FaZe Clan: $71.4M of PIPE investment defaults

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One thing is clear: It has not been a straight-forward process for esports and content creation organization FaZe Clan to go public. In the company’s latest filing, it revealed that $71.4 million of its $100 million backstop commitments defaulted on their obligations.

B. Riley — a major U.S.-based financial institution and sponsors of the SPAC that merged with FaZe — is now on the hook to guarantee FaZe Clan receives at least $100 million. In the filing, B. Riley confirmed it will invest $53.4 million into FaZe to replace the promised funds. B. Riley has contributed over 50% of FaZe’s backstop.

FaZe Clan made headlines in July as the first esports team to be publicly listed on the NASDAQ and did so via a SPAC merger. To ensure the success of the merger, FaZe and SPAC-backer B. Riley Financial waived its initial $218 million minimum cash condition for closing the deal. This was prudent as 92% of SPAC shareholders chose to redeem their investments rather convert them into FAZE stock.

While the FAZE stock has generally performed above the $10 per share baseline for SPACs, much of this was driven by this high redemption rate. With so few tradeable shares, demand pushed the price up. More shares will likely not become available until stock lock-up agreements expire in early January 2023.

In light of this S1 filing, investors have begun discounting the stock. Since Monday, FAZE shares have fallen nearly 30%.

The esports industry is under pressure to show investors that the business model can be viable. This is especially difficult in an environment where most stocks are falling. Investors — including major backers — are clearly taking a second look at their investments in FaZe Clan.

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