I’ve been noodling on the SPAC problem for months now, wondering what’s wrong with them. Only recently has the answer come to me.
Special Purpose Acquisition Companies (SPACs) are designed to take private companies public before they’re ready for the public market. That is, the SPAC buys what’s basically a venture company, then sells stock in the venture to the public.
SPACs don’t have profits or even sales to justify their valuations. What they have is the sponsor’s word, and the CEO’s presentation. These are carefully stage-managed, as though public investors were buying into a venture fund. Of course, small investors can’t buy into venture funds. We’re not accredited. We can’t guarantee that if the venture goes bust, we won’t be hurt. That’s what being accredited means.
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