Feb 24, 2023, 4:52 PM ETInterview, Fireside Chat

IAC CEO Joey Levin: Why Value Investing is BS; The Most Insane Element of SPACs | 20VC #982

Joey Levin criticizes the SPAC structure as "completely insane" for established companies.
He identifies the core flaw as granting a third party a free option to sell the company to the public for a three-month period after years of private building.
He argues this model only makes sense for pre-revenue ideas needing fundraising, not for companies with actual businesses.
SPACs place the pressures of public markets on early-stage product teams, distracting them from building the product.
The primary benefit of SPACs was capital access for companies that could not secure funding elsewhere.
Levin notes that SPAC companies now face realistic valuations, creating opportunities for capital to enter the market.
He cites Henry Ellenbogen's prediction that the volume of SPAC-sized companies exceeds the capacity of public investors to analyze them.
Many SPAC firms will likely need to grow significantly or go private again due to a lack of public market "home."

Levin believes the current market environment represents a "new normal" rather than a temporary dip requiring a snapback.
He asserts that public market valuations currently reflect the macro environment, while private market valuations remain artificially high.
Private valuations are inflated because companies raised capital during easy monetary periods and have no immediate need to access capital markets.
Private ecosystems lack honesty on valuations because LPs, companies, and investors all have incentives to maintain inflated marks.
Unlike public markets where short sellers provide a corrective vote, private markets only allow proponents to vote on valuations.
Levin states there is no immediate catalyst for multiple expansion, as it requires interest rates and tax rates to decline.
He estimates IAC has over $1 billion in cash with no debt at the parent level, positioning the firm to be "greedy" when others are fearful.

Levin rejects the binary definition of value investing as merely buying low multiples.
He defines value investing as buying at any multiple (high or low) provided the price aligns with future growth beliefs.
He notes the difficulty of executing the "greedy when others are fearful" strategy due to capital scarcity and general fear.
He emphasizes that to deploy capital during downturns, organizations must build and hold capital during boom periods.
Simplification is identified as the primary driver of margin and value creation in all IAC businesses.
Levin argues that complexity is a failure of messaging and that great messaging follows the "Elements of Style" rule: no unnecessary words.
He identifies "taking on too many projects" as the most common mistake companies make when spreading resources too thin.
Unique company values (e.g., "build lifelong customers") are essential for distinguishing opportunities from distractions.
He advises that company values should make management uncomfortable and force difficult prioritization decisions.

Levin attributes career success to "clusters" of achievement where role models make high levels of performance seem possible.
He identifies hard work and the willingness to hold strong opinions as the two key traits that propelled his tenure at IAC.
He advises graduates to pursue work they love to sustain long-term endurance, noting that love for the work changes the nature of the effort.
Levin warns against the "bailout mentality" instilled in younger generations by the 2008 financial crisis and the pandemic.
He observes that this entitlement manifests in demands for high salaries, remote work, and work-life balance without regard for business needs.
IAC manages morale by mixing employees with tenure (who have experienced cycles) with newer hires to balance perspectives.
Levin believes work-life balance is a myth and that fundamental choices between work and life are necessary.
He manages two CEO roles (IAC and Angie) by having capable colleagues step up in other areas to free up his time.
He admits that the most significant personal investment mistake was failing to sell positions at the 2021 peak.
He rejects regret over missed exits, arguing that perfect timing is impossible and long-term thesis belief matters more.

Levin cites his mother's extreme frugality (e.g., sharing a single drink, avoiding full-price menu items) as a formative influence on his values.
He agrees that this upbringing built ambition and drive, despite the social friction it caused with other children.
He acknowledges the parental conflict between wanting children to succeed and the fact that adversity builds character.
His relationship with money is viewed through the lens that it is a "scorecard" that rolls toward and away from people.
He describes his persistence as a trait that can be both a strength and a weakness depending on the viability of the current thesis.
He uses the "About.com" (now DotDash Meredith) case to illustrate that decisions to continue a project must be re-evaluated on current merits, not sunk costs.
Jack Welch is named as his ideal board member due to his instincts, empathy, and ability to divine how others think.
Levin's approach to marriage involves respecting differing opinions and knowing when not to force a viewpoint.
He states he does not focus on changing the venture world but believes the previous era of overstuffed companies was dangerous.
He views business planning on a "forever timeline" while limiting personal life planning to shorter horizons.