What Is A SPAC And How To Evaluate If It Is Worth Investing

IPO listings have been on a tear over the last year. Snowflake soared as high as 166% on opening day, while Airbnb opened at 115%. With all the focus on the IPOs gains, Special Purpose Acquisition Company (SPACs) have largely flown under the average investor’s radar.

SPACs have recently come into vogue with the promise of solving IPO allocation issues for the small retail investor.

Is there a better method to make sure retail investors who are not high net worth clients get early dibs on emerging sectors?

Do SPACs offer a unique opportunity for investors who have been unable to get IPO allocation?

In the past, we had explored bitcoin, moonshot investing, avoiding residential rental properties, MMT, and a host of other ideas before they became mainstream. With money gradually flowing into SPACs, let us stay ahead of the game and learn about SPACs, the lifecycle, and how to evaluate them. What are the advantages of SPACs over IPOs and any risk factors to avoid?

What Is A Special Purpose Acquisition Company (SPAC) A SPAC is a non-operating “shell” company created to raise capital to acquire an existing company. A SPAC is also known as a “blank check company” designed to take companies public without going through the traditional IPO process.

While we may not agree with everything he says, there are nine decades of wisdom buried in Warren Buffett’s quotes.

SPACs are generally formed by a team of sponsors with expertise in a particular business sector to pursue deals in that area. A SPAC is only a shell company when it becomes public.  The SPAC does not have an underlying active business and does not have assets other than cash raised from the IPO.

Difference Between A SPAC vs. An IPO A common criticism with Uber and other companies coming to market via the traditional IPO process is that they often wait too long to be publicly listed.  As a result, the retail investors don’t get the hyper-growth aspect of a young company. Instead, they have to buy shares of a matured company and have muted returns.

Many startups prefer to stay private since the traditional IPO process involves many burdensome regulations to raise funds.  Selection of lead bankers takes time. The founders need to be available for roadshows and investor presentations. SEC has a lot more requirements in terms of disclosures and fees.

How Does The SPAC Process Work

Fundraising The SPAC process involves the sponsors raising capital from investors for buying an operating company. Sometimes the sponsor will announce which industries and types of companies they are looking to acquire.

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