After a couple of critical sends recently (Talkspace and FIGS), now it is time to get our drip back – Mom and Dad drip means swagger/confidence – saved you guys a text – as we will be breaking down Starry, a failed SPAC.
I first broke down Starry back in the 23rd edition of Just Raised on April 1, 2022. Here is what I wrote:
1. A Falling Star
Starry, a company looking to disrupt the broadband industry, announced the completion of a $1.76B SPAC deal with FirstMark Horizon Acquisition Corp. with proceeds of $176M.
The company wants to create an over-the-air internet system (vs. fiber/underground) to give strong internet to the masses. Starry also raised $400M from KKR, FirstMark, and Tiger Global Management before going public.
Will this be the company that turns around SPAC’s fortunes?
I don’t think so. Here’s why:
1. Massive Broadband Incumbents
Off the bat, it’s important to recognize just how competitive and entrenched the broadband market is, including: Frontier, Verizon Fios, Comcast, and Charter. With many seeing the collapse of cable TV revenues due to cord cutting, they are investing heavily into broadband infrastructure.
2. Technology Doubts
There are serious questions regarding the quality of Starry’s technology. Historically, their type of tech has struggled in tough weather conditions like rain, wind, and snow. Imagine it’s a cold, snowy day and you can’t watch your Netflix. Yikes.
“Price is what you pay. Value is what you get.” Investing at any stage is all about valuation. Apple is a great company, but if someone wanted to sell you a share at $10T, you would most definitely pass. Starry’s 2020 and 2021 revenue was $13M and $22M, respectively, meaning that the company is trading at an 80x Price to sales multiple. The company projects $1.1B in sales by 2026. I’ll believe it when I see it.
4. Questionable Management
Starry CEO Chet Kanojia is the former founder and CEO of Aereo. Aereo was an online TV platform that eventually shuttered. The Supreme Court deemed Starry illegal because it didn’t obtain the proper copyright permission for its content, then it went bankrupt. This does not hold Starry back from claiming that Aereo was “the groundbreaking online TV platform that kicked off the OTT revolution.” An odd claim for a company that collapsed the way Aereo did. Red flag.
Prediction: Starry will share the fortunes of many SPACs before it and will not be a shooting star.
Alan. Looks like you crushed it buddy.
Fast forward to November 16th and the stock is trading @ $.27 a share and appears to be on the brink of bankruptcy. On April 1, the date I wrote the original write up, the stock was trading @ ~$8.50 a share representing a ~95% drop in the stock price.
In my last newsletter, I discussed why it is so important to learn from your mistakes as an investor, even when it hurts. When I came across Starry, I instantly thought back to the similarities between the two companies including going public via SPAC, questionable management, significant over valuation, among others. This served me very well.
Now let’s take a look at Starry’s journey and their collapse.