What is a special purpose acquisition company (SPAC)?
A SPAC is a company created to go public, attract capital and then complete a reverse merger transaction.
A special purpose acquisition company has no ongoing business operation until it completes an acquisition of a private company.
Investments in a SPAC are risky because the management team seeks to create shareholder value solely through a strategic transaction.
As an investor in a SPAC, you are counting on management to attract a high-quality private company, structure a good transaction, close the deal and then hope the new management team can further increase shareholder value.
Investing is hard enough when presented with detailed information about a company and their team, product/service, strategy and financial results. When investing in a SPAC, investors are taking an additional level of risk.
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Regulation A governs how private and public companies can raise a substantial amount of equity and debt capital from their friends, family, business network and the general public.
Regulation CF governs how equity and debt crowdfunding can be used by entrepreneurs seeking a relatively quick and cost effective way to raise capital from their own network and the general public.
The cost for a private company to go public varies based on many factors. Startups can go public for less than $125,000 while larger companies will certainly spend more.
It takes about eight months for a private company to go public in the United States. The process to go public in the United States is very defined. The broad strokes include organization (and sometimes reorganization), planning, preparation of financial statements, audit of those financial statements, drafting of a registration statement, review by the Securities and Exchange Commission, filing with FINRA for trading and then applying to the desired stock exchange.
Private companies decide to go public to raise capital and make it easier to recruit talent and complete acquisitions.