[goat_whisperer]

I didn't know a great deal about SPACs, but it looks like the real winners are the initial Sponsors and IPO investors, while the losers are the suckers who pay shares after the SPAC merges with the target company.

Let's examine how convoluted the SPAC process is. First, a SPAC raises money through an IPO that it will use to merge with a target company. Then, when the SPAC finds a target and proposes a merger, many of the initial IPO investors redeem their investment at a handsome guaranteed return....so then the SPAC has to go out and raise more money through private placements?!?

What?! Isn't the whole point of the SPAC to raise funds to complete the merger?

As a rule of thumb, the more convoluted things get in finance, the more nefarious the intentions

[boh]

One of the worst aspects of a SPAC is that it's essentially a grab-bag purchase since even once you know the company being bought, you still don't initially know whether it's a good investment. This is true even if you're somewhat familiar with the business. 23andMe for instance, is currently SPACing, and though you might've heard about the company before, it's still unclear how profitable it really is or how much growth we should expect from it.

S-1s really matter. WeWork is a perfect example of a seemingly successful company that was forced to reveal its failings before hitting the public market. If it SPACed instead, many investors would've likely bought it due to name recognition and found their money was now tied to a failing business model.

To be fair, the typical IPO process doesn't have too much to admire either. It ironically leaves the public out of the actual initial offering, walling off much of the initial growth of the share price (unless it’s a super-star stock which balloons once it hits the public market--which they rarely are). More companies doing direct sales is a welcome change.

[albertshin]

While I won't comment on your other points, I do want to correct you that many SPAC acquisition deals involve a lengthy investor presentation deck that shows historical/projected financials (which are then republished in a more typical/formatted SEC document closer to the proxy vote date of the merger).

Here's 23&Me from the SEC website: https://www.sec.gov/Archives/edgar/data/1804591/000095010321...

See page 34 for summary of financials.

[stainforth]

>walling off much of the initial growth of the share price

Almost as if by design

[rorykoehler]

I don’t know anyone who thought wework was on good financial footing.

[vmception]

it wasn’t about good, it was about how bad

many and possibly most employees were living in a delusion though, that was pretty funny because when I polled them, many didn’t understand any of the financial meme lingo as wall street was making fun of wework for a whole year. So, they didnt get the jokes to even know it was a negative view.

[_ea1k]

> One of the worst aspects of a SPAC is that it's essentially a grab-bag purchase since even once you know the company being bought, you still don't initially know whether it's a good investment.

Yeah, and you also don't really know if it will go through. What happens when a SPAC claims to be merging with the company but the deal never materializes?

It feels like a weird system of gambling instead of investing in that sense.

[nostrademons]

SPACs usually have a clause in them that the money is refunded to the shareholders if it fails to complete an acquisition by a certain target date. The expenses of running the fund come out of the initial investment put up by the SPAC's sponsors, i.e. the folks who create the SPAC make the public investors whole and eat the losses themselves. This is why there's a de facto floor of $10 on pre-merger SPAC stock prices. In theory, it's a risk-less investment.

In practice, the SPAC sponsor ends up acquiring a sub-par company and taking it public regardless. If they don't, they lose all of their initial investment, yet if they do, they have a chance of unloading the shares on the public markets before anyone finds out. I saw a bunch of these when combing though SPAC lists - funds that had < 6 months left on the clock take a chain of nursing homes public, or a chain of used-car dealerships, or other companies that had no business being on the public markets. Then there's a very strong incentive to juice the financials and hide the skeletons so they can get the merger past shareholder vote. Hence the reputation SPACs are getting as vehicles for fraud.

[_ea1k]

Oh, I hadn't realized that. I think the cases that I was thinking of were just rumors of future SPACs before an official confirmation: https://investorplace.com/2021/02/cciv-stock-no-imminent-luc...

It seems like this leaves a lot of room for bad behavior by insiders.

[DebtDeflation]

>As a rule of thumb, the more convoluted things get in finance, the more nefarious the intentions

Many years ago, the quote I heard went something like, "There are only 3 real asset classes: Equities, Fixed Income, and instruments designed to make money for Wall Street. Colloquially known as Stocks, Bonds, and Bullshit."

[nopzor]

what’s the difference between equities and stocks?

[mynegation]

Equity is an asset class. It includes stocks for sure, but holdings in index funds, ETFs, private equity investments, venture capital are also examples of equities.

[nopzor]

index funds (of stock), private equity investments (generally stock), and vc equity investments (of private stock) are all also “stocks”.

[mnadkvlb]

Such an underrated comment !! +1