-out and does require tying cash.
Both subscription warrants and SPACs are a bet (in the good way, not the speculative one) on sponsor's reputation and ability to pull a good business through. In that regards, that's not different than investing in any business in an early stage and that's something that happens all the time. It even happens in the equity market where investment is many times more related with trusting company's management in being able to achieve goals and business objectives than in fundamentals or balance-sheets. For this reason, I don't understand those comments that assign subjectivity to subscription warrants based on don't having underlying assets. Purely on underlying assets, most of the investment in the equity market wouldn't make any sense. Security valuation is so complex that even professionals don't agree in how to do it. I don't think the SEC should be more concerned about how people would value subscription warrants than how people value any other security.
As for the concern regarding the length of time warrants could be outstanding, I don't think that's an issue exactly because subscription warrants don't require tying a huge amount of cash, providing liquidity to the investor to overcome any unforeseen situation. The 10 years limit don't bring more uncertainty than the usual 2 years limit in SPACs. In both cases, investor's expectation is having the opportunity to own a good business. I would rather say that having a short deadline brings higher risk of the sponsor rushing a deal.
I don't agree in that there is more of a risk of a market participant to manipulate the price of subscription warrants than there is with SPACs solely based on it \"requiring less upfront cost\". I don't see a link in the price of the security with the possibility of obtaining profit from manipulating the market and the upfront cost is whatever the person wants to risk in that move, regardless of how many units of the security is able to buy.
In conclusion, I honestly don't see why the SEC would allow SPACs at the same time that rejects subscription warrants. Subscription warrants are less risky than SPACs and have many advantages over it and this is true specially for the case of unsophisticated investors.
Thank you.
MM