SPAC (Special Purpose Acquisition Company)
A public shell company that raises money via IPO specifically to acquire a private company.
Definition
A SPAC is a publicly traded shell company created solely to raise capital through an IPO for the purpose of acquiring a private company. When the SPAC merges with the target company, the private company becomes public without going through a traditional IPO process. SPACs were popular in 2020-2021 but many resulted in poor outcomes for investors. The SPAC route is faster but comes with unique risks and regulatory complexities.
Why it matters
If your company goes public via SPAC, the economics differ from a traditional IPO. SPAC mergers often include earnouts and other conditions. Be cautious: many SPAC mergers resulted in stocks that traded well below the original $10 SPAC price.
Example
A SPAC raises $300M in its IPO. It merges with your company, valuing it at $2B. Your company is now publicly traded. However, 6 months later the stock has dropped 60% as the market reassesses the valuation.