Blogs -Why SPACs are (Sometimes) Better than IPOs

Why SPACs are (Sometimes) Better than IPOs


February 04, 2021

author

I/O Fund

Team

SPACs offer retail investors the ability to invest early in a company’s life cycle. In the case of Snowflake, a company that went public via a traditional IPO, retail investors did not have this opportunity. By the time Snowflake debuted on the public markets, the share price had soared over 200% from its indicated opening price.

Many pundits and analysts have claimed that the IPO process is broken due to examples like Snowflake and AirBnb. Wall Street institutions and a select group of their top clients can buy shares at discounted prices before they hit the open market.

SPACs allow investors the ability to buy equity in companies going public before the initial price surge. This allows retail investors to participate in some of the same opportunities that have traditionally gone to institutional investors and preferred brokerage clients.     

Why would a company want to go public via a SPAC?  One of the main reasons is that SPACs provide companies with fast cash and the ability to bypass the regulatory hurdles of a traditional IPO.  SPACs allow companies to get to the public markets a lot quicker.  Many of the SPACs we are currently seeing are still pre-revenue or have very little revenue and are mostly unprofitable.  SPACs are ideal for companies that want to get to the public markets as quickly as possible and not have to deal with a long, drawn-out traditional IPO process.

This also happens to be one of the main risks as these are mostly newer, unprofitable companies with not a lot of revenue.  The SPAC method of going public may entice companies in need of fast cash because their financial situation is not fit for a traditional IPO.

SPACs had a bad reputation in the past because the industry was not as regulated and therefore open to more fraud.  In the 1990’s, SPACs would take small companies that were destined to fail public for a large fee. The SEC, however, has cracked down on it, and the regulation on SPACs has undoubtedly ramped up. Many more companies are now exploring alternative methods to going public and SPACs have been a key beneficiary.

https://images.prismic.io/bethtechnology/fce8ca06-fe6f-486a-9977-acfebb09c643_Why-SPACs-Better-than-IPOs.jpg?auto=compress,format

Source: Bank of America

The SPAC route gained notable popularity among companies in the 2nd half of 2020 and has continued its torrid pace into 2021.  We are currently on pace to see over $200B in US SPAC capital raised in 2021, representing well over 100% growth year-over-year.

What are SPACs?

SPACs are special purpose acquisition companies, sometimes called blank check companies, formed to raise capital to acquire an existing company and bring them public.  They are traditionally formed by investors with expertise in a certain industry, who are looking to pursue deals in that industry.  The SPAC management team can be a value add for the target company over traditional IPOs as they can partner with an experienced leadership team for guidance.

After a SPAC raises money for its potential acquisition, the funds are placed in an interest-bearing trust account.  The SPAC company then enters a timeline where they look to make a deal.  Once that deal is complete and approved, the SPAC combines with the business they are merging with and starts trading publicly under a new ticker.  If the SPAC fails to acquire a business by the closing date, and the shareholders do not grant an extension, the shares are redeemed for a portion of the cash in the trust account and returned to the shareholders.

In the IPO, a SPAC typically offers units to investors for $10.00 per unit.  These IPOs usually take place at a net asset value of $10.00, although there are some exceptions. 

The bottom line for investors is that SPACs are an increasingly popular method for companies to reach the public markets.  SPACs do not come without risks, but they represent an area of the market that growth investors can no longer ignore.  In some cases, there are notable opportunities for investors to buy equity in promising young companies.    

Gains of up to 403% from our Free Newsletter.

Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+344% on Nvidia

+403% on Bitcoin

+218% on Roku

*as of March 15, 2022

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds. 

beth

More To Explore

Newsletter

Where the Market is Headed Next

Where the Market is Headed Next

When the market was selling tech last year, the I/O Fund was buying AI leaders. For example, from September 2021 through January of 2023, we initiated 9 buy alerts for NVDA below $210. The last two al

June 08, 2023
https://images.prismic.io/bethtechnology/edb6f4db-e193-45b5-83f3-7524f57e66f7_Apple+Bets+On+The+Emerging+Markets+Growth+Story.jpg?auto=compress,format

Apple Bets On The Emerging Markets Growth Story

The smartphone market continues to be hit hard in q1, with prices down 20% and shipments down 13%, according to Canalys. Despite double digit decline across the industry, Apple delivered marginal grow

June 05, 2023
Nvidia Will "Still" Surpass Apple's Valuation

Nvidia Will “Still” Surpass Apple’s Valuation

My coverage on Nvidia as an AI leader began in 2018 (yes, really – five years ago). Since then, I’ve covered the AI microtrend for this specific stock 27 times on my research site, which is the equiva

May 29, 2023
FAAMG Stocks Trading At Precarious Valuations

FAAMG Stocks Trading At Precarious Valuations

The mega-cap stocks that are known as FAAMG reported earnings recently. These names are driving the market higher, especially Microsoft and Apple. In fact, the percentage of Microsoft and Apple’s comb

May 15, 2023
Apple PC Screen

Apple’s Stock In Focus: More Profitable Than Banks

Investors looking for the “next big thing” will point toward companies like Stripe, Sofi or Square as the leading fintech stocks. Meanwhile, the next big thing to disrupt the financial sector may be s

May 04, 2023
Netflix Remote Control

This Stock Price For Netflix Is A “Buy” For 2023

In April of 2022, Netflix surprised the markets by reporting its first subscriber loss in nearly 10 years. The stock tumbled 35% the following day, as investors panicked. Famed hedge fund manager, Bil

May 03, 2023
Where the I/O Fund Holds Cash When Banks Keeps Failing

Where the I/O Fund Holds Cash When Banks Keeps Failing

Amidst the growing skepticism in our banking sector, we thought it would be helpful to introduce an alternative way to both protect and diversify one’s assets. The information below discusses a method

April 20, 2023
Tesla Building

Tesla Stock: What You Need To Know About Q1 Earnings

Two months ago, we wrote that after realizing gains of 31%, it was time to take a time out on Tesla at the $208.31 price when our firm stated: “Right now, our technical analysis is at odds with our fu

April 16, 2023
Bitcoin Vs Banks: Here's Where the Price Goes Next

Bitcoin Vs Banks: Here's Where the Price Goes Next

The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector. The financial media would have us believe tha

April 05, 2023
Official Press Release: I/O Fund's Cumulative Returns Double the Nasdaq Following a Tough 2022

Official Press Release: I/O Fund’s Cumulative Returns Double the Nasdaq Following a Tough 2022

Actively managed portfolio and research site announces its largest cumulative lead over institutional all-tech portfolios. The I/O Fund defies a challenging market, outperforming peers and providing i

March 30, 2023
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio of 30 positions, a private forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2023
Get Free Weekly Analysis on the Best Tech Stocks