Bill Gurley says PSPCs are “remarkably cheap compared to poorly priced IPOs”

Nextdoor’s decision to go public through a special purpose acquisition company is in large part the result of favorable pricing compared to a traditional IPO, said Bill Gurley, partner at Benchmark and one of the first investors in the neighborhood social network.

Gurley has been one of the strongest supporters of direct listings, another IPO alternative in which companies go public without selling shares at a steep discount to new investors. He said that the average IPO in 2020 comes with a cost of capital of 57%.

“PSPCs are remarkably inexpensive compared to poorly priced IPOs,” Gurley told CNBC’s “TechCheck” Friday.

Nextdoor announced earlier this week its intention to pursue a SPAC sponsored by an affiliate of Khosla Ventures, Vinod Khosla’s investment firm. In a PSPC, a so-called blank check company raises capital through a public offering and then searches for a potential target, which becomes the operating entity after the transaction closes.

The pace of new SAVS slowed earlier this year after breaking a record in 2020 and reaching a new high in the first quarter of this year. The pullout came after the SEC issued accounting guidelines that would classify PSPC warrants as liabilities instead of equity instruments.

However, activity has resumed. Besides Nextdoor, fintech company Circle, space companies Planet Labs and Satellogic, and solar power company Heliogen all announced deals this week. Still, the proprietary CNBC SPAC Post Deal Index, which is made up of the largest PSPCs that have announced a target or those that have already completed a PSPC merger in the past two years, is down 3.8% in 2021. , after dropping in February and March. .

Nextdoor’s transaction will bring in $ 686 million and value the company at $ 4.3 billion. Benchmark first invested in 2011 at a post-currency valuation of just over $ 30 million, according to PitchBook.

The company says its site is now in use in more than 275,000 neighborhoods around the world and in nearly one in three American homes. It allows users to organize events, sell or donate items and alert neighbors in case of danger. Earlier this year, Nextdoor launched an anti-racist notification after long being criticized for racist comments on its platform.

In 2018, Nextdoor hired Sarah Friar, who was Chief Financial Officer at Square, as the new CEO, replacing company founder Nirav Tolia. Prior to that, Friar spent over a decade at Goldman Sachs.

Gurley said Friar analyzed all the numbers and looked closely at an IPO before making the final decision.

“Sarah Friar is an extremely experienced CEO with tons of experience on Wall Street, both having worked in an investment bank and as CFO of a public company,” said Gurley. “She did a double call, was watching the IPO, and just said I had more control and got a better economy going the PSPC route.”

Gurley has appeared on “TechCheck” alongside Sumir Meghani, co-founder and CEO of Instawork, an online job market. Instawork announced Thursday that it has raised $ 60 million in a funding round led by Craft Ventures.

The start-up connects workers in the restaurant, hospitality and retail sectors with hourly jobs in companies in need of manpower. The transaction comes a week after Suzanne Clark, CEO of the United States Chamber of Commerce, told CNBC that the biggest problem facing American businesses is hiring enough skilled workers. She highlighted a lack of skilled labor, unemployment benefits in the Covid era, insufficient access to childcare services and work visa restrictions.

“Our professionals earn almost double the minimum wage,” Meghani said. “Our top professionals can earn even more than that. They can be paid instantly when they leave their positions. We reward quality on Instawork with faster pay, higher pay but most of all flexibility.”

Gurley, who was one of Uber’s early backers, said Benchmark has a strong category focus and has made about eight investments in “these types of markets.”

– CNBC’s Pia Singh contributed to this report.

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