Investor Pushes Snap to Raise Capital for Eyeware Business Specs

Hedge fund Blue Duck Capital Partners wants Snap Inc. to raise capital by selling a stake in its nascent Specs unit, putting additional investor pressure on the social media app to deliver on its big investment in augmented reality glasses.

Snap is “profoundly” undervalued and raising money for Specs would unlock significant shareholder value, Blue Duck Chief Investment Officer Alex Beinfield said in a letter to Snap’s board on Tuesday.

While the technology unveiled last month is “remarkable” and has enormous potential, Specs are unlikely to see mass adoption in the next year or two, Beinfield said in the letter reviewed by Bloomberg News.

A Specs-focused capital raise would help spending without diluting Snap’s share count and preserve its cash flow, Beinfield said. It could also enable the company to potentially lower Specs’ price of around $2,200, he said.

Selling 20% of the Specs subsidiary at a valuation of $5 billion would raise $1 billion, which would fund the division’s spending for roughly two years, Beinfield argues. He said it should raise capital from venture capital or a strategic player such as SpaceX.

“Neglecting to take the actions outlined here at this juncture would likely result in more of the same: a deeply depressed share value, which limits strategic optionality, hurts employee morale and retention, and lowers the chances of reaching ambitious objectives for what Specs can be,” Beinfield said in the letter to Chief Executive Officer Evan Spiegel, Chief Technology Officer Bobby Murphy and the board.

Blue Duck said it’s an investor in Snap but didn’t disclose the size of its position. The firm’s letter puts additional pressure on Snap to deliver on Specs.

Irenic Capital Management has built a position in Snap and has pushed the company to spin off or shut down Specs after saying it has invested more than $3.5 billion in the business, arguing it should be self-funded by now.

A representative for Snap didn’t immediately respond to a request for comment. Beinfield declined to comment.

Snap, co-founded by Spiegel, Murphy and Reggie Brown, is known for its Snapchat app that includes disappearing photos and messages. It went public in 2017 with a multi-class share structure that gives public investors no voting rights, with co-founders retaining control.

Spiegel last month launched Specs, with the company saying they would deliver “new ways to learn, create, work, and play.” They are expected to ship this fall. Snap in January created a standalone subsidiary for Specs.

Blue Duck, based in Manhattan Beach, California, is a long-short equity strategy fund with a focus in tech, media, telecom, consumer and industrial sectors.