A shot in the dark rarely hits

We all understand the risks of signing a blank check, said Nir Kaissar. “The same caution applies” to investing in a blank-check company, formally known as a special-purpose acquisition company, or SPAC. Every few years, investors find a new investment fad—internet stocks or real estate trusts or cryptocurrency. “It always ends the same way, with investors rushing to get rich only to stumble out disappointed or worse.” The difference with SPACs is that you hand out your cash without even knowing where it will go. A SPAC is essentially just a shell company that raises money from investors to acquire a private business, take its name, and go public. The

appeal to startups is obvious: “Merging with a SPAC allows them to sidestep much of the uncertainty, effort, expense, and public and regulatory scrutiny that comes with a traditional IPO.” What’s in it for investors is less clear. Many SPACs never complete a deal; those that have since 2015 have seen an average loss of 9.6 percent. Ordinary investors have “watched from the sidelines” as startups like Airbnb, Robinhood, and DraftKings ballooned into multibilliondollar businesses. Now many of them see SPACS as “a back door” into highly hyped companies—and don’t look too closely at what they are buying, or how much they are being asked to pay.