SPAC (Special Purpose Acquisition Company)
Definition
A shell company that raises money through its own IPO, then merges with a private company to take it public. For the private company's employees, a SPAC merger functions similarly to a traditional IPO — shares become publicly traded, RSUs may settle, and options can be exercised. SPACs were popular in 2020-2021 but have since declined.
Real-World Example
Your startup merges with a SPAC. Your 15,000 options with a $2 strike are converted into options on the new public company trading at $12/share. After the lock-up period, you can exercise and sell for a $150,000 pre-tax profit.
Common Mistake
Treating a SPAC merger the same as a high-quality traditional IPO. SPACs have historically underperformed traditional IPOs. Many SPAC-merged companies saw their stock price decline 50-80% within a year. Do not assume the stock price at merger will hold.
Why It Matters
If your company goes public via SPAC, you need to understand the differences from a traditional IPO — including the higher risk of post-merger price decline, the warrant structure, and the potential for additional dilution from SPAC sponsors.
Related Terms
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