What the heck is a SPAC?
You might have come across a term called "SPACs" and wondered what it means. Don't worry. You’re not alone! SPACs are a very interesting way for a company to go public without the normal IPO process, but they can be a bit confusing for people unfamiliar with the jargon. So, let's break it down in simple terms.
A SPAC, or Special Purpose Acquisition Company, is a company created to raise money from investors in an initial public offering (IPO) to acquire an existing company within a specific time frame. In other words, it's a way for a group of investors or a sponsor to raise capital from the public and use that money to buy another company.
Why are SPACs so popular all of a sudden? SPAC IPO has existed since the 90s but has had a surge in popularity lately in 2021. Well, for one thing, they offer a quicker and easier way for companies to go public than the traditional IPO process. Instead of spending months preparing for an IPO and meeting potential investors, a company can merge with a SPAC and go public faster. This has made SPACs a popular choice for tech startups and other companies that want to raise money quickly and avoid the hassle of the IPO process. Some companies have also highlighted that despite the higher cost, it is a go-to because of strategic partnerships formed and stability.
To learn
Although this is an interesting alternative to the long and strenuous IPO process, risks are also involved, such as the potential for fraud or the possibility that the SPAC won't find a suitable company to merge with.
The key takeaway is that, like any investment, you must do your due diligence and research before jumping in. And as with any investment, the risk is involved, so be sure to consult a financial advisor before making any decisions.
One of the first and most well-known SPAC IPOs was Virgin Galactic Holdings. In 2019, the company was listed on the New York Stock Exchange after its successful merger with Chamath Palihapitiya’s venture Social Capital Hedosophia.