In his latest attempt to return to the social media center stage, Donald Trump is now turning to a current darling in the startup world: the Special Purpose Acquisition Company, or SPAC.
Trump announced Wednesday evening that he has a new company called Trump Media & Technology Group (TMTG) and that he will merge that new company with a SPAC called Digital World Acquisition Company (DWAC). If done, the deal would turn Trump’s new media company into a Nasdaq-listed company. And that would give TMTG enough money to launch a new Twitter clone called Truth.
The surprise deal is already turning DWAC into a storehouse of memes, and it raises a number of questions.
Wait, what is a PSPC?
In short, PSPCs are shell companies that are listed on exchanges like the Nasdaq and exist for the sole purpose of eventually merging with companies that wish to go public. Someone, often from the financial world, sets up the business and asks a few other people to throw money into the pot in exchange for shares in the shell that typically sell for $ 10 a piece. They set a time frame (usually around two years) before which they aim to find a company to merge with and tell the market what industry they are targeting, although they can really merge with any willing company. Here’s a much more detailed explanation if you’re curious.
Trump has a new business?
Apparently! It was registered in Delaware in February but went unnoticed until Wednesday evening. Either way, Trump has very high ambitions for TMTG, according to the truly ridiculous 22-page investor presentation that was posted on his website.
Seriously, the presentation has to be seen to be believed. Image: TMTG
TMTG’s ambitions don’t stop with Truth Social, Twitter’s clone Trumps. Ultimately, TMTG aims to be a conglomerate with the intention of operating a competing news network very seriously with CNN, a streaming platform competing with Disney +, and a technology services company competing with Amazon Web. Services.
Trump Media & Technology Group Kicks Off With Twitter Clone
So far, the only part of this that exists are pieces of Truth Social, which appears to be a fork of the decentralized social network Mastodon. The app is already having problems. Some journalists have already created accounts on the app with usernames like donaldtrump and mikepence.
Truth’s promotional material is full of fake messages from brands that have not authorized TMTG for use. In one image, an @ChevyTrucks account posted about a 2022 model year Chevrolet Tahoe; Chevrolet told The Verge it was not aware of the project. There is no Chevy Tahoe EV 2022, a General Motors spokesperson said in an email to The Verge.
Other posts include media headlines like The New York Times, TechCrunch, and Variety. TechCrunchs editor-in-chief Matthew Panzarino said he had not endorsed the title. The New York Times said in an email to The Verge that use of their mark is not permitted and that we will keep in touch with them. Variety did not have an official comment. It’s probably a safe bet that some of these companies call their long-suffering lawyers. (If you are said to be a lawyer, do not hesitate to send us your letter of cease and desist.)
I approved a few clunkers. Not this one.
Panzer (@panzer) October 21, 2021
Meanwhile, Truth Social’s terms of service include a rule that prohibits users from disparaging Truth on the platform despite TMTG promoting Truth as a big tent where everyone is welcome. You are also not allowed to write messages with too many capitals.
TMTG’s investor presentation does not have details about the money
The presentation to investors is also notable for what is missing: details about the money. Usually, these things take at least a glance at what kind of money the company has looking for a merger and its forecast for future revenue. Usually, that’s part of the motivation for SPACing in the first place: IPOs don’t let you project future income in the same way.
TMTG’s presentation does not say a word about revenue, past or future.
Weren’t there a bunch of right-wing Twitter clones?
There is ! Gettr and Parler were both founded following Trump’s bans, with older networks like Rumble also seeing significant growth. All three benefit from a new feeling among conservatives that moderation on Facebook, Twitter and YouTube is biased against them. In theory, this should create a huge potential audience for conservative alternatives.
In practice, the idea encountered many problems which are likely to be repeated in the Trumps Truth project. The biggest challenge for any social network is the scale: if there is no one posting, then there is nothing to read, which means fewer readers and fewer incentives to post. Outside of the spectacular launches, most conservative-focused networks have struggled to maintain that scale, especially Parler, where user growth slowed over the summer. Right-wing platforms have also struggled to define basic policies regarding hate speech and violent threats, caught between the hallmark of free speech and a lingering resistance to the nihilistic chaos of spaces like 4chan.
But hasn’t this specific thing already happened? I remember hearing Trump launch a social network.
He said he was going to do it, but when it finally launched it was just a blog for his press releases. Suppose it won’t just be another blog, but at this point who knows.
Who runs the company Trump wants to merge with?
In the broadest sense, a bunch of money guys. It was started by a man named Patrick Orlando, who was an investment banker and ran a sugar trading company. SPAC’s CFO is Luis Orleans-Braganza, a serial entrepreneur who is also a current member of the Brazilian National Congress, was a former party member of Jair Bolsonaros and son of the heir to the late Brazilian throne.
SPAC is led by a prince, an investment banker and a disruptive tech investment enthusiast
Orlando is involved in a few other PSPCs, although he has yet to find a merger partner for any of them. More recently, he tried to merge one with a hydrogen fuel company.
Existing directors (or director nominees) who already own shares of Digital World Acquisition Company SPAC have … say, eclectic backgrounds. Lee Jacobson was an executive at Midway Games and Atari and also ran a mobile game analytics company that went bankrupt in 2019. Bruce Garelick is a hedge fund man who describes himself as an avid disruptive tech investor in SEC filings of DWACs; he went to the Wharton Trumps alma mater. Justin Shaner is a real estate investor and developer. Brian Shevland is a portfolio manager who also went to Wharton. Eric Swider has a history of working in the resort business. Rodrigo Veloso has created a successful bottled water business.
But it’s hard to say if they’ll stay if a merger goes through. One of the problems with SPACs is that the people who help create them have a financial incentive to opt out after the merger. The money is just too good for those who leave.
What is a PIPE and why is it important?
I apologize for another acronym.
PSPC mergers often involve a parallel funding cycle known as private investment in public capital, or PIPE. This means that a merging company gets the money from PSPC as well as a little more money from outside investors. In exchange for this money, the outside investors get a portion of the new company.
External investors are usually institutions such as banks and pension funds. These investors often add legitimacy or even prestige by having kicked the tires of the company. This can make other investors more comfortable with PSPC.
Trump’s merger plan makes no mention of a PIPE. It’s frankly very funny! Remember how we talked earlier about Trump’s ambitions to take on Disney, Amazon, and CNN? OK. So the amount of money he receives from PSPC is approximately $ 300 million. It is adorable. Netflix will spend $ 17 billion on content alone in fiscal 2021, and they won’t have to build a platform from scratch, which would be a significant expense.
Why would Trump do this?
Because he misses being on Twitter. If he runs for president again in 2024, hell needs a social platform that isn’t just a shit blog. And while right-wing social media have failed as platforms, they have succeeded in attracting attention and disguising the indifference of the general public as a disturbing form of censorship. Whatever happens with this new project, it will give Trump a great excuse to complain about Facebook at rallies. Maybe that’s the point?
I also have to imagine that there is an element of financial play here. Trump has exploited tax loopholes for decades. He pushed the banks to give him risky loans, and when those loans went wrong he went to extreme lengths to push them back, such as when he sued Deutsche Bank saying he shouldn’t pay them back because they helped bring about the Great Recession.
So, uh, why would that work?
Well, do you remember the memes stocks? Donald Trump has had quite a presidency himself. Given the strength of its online fan base and the general proliferation of equity investments, it seems possible that the plan is simply to launch the business and win over its true believers. PSPCs have at times been popular targets for the new class. occasional retail traders. It is not hard to imagine that many people buy shares of this company just for the fun of it.
It’s already a meme stock, even though it’s not meant to be
In fact, it may already be working! As of this story, DWAC SPAC shares are already approaching the record for number of shares traded in a day. This extreme volatility only pushed the stock price up to $ 25, meaning we weren’t seeing the same kind of coordination that supported the valuation of, say, GameStop.
But there is also a risk here. If these existing PSPC shareholders leave because they have some kind of financial incentive to do so, the ordinary people who buy the shares could end up owning shares of a company that is less valuable than promised. CNBC recently determined that 97 percent of PSPCs that have yet to complete a merger are trading below their initial price of $ 10.
Of course, if this deal doesn’t work, it wouldn’t be the first time Trump has let other people, including his supporters, hold the sack.
With a report by Mitchell Clark
Correction, 2:00 p.m. ET: Luis Orleans-Braganza was a member of Jair Bolsonaros’ former party, not the current Brazilian president, as previously reported. Bolsonaros’ last name was also misspelled. We regret the mistakes.
Update, 2:35 p.m. ET: New York Times commentary added.
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