Deciding Between SPAC IPO Versus Traditional IPO

January 19, 2023 Mimi Torrington

Spac IPO on wall street background image

Thomas Kramer, the Chief Financial Officer at IonQ, joins us in the next episode of the CFO podcast to talk about SPAC IPO versus traditional IPO. Thomas is an experienced Chief Financial Officer with an extensive background leading companies through rapid growth.

At IonQ, he focuses on commercializing the infrastructure and managing the company's relationships with investors and the public markets. Previously, Thomas was the CFO of Opower, guiding the company through its initial public offering and its sale later to Oracle. He was also the co-founder and CFO of Cvent, taking the company from zero revenue through the largest private software financing in the United States at that time.

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Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results, with your host Megan Weis. Let's jump right in.

Megan Weis: Today, my guest is Thomas Kramer. Thomas is the Chief Financial Officer at IonQ. Mr. Kramer is an experienced chief financial officer with an extensive background leading companies through rapid growth. At IonQ, Mr. Kramer focuses on commercializing the infrastructure and managing the company's relationships with investors and the public markets. He sits on the boards of PerfectServe, Peak Dental Systems, and Minds Matter DC.

Previously, Mr. Kramer was the CFO of Opower, where he guided the company through its initial public offering, and its sale later to Oracle, and co-founder and CFO of Cvent, where he took the company from zero revenue through the largest private software financing in the United States at that time. Thomas, thank you so much for being my guest today.

Thomas Kramer: Thank you, Megan. It's a pleasure to be here.

Megan: Yes, today, we're going to be discussing your experience having gone through all stages of a company's lifecycle. I'm sure you've got some great advice to share with our audience today. I'm looking forward to hearing your story, so let's get started.

Thomas: Thank you very much, Megan. I think it's interesting to think of companies as people or organisms. The thing about companies is that they move so much faster in their lifecycle than humans do. The human life cycle used to be 30 years, and today is probably closer to 70. The corporate life cycle is 10 years, for the good ones, and less for others. Then often you just move through those cycles so fast that it's hard to keep up because humans are not growing as fast as organizations.

I've been lucky enough to see both the beginnings of companies and the near end, near unfortunate ends, as well as taking them public and selling them to larger companies. That has been great for me. I didn't grow up here in this country. I grew up in Norway. Then, when I was a couple of years out of school, I had to go about a girl in Boston, and so I moved there for business school. Then after business school, I joined a company called the Boston Consulting Group, which is a strategy consulting firm. This was in the late, late '90s, and everybody could see the dotcom crash happening.

I for so long as I've been doing anything professionally, I've been focused on internet and what does this mean. I was certain it was going to be a fad and it's going to be all over after circa 2000, and then we go back to having boring jobs. I did the possible worst thing you could do if you think that something's going to end. I saw the internet window closing and I jumped straight into it. I started a company in 1999 called Cvent. Cvent was and still is an event management software company on SaaS basis.

We started in '99. By the end of '99, we were 30 people. By the end of 2000, we were 100 people. In March of 2001, we were 134 people. Then in April of 2001, we were 27 people.

We cut more than 80% of the company because we had to because we were spending like drunken sailors. Actually, we weren't spending that much but we were overspending, and the funding window had closed down. That's when I figured out that companies should make money, and if they don't, they go under.

We buckled up and we drove the company to profitability in two years. Then we went on to do the largest private software financing for the past decade in 2010, I believe. Then the company goes public in 2013 and sells to Vista Equity in '15. This quarter it's going public again, at a $5 billion valuation. Everyone who's listening to this podcast will have used Cvent, but you may not know it because it's the world's largest event distribution platform, and you mask the URL. The boring technology that sits behind and lets you go to conferences and register [inaudible 00:05:07].

Megan: That's an amazing story.

Thomas: It wasn't as amazing when I was there. I can tell you it was [inaudible 00:05:14] organized. [laughs]

Megan: I'm sure there were some tough times. It definitely sound like that. How did you go from 100-plus employees down to 27? How do you decide who to keep and who needs to be let go?

Thomas: Well, there was a story a couple of days ago in the news about a person who fired 900 people via Zoom.

Megan: I heard, yes. I saw that story.

Thomas: I have no idea of whether those firings or layoffs were warranted, but probably they were because people don't do this lightly. We sat together and planned for pretty much two weeks straight about what's the absolute minimum we could have to not go under. Then we kept as many people as we could because we figured we had two choices. We could either go out with a bang, and just have a good party and then we get off, or we could try the very best and make something of the money we had raised and the assets, [unintelligible 00:06:21] assets we had and the people that we could keep. At that point, it was two years of drudgery, and it was not fun. At that point, we refused to give up because we had to lay off so many people that it would haunt me if that was for naught. Thankfully, it worked out.

Megan: Definitely sounds like it did. I imagine as the years go by that a company's lifecycle, it seems to be getting faster and faster over time. I look back 100 years ago, and companies, maybe not, but they seem to be around forever. Whereas today, it seems like a company's lifecycle, like you said, is maybe 10 years for the good ones.

Thomas: Right. Obviously, there are companies like the GM and Ford, and Chrysler that stay around for a long time that they are the exceptions.

Megan: Yes, [inaudible 00:07:13].

Thomas: Most industries, you take the top 10 companies in any industry, and if you go decade by decade, you will see that it is rare that it's all the same 10 companies that could do the best. There's usually one or two that's the best, and then things change really fast.

Megan: As you look back on your career, what were the pivotal moments or turning points that stand out in your mind?

Thomas: Well, there was obviously the fact that when we had to lay off people that made it more serious, and made us focus on doing the best that we possibly could and not waste. That is good in the CFO role. I will also admit that I didn't really pick to become a CFO. People who wake up one morning and say they want to become a CFO I question what they dreamt about that night. It's a nebulous role. I fell into it because I care about so many things in a company and I care about how you interweave them and make them work. A CFO is like a service center for the rest of the organization.

We have lots and lots of customers, and most of them are internally. Then when you become public, you start having more external customers. Really what the CFO office does is just help all the other parts of the company get better. That is the fun thing for me.

Megan: How have you seen the role of the CFO evolve over the last, let's say 10 to 15 years?

Thomas: Since I've been in tech and startup land for so long, it hasn't really changed for me. What I see and observe in both academia and industry and newspaper articles is that it used to be that you had two types of CFOs. There's one that was an accountant, and there was one that was a banker. I think we're seeing less of the accountant side or accountant-style CFO to more of a COO role where the CFO actually goes in and helps operate other departments because they can give crystal information. It's no longer about accounting and making sure you file your books correctly. Instead, it is about ensuring that you get the best outcome. That's very different than thinking of it from an accounting perspective.

Megan: Let's talk about your current organization IonQ. What exactly is it that they do?

Thomas: I'm glad you asked. This is my favorite question at cocktail parties, because I get to say that we literally shoot lasers at the smallest pieces of mechanism or organisms in the universe, atoms, and we use that as the basic building block of the computer of the future. Literally the things we use to compute are so small you cannot see them, and you might ask yourself, why do you do this? Well, we've all heard about how computing capacity doubles every 18 months and the price stays the same.

For quite some time, we have no longer been able to quite double the capacity of the computer every 18 months and that is because we're reaching the fiscal limits of how many transistors you can put on the chip because they're so tiny. Your iPhone has hundreds of thousands, if not millions of them. There's just limits to how small they can get. Additionally, there are some problems that today's computers are not very well equipped to handle because they require a different way of solving the problem. As an example, if you look at UPS each driver at UPS can do about 120 deliveries per day. To figure out the the ideal way of organizing his delivery route is something called a factorial.

If you remember back to high school math that means that to find the number of possible combinations that you could run a delivery route, and there are 120 stops, you do 119 times 118 times 117 times 116 and so forth. The number is so large that it's larger than the age of the earth in nanoseconds. A computer can't actually calculate the optimal delivery route. Famously UPS's solution to this is that they only make right turns. The scheduler will ensure that trucks only take because then you have to wait less. This is a very well known problem and it's because computers have to solve things [unintelligible 00:12:22] It's because it's using a particular math and there are other types of math.

For about 100 years there's been a field within physics called quantum physics and quantum mechanics, which deals with how to solve for algorithms like this. It's relatively well understood. The only problem was that people who did understand it were people like Einstein and Feynman and a number of physicists that nobody else could understand. Today, the field has gotten much larger and now people have been trying to put quantum mechanics into a computer structure. The challenge with this is that if you do it on a classic computer, you will need so much hardware that you end up using more and more data centers just to solve these equations.

If you instead build a computer that works differently then you can solve these problems that here to for has not been able to be solved in every single time. The way you do that is by using qubits as the basic building block instead of bits. This is like a light bulb. It can be 0 or 1. The qubit can be both 0 and 1 at the same time and they will have a probability distribution between them. That means that you can store much richer data sets and you can handle much more complex problems and algorithms.

That is what IonQ is doing. We are currently actually doing pretty well. There was a recent industry study by QBDC that showed that our computers outperformed all the other quantum providers out there, including Honeywell and IBM by a factor of at least two, and for that we're proud and we intend to continue on our leadership path.

Megan: How long has IonQ been around and who are your customers? Who's buying these quantum computers?

Thomas: Two co-founders have been working on quantum computers for 25 years around about. The company itself is six years old. In fact, we had the company birthday on a Thursday, which was the last of September, and then the next very next day we bused the entire company up to New York and onto the trading floor of New York Stock Exchange and we went public. That was a fun event, and also very uncommon both to be able to take your entire company onto the floor and to be able to go public when you're only six years old.

Megan: That is an amazing feat for sure, but what are your proudest achievements since joining IonQ?

Thomas: I think that the the success of this company lingers on can we get the best people? I am very proud of having hired a great staff that works with me in finance and in particular we have Jordan Shapiro who comes to us from NEA who is VPC, who was so excited about particular company, that he decided to stop messing around being an investor instead come to raise things. Additionally, I hired [unintelligible 00:15:53] who was the controller at my last company Opower, and we took that company public together.

It's great to be working with people that you already know because it takes down uncertainty and enables you to deliver faster things. Things that from the finance side had gone well for the company is ,as you probably know, we went public via SPAC. The little unknown detail for most lay people at least about SPACs is that right before you complete the transaction and you merge with a SPAC company, all the holders of the shares in the SPAC can ask for their money back. That is pretty harrowing because you're doing this merger so that you can get the money. We are wanting them to build bigger and faster and better quantum computers, of course, but the SPACs fell a little out of favor around April, May this year.

What's known as redemptions, that's investors asking for their money back, went extremely high. The average size of a redemption for companies that had traded less than $10.25 say two weeks prior to when the redemption notice go out would have 56% of their capital redeemed. We were raising $300 million through the SPAC and to have half of that just go away because people changed their mind, well, that was not a happy feeling. We did the only thing we could do, which is talk to our investors and convince them of what it is we're doing, what's the roadmap, why is this company worth investing in and we were lucky enough to only see 2.5% redemptions for our SPAC and given the times [unintelligible 00:17:55] low number, of course.

Megan: You're actually the second CFO that I've talked to this year that has gone public through a SPAC. You mentioned that they fell out of favor in March or April of this year. Why was that?

Thomas: Well, there's been an unprecedented build up in SPAC as vehicles to go public and there's a lot of money right now seeking for investments and you could surmise that would eventually lead to them seeking less high quality investments and therefore it could be at risk to the investing public. There's been a lot of press about it back and forth. The SEC was a little late to the game in terms of regulations and in April, May they came out with a new rule for how to account for warrants exactly where they should sit on the balance sheet and then there was lots of articles about that and how this is bad or good.

The reality is that where you put your words on the balance sheet is completely irrelevant for what's going on if you're taking a company public. It was the SEC's way of signaling a greater interest in managing this particular financial vehicle, which I think is a good thing. It should be managed. It should be just as well thought through the regular S1 process for going public.

I would say that the way we went public, even though we went through there's this SEC form called the S4 and for regular IPO you use an S1, the work we did was almost identical because when I took Opower public, we had actually the same bankers who was Goldman Sachs and Morgan Stanley and we used a top end law firm and a top end accounting firm and they just won't do it any other way. It was all the same work. It was much faster than a traditional IPO for us. We felt really good about it, but there's a category of facts we think that going up this way is just fast and easy, and we can pull things by the market in a way that wouldn't be allowed in the other format of going public [unintelligible 00:20:26] IPO. That has caused some grumblings in the market, but as long as your company is fundamentally sound, of course, it doesn't matter which mechanism you choose to go public.

Megan: Why did you choose to go this route rather than a more traditional IPO?

Thomas: For us, I don't think going public through a traditional IPO was an option, given that the typical profile for a tech company that goes to IPO is if you have somewhere around $100 million in revenue, although this number has floated up lately. Then you need to be on a fast growth trajectory of like 30%, at which point you’ll get the attention of investors. IonQ is very early on in its commerce and safety strategy. That means that we don't have $100 million in revenue.

We foresee such fast developments that this will follow quickly. There are no public investment vehicles to invest in quantum computing. It was an underserved part of the market for capital, if you want. The alternative for us was to just raise a ton of money through private means. Typically, you raise for 18 months, then you go out raise again. That is very time consuming. We saw a way to go out and raise $650 million through this back in a pipe and all-in-one [unintelligible 00:21:59] which will allow us to deliver on our technical road map and get to cash-flow profitability without doing more fundraising. That was very attractive to us.

Megan: What do CFOs need to know before they make the decision or venture through the process of going public?

Thomas: Well, going public, for any methodology you pick, the most important thing for CFOs is to have enough visibility that you can forecast accurately. That may seem like table stakes but in a small company, and you just started, you're a couple years old, you really don't know what's going to happen [chuckles] the next month, the next quarter, because there's always new things that you never heard about. Then you have to implement those. That isn't a good situation to be in in the public market because public investors appreciate consistency more than anything.

Megan: Having gone through all stages of company development from founding and raising venture capital to IPO, and then public reporting and exit, which of those is your favorite stage and why?

Thomas: Every stage, apart from stages where you have to downsize, has something to offer that's interesting. It's always fun to do transactions. There's adrenaline and such. If all you do is transactions, it also just becomes a little shortsighted. I like to be in the stage of a company where you're still developing the product and you can see the future being created right in front of you. To be part of that team that does that both in bringing forward the product, as well as seeing the growth and the commercial successes is fun. There's this opportunity when companies grow, and the ability to hire more people and go into new market is very exciting.

Megan: You mentioned that one of the things you were proudest of was hiring a great team. These days it seems like talent is just in short supply no matter where around the globe you're looking. What advice do you have for hiring the best people and then making sure that they stick around?

Thomas: Well, since we are in the middle of what is called the great resignation, it's a very pertinent question. I think that the best you can do is to be honest and tell people about both the company that you're hiring for, and also the team that they're being hired into. Then, once they have accepted your offer, building a team that cares about each other and that cares about its development is very, very important. It can be tempting in today's world to just Zoom it in and never leave the house and just go to meetings [unintelligible 00:25:19] little stuff. You're going to lose some of the connecting tissue that we have in society if you don't interact with people.

Because when you interact is when you learn and you create things out of nothing, because you have more input than just your own. When you do this in a consistent fashion repetitive, people will see that they get something out of it. I fundamentally believe that people are not going somewhere just for the money. People don't even leave their job just for the money. People leave their job because they think their job doesn't want them. You have to make sure that your employees know that you want them, you want them to stay and they make the company better.

Megan: Yes. I do agree that people want to feel appreciated. I think that's awesome that you guys took a bus up to New York City with every single one of your employees for that event on the New York Stock Exchange floor.

Thomas: It was fun. It was definitely fun.

Megan: What advice would you give for CFOs who are looking to raise venture capital?

Thomas: Well, first off you should know your company and you must believe that it's worth investing that money. The greater fool theory doesn't really work in the long run. The other part of it is that even if you know what your business does, you know why it's great and why it's going to make money in the future, there's always a temptation to lean into what you think that the investor wants to hear.

That can often be a mistake because you end up just doing things because you want that next tranche of money in from somebody and you lose focus. If your company's worth investing in it's because the ideas that were put into creating it, and the team that you put up and the [unintelligible 00:27:30], it's because that analysis was right. I wouldn't listen too much to what investors say until they're on your board because you just lose focus.

Megan: I guess it's a lot about probably finding a good fit, which means that the truth and the true story will go further than telling someone whatever it is they want to hear.

Thomas: That's right. That's absolutely right, but it's a good environment to raise money in. Although you have to always present far more than you'd like, in today's market there is more money out than there is ever been, and it all has to be invested in private companies. It's a good position to be in.

Megan: Are there any tools or technologies that you are using right now that are helping to make your life easier?

Thomas: I have a wonderful coffee machine.

Megan: [laughs] I'm interested. What is it?

Thomas: Well, [unintelligible 00:28:37] It has two boilers so I can get a fast espresso. If I want to make [unintelligible 00:28:47] there's already hot water for that. I can see the milk at the time. This is a wonderful thing. You have to focus on what makes your life efficient and what gives you the small pleasures of life. For me, it's waking up in the morning and making myself a strong espresso. I also have an individual coffee grinder to grind just enough for a double espresso, which sets me off in the good. It also wakes me up, of course. Having routines that makes it easier for you to just get out of bed, get into work and puts a smile on your face. That's the best technology that you can do.

Megan: Yes, it is all about the small pleasures in life. Lastly, as a CFO what is keeping you up at night right now?

Thomas: Well, I try to get enough sleep. I think that's very, very important.

Megan: I agree.

Thomas: The things that is the most challenging in today's job market where we have over-employment, is it’s hard to find enough resources. I would say that the number one priority of almost everybody should be recruiting and keeping your employees happy. When you walk out at night and turn out the light, most technology companies you take the entire company with you because the value of the company is the people. We're not banks. We don't have gold coins or diamonds laying around. The people is the most important asset in any firm. That is what I try to focus on.

Megan: Yes, I think that's great advice. Thomas, thank you so much for being my guest today.

Thomas: Thank you for having me, Megan.

Megan: I really enjoyed speaking with you and hearing your story and I wish you and IonQ continued success in the future. Sounds like you're both doing amazing things.

Thomas: Thank you very much. We try to do our best and also to have fun. I'm sorry, but I have to run now. I'm going to go shoot some lasers at individual atoms.

Megan: [laughs] That does sound like fun. To all of our listeners, thank you for tuning in and until next week, take care.

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In this episode, we discuss the company’s life cycle. the evolving role of a CFO, SPAC IPO vs traditional IPO, amongst other financial topics.

Understanding a Company's Life Cycle

spac ipo life cycle quote

As the years go by, a company's life cycle seems to be getting faster and faster over time. Today, a company's life cycle is around ten years. Even though there are companies like General Electric, General Motors, Ford, and Chrysler that stay around for a long time, they are exceptions.

“It's interesting to think of companies as people or organisms. And the thing about companies is that they move so much faster in their life cycles than people do.”

The Evolving Role of a CFO

Thomas Kramer, CFO quote

There used to be two types of CFOs. There was one that was an accountant, and there was one that was a banker. Now, we're seeing a shift from the accountant side of the CFO to more of a COO role where the CFO goes in and helps operate other departments.

“A CFO is like a service center for the rest of the organization. We have many customers, and most of them are internal. And then, when you become public, you start having more external customers. But what the CFO does is help all the other parts of the company get better.”

A Brief View Into Quantum Computers and SPAC IPO versus Traditional IPO

spac ipo vs traditional ipo quote

Thomas is the CFO of IonQ, which builds some of the world’s best quantum computers. IonQ has a unique trapped-ion approach that combines unmatched physical performance, perfect qubit replication, optical networkability, and highly-optimized algorithms to support complex applications across various industries.

IonQ opted to go IPO through a SPAC. Thomas describes what SPAC means and why it was the most suitable solution for a tech company like IonQ.

“From the finance side, what had gone well for the company is, we went public through a SPAC. And SPAC means that right before you complete the transaction and merge with the SPAC company, all the holders of the shares in the SPAC can ask for their money back.”

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