What Does the SPAC Buzz Mean for Indian Startups

SPAC or Special Purpose Acquisition Company is fast becoming a preferred route for startups to list on the US bourses, but a tough regulatory landscape pose challenges After a failed attempt at an IPO and losing billions of dollars two years back, WeWork is finally going public again. Has the office-space sharing company’s finances changed for the better this time? Nobody knows. Instead, the company has taken a different route to reach the stock markets: SPACs.

- Shipra Singh

Though been around for decades, Special Purpose Acquisition Companies or SPACs have only recently taken tech company founder’s and deep-pocketed investor’s fancy. For investors, it’s a means to book huge profits relatively quickly, whereas for companies, which are typically new-age tech startups, it’s an easier and faster route to go public. The method has been particularly hit in the US of late. Of the 407 companies that went public in the US in 2020, nearly 250 saw listings through SPACs raising close to USD 83 billion collectively. Data from Bloomberg shows that in the five months of this year, over 550 SPACs have already filed to go public on the US bourses to break last year’s record. Of course, many more companies are expected to go SPAC-ing in the remaining year.

WHAT’S A SPAC

SPACs are shell companies with no commercial operations that are formed for the sole purpose of market listing. A SPAC raises funds through an IPO, which is then used to acquire one or more companies to enable them to go around the traditional IPO route to indirectly list on a stock exchange. A SPAC is set up by a management team, also known as ‘sponsors’, which typically comprises one or more venture capitalist firms or investors. The sponsors leverage their reputation and expertise to attract capital from institutional investors before taking the blank check company public.