a SPAC is formed, the sponsors will purchase “founder shares” for a nominal amount (say, $25,000). These are often registered as “Class B” or “Class F” shares. Though the situation varies from company to company, the founders typically end up owning 20% of the business. This is called the “promote,” and it lines up with the private- equity-fund structure, where they get to keep
They offer access to more capital
One of the motivations to do a SPAC transaction is for a company to have a publicly traded vehicle. Another equally important benefit is access to more capital. Typically, the majority of the pool of capital that the SPAC raised is then kept at the new operating company to fund future operations and growth. They can partner with proven management teams By selling a company to a SPAC, the entrepreneur can benefit from the sponsor’s experience and network. The SPAC sponsor is typically locked up from selling shares for at least a year, and usually remains a significant investor. Just like with venture-capital or private-equity funds, entrepreneurs can benefit from this relationship. A business combination between a private company and a SPAC is a complicated process that requires extensive due diligence and legal and regulatory requirements. But it’s a lot less of a hassle than doing an IPO, which involves a road show, negotiations, and plenty of red tape.
20% of any profits they produce. They open doors down the road
If sponsors do a good job (and make money for investors), it increases their ability to go out and launch other SPACs in the future. This gives these entrepreneurs an opportunity to create a private-equity-like structure. Rather than raising one big fund to do a number of deals, though, they raise individual funds (the SPAC) for each deal. This is why sponsors are increasingly launching multiple SPACs... a trend that’s likely to continue.
WHY COMPANIES LIKE SPACS
They’re much easier than a traditional IPO
A business combination between a private company and a SPAC is a complicated process that requires extensive due diligence and legal and regulatory requirements. But it’s a lot less of a hassle than doing an IPO, which involves a road show, negotiations, and plenty of red tape. A typical IPO process may stretch out for 12 to 18 months, while a SPAC deal could close in less than six months. This means more time for the company to manage the business and grow value.
WHY YOU SHOULD LIKE SPACS
You get a free look at a potentially great investment As I mentioned earlier, once a transaction is
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