5 Lessons From The Rise And Fall Of SPACs

, Forbes

SPACs, or special-purpose acquisition companies, have been a hot way for young companies to quickly go public and scoop up cash to growth.

The 85 SPAC IPOs in 2019, 2020, and the beginning of 2021 were largely tech, electric vehicle, healthcare, and industrial companies, 69 of which had negative free cash flow or negative net income.

The newest round has much to do with early-stage companies wanting IPOs but not wanting to invest the time, money, and work for the standard approach. A SPAC promises a fast way to bring in investment cash for growth. The desire met receptive circumstance

All in all, it may be a decent deal for the initial investors, which tend to be institutions.

Retail investors, on the other hand, face far more speculation on secondary markets. There’s a reason that SPACs are nick-named blank-check companies as, until the target is identified, no one knows what the business will ultimately be.

For example, WeWork, the temporary work space company that bailed out of a disastrous IPO attempt two years ago, will finally see a public offering through a merger with BowX Acquisition Corp., a SPAC vehicle that initially intended “to focus our search on target businesses in the technology, media and telecommunications industries.” Now it’s in real estate.

SPACs will remain, as they have for years. Smart investors and executives might hold off on a rush to a fad to better consider what involvement might mean.

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