GLOSSARY // Market Structure
SPAC
A SPAC (special purpose acquisition company) is a shell corporation that IPOs with no business — just cash in trust, almost always $10.00 per share — and a mandate to merge with a private company, taking it public through the back door. The merger is called a de-SPAC.
The structure has built-in protections and built-in dilution. Shareholders can redeem for their ~$10.00 of trust value (plus interest) instead of riding the merger, and the SPAC typically has 18-24 months to close a deal or liquidate and return the trust. Meanwhile the sponsor collects founder shares — often 20% of the SPAC's equity — for a nominal investment, plus warrants that dilute further.
The 2020-2021 boom saw hundreds of SPACs launch; most de-SPACed companies subsequently traded far below $10, which is the base rate to remember when a SPAC pitch deck projects hockey-stick revenue with no SEC-vetted IPO process behind it.
A SPAC trading at $9.95 announces a merger with an EV startup and spikes to $14.00. A holder who bought the SPAC IPO at $10.00 can sell at $14.00, redeem for about $10.05 if it falls back, or hold through the de-SPAC. Twelve months after closing, the combined company trades at $3.20 — down 68% from trust value, roughly the median outcome for its 2021 cohort.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.