Thread by @KinglyCrow

What is a SPAC? A Special Purpose Acquisition Company, or SPAC are companies who are formed specifically with the purpose of raising funds at an IPO. Why do they do this? They do it to acquire an existing business. And they've risen in popularity.🧵
#Tweet100 #startups #business

They've risen in popularity compared to traditional IPOs because they're quicker to push through to completion, have less scrutiny and present very favorable terms to their (institutional) investors. This means that a business that may not have the financials to succeed through

the classic IPO process is often able to IPO through a SPAC and provide great returns to their investors while having questionable longevity as an investment. As an example, wsj.com/articles/spacs…

Those 25 companies range from EV businesses to Scooters, but what they have in

common is weak financial performance since their SPAC. Independent of that article a significant portion of SPACs trade below their initial offering price 6 months after that offering. This is problematic for retail investors who do not have access to the same favorable

terms that institutional investors have and many times these deals are hyped up to these less savvy investors who are then left holding the bag long after the institutions have made their money. This hasn't gone unnoticed by regulatory bodies and the regulatory space

has been growing for SPACs reducing their attractiveness to investors. The SEC proposed changes to enhance disclosures and investor protections surrounding SPACs to bring them inline with traditional IPOs. These proposed rules would bring with them things like:

• Additional disclosures about SPAC sponsors
• Conflicts of interest disclosure
• Sources of dilution disclosure
• Safe harbor for forward-looking statements and the use of projections in various filings
[sec.gov/news/press-rel…]

As a result of these proposed changes at least one major player in the SPAC space whose name we all know, Goldman Sachs reduced its SPAC business earlier this May.
[cnbc.com/2022/05/09/gol…]

As someone who follows the startup space pretty closely, this is looking like the beginning of the end for quick, low disclosure IPOs, to which I say: great. In my opinion the majority of SPAC'd companies are trash tier in terms of their track record and long term promise.

For the most part they're not mature enough to undergo the normal process and the investors pushing the SPAC know this and have a plausibly deniable feeling the business will not be viable in the future. But by using the SPAC route they can get a sufficient return on their

investment and push the risk to the general public without any downsides to themselves. This was never supposed to be a viable route and now we're seeing the chickens come home to roost in that these dodgy businesses are teetering on the edge of failure when they don't have

access to cheap capital because of other macro economic events currently underway. What this means for startups is that we're returning to sanity. You can't rely on fast cash and weakly regulated process to cover for the shaky fundamental economics of your company.

As YC says you need to be default alive and now even beyond that, you'll (again) need to have a proven track record before you can be a public company. The future is going to be made on the corpses of these faltering companies but the ones that do survive will provide real

tangible value and as both an entrepreneur and retail investor I'd much rather be in that world. Nature is healing.