Back then during the pandemic, when stimulus checks where given out to people and Zoom calls replaced boardrooms, Wall Street revived a financial Frankenstein known as the SPAC. For a while, it looked decent.
A bunch of shell companies with no operations or products were suddenly worth billions just because someone important said, “Trust me, I’ll find something big.”
Now after everything, SPACs are back. Yes, the same investment vehicles that made and lost fortunes faster than you can say "JACK ROBINSON" are once again convincing investors. But before we proceed, let’s unpack what this really means and who is actually benefiting.
SPAC stands for Special-Purpose Acquisition Company. Think of it as an empty gift box that promises to contain something amazing later. Here’s how it works:
- A well-known investor (the “sponsor”) raises money from the public by listing a shell company on the stock exchange.
- This shell company has no operations its sole purpose is to find a private company to merge with.
- If and when the SPAC finds a target (say, a startup or futuristic tech firm), the two merge, and the private company becomes public without going through the traditional IPO process.
Sounds clever? It is. But clever doesn’t always mean wise.
During the COVID-19 era, SPACs exploded. Celebrities, tech tycoons, and hedge fund managers all jumped on board. There was a gold rush mentality everyone wanted in. Some companies that went public through SPACs performed well. But also many did not.
Investors who bought in early often cashed out before things soured. But average retail investors those who bought into the dream were left holding the bag when stock prices tumbled. According to a Harvard Law School study, the average post-merger SPAC lost over 30% within a year.
You’d think that kind of track record would bury the SPAC for good. But here we are in 2025, and they are back. Chamath Palihapitiya one of the original SPAC kings is back in the headlines. So are dozens of others. Why?
Because for those in the game sponsors, bankers, lawyers. SPACs are still incredibly profitable. Sponsors typically get a 20% cut of shares for free. Advisors collect millions in fees. Even if the end company fails, the people who put the deal together already got paid.
It’s Wall Street’s version of “heads I win, tails you lose.” The system rewards dealmakers, not outcomes.