If you are a retail investor, who is in a position to take on a high level of risk but you don’t have a massive bankroll with which to secure some of the action when it comes to fashionable sectors that have survived the pandemic, then you might want to consider a SPAC.
SPAC stands for Special Purpose Acquisition Company, also known as a ‘blank cheque’ or shell corporation. They are publicly traded firms, designed to raise cash with the express purpose to use that cash to buy another company.
The success of a SPAC very much relies on the reputation of the sponsors who have formed the SPAC. The sponsors are usually a group of investors who have years of experience in a certain field or industry and use their knowledge and insights to acquire a privately held company and take it public in an IPO (Initial Public Offering) or stock market launch.
The good news for early investors in a SPAC is most SPACs can be bought into at only $10 a share. The intention is that once the company has been acquired, and the sponsors have taken it public on the stock market, these share prices will start to climb quickly and early investors can cash out their shares, or remain invested for greater long term profits.
However, it’s not all plain sailing with SPACs and they do come with a high degree of risk. Often at the early stages the sponsors won’t know which company they intend to take public so you will have little to no idea how the money raised will be spent. There can also be lengthy wait times, even once a SPAC goes public it can take up to two years to select the target company it intends to acquire. Anyone considering a SPAC would be wise to proceed with caution and never invest more than they can afford to lose.