Data: Half of SPAC Startups With Less Than $10M in Revenue Failed to Meet 2021 Financial Targets

Startups have not been doing as well as had been advertised, with a Friday (Feb. 25) Wall Street Journal report finding that several of them stand to miss their revenue targets by huge amounts.

Dozens of them, having gone public in the stock market frenzy born out of the pandemic, are now seeing diminishing returns — almost half of all startups from 2021 with less than $10 million in annual revenue are now failing or expected to fail.

The companies include a battery maker that will likely miss its revenue target by 89%, and a scooter rental app that is expected to bring in less than 20% of what it projected this year.

The issues underline what some investors have called concerns about the special purpose acquisition company (SPAC) model, with critics saying there’s not enough regulation behind the process. That, they claim, allows startups to attract investors with bullish financial projections in spite of not having much revenue.

Investors and academics have also critiqued the speculative companies’ use of projections, saying they are used to create buzz and attract investors. The report noted the U.S. Securities and Exchange Commission is looking into making new limits on the practice, and some lawmakers have also been putting forward bills to curtail the problems.

WSJ wrote that regulations around traditional initial public offerings (IPOs) have discouraged companies from making forecasts about future performance — but companies merging with SPACs have used the forecasts freely to try and entice investors.

PYMNTS wrote recently that the IPO arena, once burgeoning, has been seeing a slowdown as of late due to multiple factors including market volatility and the turn to private equity for funding.

See also: Wall Street Jitters Over Market Volatility Put IPOs on Ice

Industry pundits have said it might take months before the free-falling valuations come back.

Derek Dostal, a capital markets partner at law firm Davis Polk, said everything is “on hold” and that not very many companies find it appealing to dive in when the market has been so volatile.