The SPAC Ship Is Sinking. Investors Want Their Money Back.
JANUARY 22, 2022
WORLD
One of the hottest businesses of the pandemic is cooling off, as the hype surrounding ‘blank-check’ companies gives way to reality
SPACs — sometimes called blank-check firms — start out as shell companies. They raise money from investors, then get listed on the stock exchange. Their sole objective is to merge with a private company and take it public. Because a going public company is merging with an existing publicly traded entity, it can make business assumptions and bypass some of the other rules associated with IPOs. After the deal is cleared by the regulators, the going public replaces the SPAC in the stock exchange.
Upstart companies of all stripes flocked to participate, enamored with pools of eager investors willing to back them, and tempted by celebrity SPAC creators and bankers who put money on completing deals. The company behind dog-toy subscription service Barkbox did the SPAC merger. So does personal-finance app SoFi Technologies Inc.
Office-sharing company WeWork Inc. found a SPAC after its planned IPO was discredited. Electric-vehicle battery makers, flying-taxi startups, self-driving car companies and a never-ending parade of biotech names all jumped the fray.
Now, hype is giving way to reality. Like so many investing trends, what at first seemed like a way to make easy money has revealed itself to be full of potential risks. The threat of tighter regulation looms large, and high-profile stumbling blocks by some of the companies that have gone public through SPAC have taught investors some hard lessons. It turns out that investing in unproven upstarts isn’t for everyone, and speculative investments of all kinds are taking a hit, from technology stocks to bitcoin, with interest rates likely to rise in the coming months.
JANUARY 22, 2022
WORLD
One of the hottest businesses of the pandemic is cooling off, as the hype surrounding ‘blank-check’ companies gives way to reality
SPACs — sometimes called blank-check firms — start out as shell companies. They raise money from investors, then get listed on the stock exchange. Their sole objective is to merge with a private company and take it public. Because a going public company is merging with an existing publicly traded entity, it can make business assumptions and bypass some of the other rules associated with IPOs. After the deal is cleared by the regulators, the going public replaces the SPAC in the stock exchange.
Upstart companies of all stripes flocked to participate, enamored with pools of eager investors willing to back them, and tempted by celebrity SPAC creators and bankers who put money on completing deals. The company behind dog-toy subscription service Barkbox did the SPAC merger. So does personal-finance app SoFi Technologies Inc.
Office-sharing company WeWork Inc. found a SPAC after its planned IPO was discredited. Electric-vehicle battery makers, flying-taxi startups, self-driving car companies and a never-ending parade of biotech names all jumped the fray.
Now, hype is giving way to reality. Like so many investing trends, what at first seemed like a way to make easy money has revealed itself to be full of potential risks. The threat of tighter regulation looms large, and high-profile stumbling blocks by some of the companies that have gone public through SPAC have taught investors some hard lessons. It turns out that investing in unproven upstarts isn’t for everyone, and speculative investments of all kinds are taking a hit, from technology stocks to bitcoin, with interest rates likely to rise in the coming months.
