As you know, I view all of us as intelligent & active participants in the world of startups & investments!  Recall for example how in the last 2 years, the Softbank VISION Fund impacted a critical potential IPO, & how over-investment impacted the decline of a unicorn like WeWork. Think about how Uber, another potential unicorn, hit the many obstacles it did back in 2018, leading to the large organizational layoffs, way before COVID. Understanding the ‘source’ & ‘mechanism’ of funding often helps to understand how solid a company is or is not. In my next series of posts, I’ll be discussing various new sources of funding.

Let’s 1st talk SPACs. Special Purpose Acquisition Company (SPAC) is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO). When the SPAC raises the required funds through an IPO, the money is held in a trust until a predetermined period elapses or the desired acquisition is made.

In creating a SPAC, the founders sometimes have at least one acquisition target in mind, but they don’t identify that target to avoid extensive disclosures during the IPO process. This is why they are called “blank check companies.” So, you may ask:

“Isn’t this what private equity companies do?”

“When super angels, angels, or VC’s raise a fund, & if that fund is earmarked for a major investment/acquisition, is that not like a SPAC?

“If a corporation puts in tons of money for the special purpose of purchasing a company, is that not like a SPAC?

The answer to all is a strong, YES. In fact, SPACs will be going directly head-to-head with private equity firms. Consider this: Anyone can set up a SPAC. A music artist with loads of cash can create a fund, go through an IPO, raise more capital, acquire a label company, & bam, it’s done. The rules around SPACs are unclear & if you have capital (tons of it), can raise funds, go IPO, you can then choose to acquire 1 or more companies.

This creates both opportunity & responsibility. Clearly, these increase the mechanisms of more cash into the investment/acquisition market, but the real question is, are all SPAC major investors equipped to acquire companies? Are there downsides?

The world of investments & capital is the wild west with very few rules in reality. There are clear financial & fiduciary responsibilities, but the options of ‘how’ to raise a fund, do an IPO, etc., are pretty flexible!

What I like about SPAC is that it’s yet another way to do an IPO, bring investors to the market, & bring more global cash to invest in startups. But like all things having to do with investments or acquisitions, everyone should be knowledgeable with Eyes Wide Open! Know the facts, risks, & rewards. I love that we’re constantly disrupting the world of funding in order to innovate!

Disrupt | Innovate | Lead