SPAC

November 21, 2023 - Around 2 mins mins to read

What Is a SPAC?

A SPAC, also known as a special purpose acquisition company, is a company that is created by investors with the goal of raising funds through an initial public offering (IPO). Unlike traditional companies, SPACs do not engage in any commercial operations and are specifically formed to acquire an existing company. Typically, a group of investors, referred to as “sponsors,” establish SPACs with the intention of pursuing deals within a particular industry.

When SPACs raise funds through an IPO, the money is held in an interest-bearing trust account and cannot be used unless it is for completing an acquisition or returning the funds to investors in the event of the SPAC being liquidated. SPACs serve as intermediaries between the public and businesses that often face challenges in accessing funds.

SPACs have become a popular alternative for companies seeking to go public, as they offer a way to bypass the complexities associated with traditional IPOs and ICOs. Additionally, SPACs provide a solution for companies that may not have a strong market presence required for direct listings. Compared to IPOs and ICOs, SPACs offer a faster and more convenient process by allowing projects and companies to secure investor commitments early on at a predetermined price. This is in contrast to traditional IPOs, where such commitments are made the night before the offering. Essentially, being acquired by a SPAC provides business owners with a quicker IPO process and the guidance of an experienced partner.

Author: Gunnar Jaerv is the chief operating officer of First Digital Trust — Hong Kong’s technology-driven financial institution powering the digital asset industry and servicing financial technology innovators. Prior to joining First Digital Trust, Gunnar founded several tech startups, including Hong Kong-based Peak Digital and Elements Global Enterprises in Singapore.