Exits & Liquidity
SPAC
Special Purpose Acquisition Company — a shell company that raises capital through a public offering specifically to acquire a private company, taking it public without a traditional IPO process.
A SPAC is a blank-check company created solely to acquire a private company. The SPAC raises money from public investors, then finds a merger target. The private company merges with the SPAC and becomes public without going through the traditional IPO process of roadshows and bookbuilding.
SPACs had a massive boom in 2020-2021 as an alternative liquidity path. They offer speed (3-4 months vs. 12-18 months for an IPO), certainty of valuation (negotiated privately), and access to public markets during uncertain conditions. The bust followed: most 2020-2021 SPAC mergers destroyed shareholder value significantly.
In Practice
DraftKings went public via SPAC merger with Diamond Eagle Acquisition Corp in 2020, a faster path that allowed it to access public capital during COVID uncertainty. The stock initially performed well, then fell significantly as the broader SPAC boom turned to bust.
Why It Matters
SPACs proved to be a largely negative exit path for most public investors — de-SPAC companies dramatically underperformed traditional IPOs on average. For founders and VCs, SPACs offered speed and certainty at the cost of less rigorous investor vetting and weaker post-merger stock performance.
VC Beast Take
The SPAC craze of 2020-2021 will be remembered as one of the more embarrassing episodes in financial market history. The incentive structure was fundamentally broken: SPAC sponsors got paid even if the deal destroyed value for everyone else. Most retail investors who bought de-SPAC companies lost money.