Colin Kaepernick, the activist and former NFL quarterback, is the latest high-profile investor to get in on the SPAC craze.
A SPAC, or special purpose acquisition company, is a very trendy way to take a company public. Rather than go through the expensive, time-consuming process of an IPO, private companies can merge with a SPAC, aka a blank-check firm, which exists solely to raise money by listing on a stock exchange.
What’s a SPAC?
“A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as “blank check companies,” SPACs have been around for decades. In recent years, they’ve become more popular, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion.”
Kaepernick will serve as co-chair of Mission Advancement Corp., which is seeking to raise about $250 million to invest in socially conscious consumer brands. Kap’s following on the heels of other star athletes getting in on the — can we call it a bubble yet? — trend. Alex Rodriguez, former Yankee and future husband of J.Lo, has one. Billy Beane of “Moneyball” fame has one. And Shaq has a SPAC.
SPACs were once an obscure part of the market, but then 2020 happened. With pockets full of easy money from the Fed, investors started looking for creative ways to invest. Last year, SPACs raised $76 billion — nearly six times more than in 2019.
While the GameStop frenzy has died down, there’s still plenty of appetite for risky investments — especially as interest rates remain near zero.
You can see that in the fervor for unprofitable startups like Airbnb and DoorDash, which went gangbusters on their first day of trading. Or consider Tesla, which doesn’t even make money from sales of its electric vehicles but has a market value larger than every other major automaker combined.
And of course, in SPACs. “What you’re doing is throwing money out there — and hoping to find an idea,” Richard Fisher, the former president of the Dallas Federal Reserve, told my colleague Matt Egan. “It’s another indicator that money is too cheap.”