SPACs: A Brief Overview

This post is by Elad Gil from Elad Blog

Just as every founder seems to have a side angel fund, every late stage investor now appears to have a SPAC (Special Purpose Acquisition Company). While SPACs have existed outside of tech for decades (largely to help slower growth profitable companies go public), SPACs are now entering the tech ecosystem. SPACs in tech were pioneered early by Chamath Palihapitaya, who used one to take Virgin Galactic public. More recent SPACs have been raised by funds like Dragoneer, Goldman Sachs, Pershing Square, as well as Barry Sternlicht's Jaws and Eventbrite's Kevin Hartz.

At its core, you can think of SPACs as decentralized investment banking - SPACs are roughly public search funds that allow individuals or funds to take private companies public.

Given all the capital raised by SPACs, it seems likely a number of technology companies will be acquired by SPACs as a mechanism to raise more capital and go public in the next 12-24 months.

This post reviews how SPACs work, where incentives lie, and how SPACs compare to Direct Listings (DLs) and IPOs. The emphasis of this post is tech-centric SPACs, versus the original usage.

What is a SPAC?
A SPAC is a shell company that raises money by going public via an IPO, with the goal of merging with a private company within 18-24 months as a way of taking the private company public (without an IPO). The SPAC raises money from public market investors which is then part of (Read more...)