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Special Purpose Acquisition Company - a "blank check" company that raises money to buy another company.
Why It Matters
SPACs were the hottest thing in 2020-2021 - a faster, easier way for companies to go public. Instead of a traditional IPO, a company merges with an already-public SPAC. The frenzy brought companies like DraftKings and Virgin Galactic public. But many SPACs crashed badly - the average SPAC from 2021 lost 60%+ of its value. The lesson: hype isn't a business model.
Key Points
- Sponsors (who create SPACs) often get 20% of shares for free - misaligned incentives
- You can redeem SPAC shares for ~$10 before a merger if you don't like the target
- Most SPACs have underperformed traditional IPOs - be very cautious
Related Terms
Common Questions
Special Purpose Acquisition Company - a "blank check" company that raises money to buy another company. SPACs were the hottest thing in 2020-2021 - a faster, easier way for companies to go public. Instead of a traditional IPO, a company merges with an already-public SPAC.
SPACs were the hottest thing in 2020-2021 - a faster, easier way for companies to go public. Instead of a traditional IPO, a company merges with an already-public SPAC. The frenzy brought companies like DraftKings and Virgin Galactic public. But many SPACs crashed badly - the average SPAC from 2021 lost 60%+ of its value. The lesson: hype isn't a business model.
Sponsors (who create SPACs) often get 20% of shares for free - misaligned incentives
You can redeem SPAC shares for ~$10 before a merger if you don't like the target
Most SPACs have underperformed traditional IPOs - be very cautious