Why Your IPO Might Get Done via a SPAC in 2021
by Jim Lundy
If you haven’t noticed, the new rage in getting your company listed is to leverage something called a SPAC as a way to bypass traditional methods and leverage to increase amount of investors who want to participate in the growing interest in owning firms with strong growth potential. This blog discusses SPACs and why they might be right for you.
What Is a SPAC?
A SPAC back is a special purpose acquisition company that is made up of a series of investors who want to invest in a company and take it to a stock exchange. SPACs are a form of direct listing that was made popular by the likes of Slack.
SPACs have shares and a management team. A SPAC raises money from investors. The investors in a SPAC own shares of that SPAC and appoint a management team to run it. A SPAC investor can opt out of an IPO deal that they don’t like, which means for investors that they have more say on where their money is invested.
Are SPACs Popular?
Yes, SPACs are very popular. In fact, last year 50% of the IPOs were done via SPAC and they raised a total of 79.87 billion in gross proceeds in 2020. For 2021, the interest in SPACs from an investor perspective is at an all-time high.
Why Go the SPAC Route?
A SPAC is a great way for a private company to get listed. Obviously, it means giving up some of the control but sometimes not as much as the traditional venture capital to IPO route.
Little-to-no IPO Window
A traditional IPO is based on timing and missing the right window can lead to a failed IPO. Realize that an IPO can take 12-18 months to execute between the enterprise, the underwriters and the SEC. A SPAC is easier because the money has already been raised, so a timeframe of 3-7 months is not unreasonable to execute a SPAC-backed IPO.
Faster Time to Market for Younger Companies
SPACs can be a quicker way to market for companies that may be less mature, but fast growing. An example is Sports betting firm DraftKings, which IPO’d via a SPAC.
Expertise of the SPAC Management Team
Another benefit is that the Management Team of the SPAC often has significant levels of experience to assist the firm they are taking through the IPO. Venture capital firms also have that, but often may not be able to spend as much time with the enterprise that is IPO’ing due to the number of investments under their umbrella.
The bottom line is that SPACs are here to stay, and it is an attractive opportunity for an enterprise to get to an IPO. There are few downsides and that is one of the reasons their popularity has soared. Investors like them too, so expect a SPAC to be in your future over the next few years.