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Caleb
@investingforthe99percent
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📚📚📚 SPAC Attack! 🎢🎢🎢 Lately I’ve seen A LOT of questions and comments around SPACs so I thought people might appreciate a very quick primer from the perspective of a former investment banker: SPAC stands for Special-Purpose Acquisition Company and are sometimes referred to as “blank check” companies. When a private company wants to go public it usually has to go through a lengthy registration process with the SEC, go on a “roadshow” where it must pitch itself to potential institutional investors (i.e., Mutual Funds, Hedge Funds), and go through the precarious process of determining a listing price. Many companies end up under a greater level of scrutiny and often leave money on the table due to underpricing their shares. SPACs offer companies another path to going public. SPACs sell shares in themselves to raise cash and then use that cash to merge with a private company. Private companies that merge with SPACs don’t have to bother going on a roadshow, have less registration requirements, and, in theory, should leave less money on the table. On the surface SPACs sound great! Public investors have a way to buy into private companies and private companies can circumvent the typical IPO process. But that’s not the whole story - when does Wall Street do something to help out individual investors lol The founders of SPACs, who often decide what to buy and what to pay for the private company, usually get 20% of the shares that the SPAC issues. That means the founders have an incentive to overpay for the target company as they’ll get a larger pay day. If the valuation drops after the transaction is completed, they still get that 20%. The company is also obviously happy with a big valuation as it gets more cash for the business that way. Who loses out? Public investors and usually retail investors who buy early. This isn’t the case with every SPAC out there but it is true for many. Take the time to understand what you’re investing in and understand the incentives for the people who are making decisions with your m#SPAC #SPAC #TheMoreYouKnow #TheMoreYouKnow #Incentives #Incentives #InvestingBasics #InvestingBasics
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