What Is A SPAC? Their Investment Considerations

SPACs became very visible in 2020, with 219 SPACs raising $73 billion, outpacing traditional IPOs, which raised $67 billion.

There is a mystique about investing in  SPACs. We’ll try to demystify SPACs by explaining their structure, their  investment considerations, and identify benefits and drawbacks.

SPACs are speculative investments with  high risks with returns that often favor the founder, however, new  structures are emerging that may enhance returns.

A SPAC is a special purpose acquisition  company, sometimes referred to as a “blank check company.” Blank check  companies are an appropriate term at the development stage.

What Is A SPAC?

Before the IPO, the sponsor invests capital, paying a nominal price for the shares and warrants.

Stages of A SPAC

Post-IPO, the sponsor will have about a 20% interest in the SPAC. These shares are called “founder shares.”

Stages of A SPAC

As the sponsor, they receive a lower price as their compensation for the SPAC’s work.

Stages of A SPAC

Buy At The Ground Level. There is a chance for smaller investors to join institutional investors  to participate in an exciting industry at an earlier time  at the ground level.

SPAC Benefits

Low Price Point. At the initial stage, the shares are the same at $10 per share, a desirable price point for retail customers.

SPAC Benefits

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