This post is by Reid Hoffman from Reid Hoffman

One of the hottest topics in the technology and finance world right now is an old idea that has suddenly found new life, the special purpose acquisition company or “SPAC.” SPACs, which are sometimes referred to as blank check companies, are entities that go public and raise money from investors so that the IPO proceeds can be used to invest in and acquire companies.  In 2014, SPACs raised $1.8 billion. Last year, it was $13.6 billion. And this year, in 2020, it’s $40 billion and counting, with a full quarter yet to go.

The reason I think SPACs are hot right now is the lack of innovation in the IPO process.  Most IPOs are managed by a handful of investment banks who run a roadshow to sell stock to risk-averse institutional investors.  The result is a slow, expensive process that transfers value from the startups and their shareholders to the banks and their clients.

SPACs offer a different path to going public, and SPAC organizers or “sponsors” are using the instrument to innovate in various ways.  For example, in comparison to IPOs, SPACs have the cardinal blitzscaling virtue of speed.  By allowing companies to go public quickly and with greater price certainty, the SPAC approach offers a faster path to using important tools in the blitzscaling toolkit, like having an acquisition currency or attracting great employees.

But while it’s certainly possible to use SPACs for financial engineering, Reinvent Technology Partners, the SPAC that I sponsored with Mark Pincus and (Read more…)