Special Purpose Acquisition Companies (SPACs)

Welcome to this week’s segment on raising capital. Head over to our YouTube channel or check out these articles from the SEC, Crunchbase, and Investopedia to learn more.

Today let’s touch on a topic that’s gained a lot of attention this year. It’s called a SPAC. It’s a Special Purpose Acquisition vehicle. These things have actually been around for years, and they go by another name called a “corporate shell.” A lot of times. corporate shells are something that’s left over when a public company has sold all of its assets, but the public stock trading infrastructure is still there. These public shells have value. What’s become more popular since 2016, and even before, even though this infrastructure has been around for a long time, is for people to actually form a company that has no assets and then to take it public.

The SEC actually came out with rules to be able to do this. When you go public as a shell, essentially then you’ve got two years to go buy some assets and turn it into an operating company. This has become extremely popular in 2020, and we should discuss the reasons why. Again, it’s a function, it’s an infrastructure, it’s a potentiality that’s been around for many years. Why in 2020 has this become popular?

It’s um it’s a fairly cheap way to raise money. If you are doing things on a large scale, it’s cheaper to take a SPAC public because there’s not as much disclosure. They’re brand new entities. They don’t have to be audited. It really comes down to who are the principals behind it, and are the investors interested? The other reason is the pandemic, as is the answer to all questions about 2020, very much like the raising capital and the SEC changes that it’s made in private company securities. This is the same reason that SPACS have become popular. Well-known investors and operators can raise funds and raise money in a fund such as a SPAC fairly efficiently due to technology and markets and electronic distribution of investment opportunities.

We’ve shared several articles about SPACS above and highly recommend you read up on this hot topic. And as always, if you’d like to talk about it, just reach out to Harvard Grace.

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