SPAC to the Future: Challenges and Opportunities as an Alternative to the IPO for High Growth Technology Startups

Abstract

Special purpose acquisition companies (SPACs) saw a meteoric rise in activity over the pandemic, particularly as an alternative to the initial public offering (IPO) for high growth technology startups. Academic literature has yet to comprehensively study SPACs due to their previous obscurity and predominantly focus on SPACs as an investment vehicle rather than public fundraising vehicle for private operating firms. My thesis aims to address the existing knowledge and regulatory gap surrounding SPACs as an alternative to the IPO and understand what role SPACs play in driving technology growth and innovation. Through qualitative case cases, I investigate two examples, one successful and one fraudulent, of SPACs acquiring startups. I extend my research with an empirical study of how specific firm characteristics, including technology focus, revenue, and venture-backing, affect a target firm’s likelihood to either SPAC or IPO. I find that non venture-backed technology firms with low revenue, along with startup “unicorns,” are more likely to SPAC than IPO. I ultimately conclude that SPACs play a unique role in enabling technology startups to go public, achieve shareholder liquidity, and access growth capital however present clear investor risks and regulatory vulnerabilities.