📉 SPAC Bubble? Lessons from the $160B Blank-Check Boom

In partnership with

Hi there,

Today we are talking about SPACs: the mechanics, the brief boom, the unwind, and what went wrong. They promised speed and flexibility. In 2021 they raised about $160 billion, sold on projections and a perceived $10 redemption floor. The outcome was dilution, heavy redemptions, and weak post-merger trading.

Here’s how the cycle unfolded and what remains.

A Private Circle for High-Net-Worth Peers

Long Angle is a private, vetted community for HNW entrepreneurs and executives. No membership fees. What’s inside:

• Self-made professionals, 30-55 years old, $5M-$100M net worth

• Confidential discussions, peer advisory groups, live meetups

• Institutional-grade investments, $100M+ invested annually

Apply to Join

👔 Background

It was May 2021, and Wall Street was abuzz with SPACs, empty shell companies with large ambitions that suddenly took the market by storm. High‑profile financiers publicly endorsed them.​

Chamath Palihapitiya cast them as a way to “even the playing field” for regular investors. Bill Ackman launched a record‑setting SPAC, aiming to “marry a unicorn” by merging with a top‑tier startup. Celebrities joined in, adding visibility and momentum to the frenzy.​

In 2021, 613 SPACs went public, raising around $160 billion, the kind of record surge that led many to proclaim a new model for going public and the favored vehicle of the bull market.​

Yet amid the euphoria, skeptics pointed out that SPACs’ origins as “blank check” firms with checkered pasts hadn’t disappeared. Was this true innovation or a bubble in the making?

As always, the arc proved familiar: a modest start, a meteoric rise, a peak of hype, and a sharp decline.

💡 What Exactly Is a SPAC? [Mechanics & Structure]

A SPAC is a publicly listed blank-check shell with no operations of its own. Sponsors raise cash first, then find a private company to take public via a merger.

Here’s the SPAC lifecycle in brief:

• Formation & IPO: Sponsors create and list the shell at ~$10 per share. Most proceeds (~85–100%) are held in trust until a deal is struck or the SPAC is liquidated. Investors are essentially betting on the sponsors’ reputation, since there is no active business yet.

• Target Search (18–24 months): Management has a strict timeframe to hunt for a private company (often in a specific industry) to merge with. They must sign a deal before the clock runs out.

• Shareholder Vote & Redemption: When a deal is announced, all shareholders vote. If investors don’t like the deal, they can redeem their shares for roughly $10 plus interest. Heavy redemptions can jeopardize closing, so sponsors look for PIPEs, forward-purchase deals, or non-redemption agreements for support.

• Merge & Aftermath: If a deal is approved, the private company merges into the shell and starts trading publicly. Sponsors usually claim about 20% of the resulting equity via their “promote,” and early SPAC investors often have warrants, both of which dilute common shareholders. Late retail investors (who buy after the merger) rarely see these perks, and can shoulder more risk.

To summarize, a SPAC provides a fast-track, two-step route to public markets: first the shell’s IPO, then the merger to actually take a private company public. It can shortcut some obstacles of a traditional IPO, like lengthy disclosures and pricing uncertainty. That’s why, in buoyant markets, SPACs were hailed as a “cheaper and faster” alternative.

However, this setup, with generous sponsor rewards and investor redemption options, often benefits insiders during bull markets but can disadvantage ordinary investors as sentiment shifts.

📈 Momentum Builds: How SPACs Went Mainstream

SPACs have been around since the 1990s, long relegated to an obscure corner of finance and often linked to shady “blank check” penny stocks. Reforms and tighter listing standards since the late 2010s gave them new life, and by 2019, 59 SPAC IPOs marked a decade high.

The ensuing boom broke records. In 2020, SPAC launches jumped to 248. By 2021, issuance ran at a frenzied pace, with banks, law firms, and sponsors racing to keep up with the pipeline. Between them, SPACs amassed some $160 billion in trust funds. SPACs leapt from obscurity to front-page news.

Why did SPACs gain momentum in 2020–2021?

A few key ingredients fueled the surge:

• Market euphoria and “easy money”: A roaring bull market and near-zero rates fueled speculation across risky assets including meme stocks and crypto. SPACs looked like tickets to the next Tesla or SpaceX.

• Celebrity hype and FOMO: Big-name financiers and celebrities added sizzle and perceived legitimacy. When Alex Rodriguez launched a SPAC in 2021, he said, “This is only the beginning”, stoking retail FOMO.

• Structural advantages: SPACs were pitched as faster and cheaper than IPOs, with the ability to share projections. Investors could redeem at $10 if a deal looked bad, creating a sense of near risk‑free upside and making fundraising easy.

The result? U.S. SPAC IPOs exploded to 613 in 2021, then collapsed as quickly as they rose. By 2022–2023, activity was a fraction of its peak, offering a textbook lesson on the fickle nature of risk appetites in bull markets.

📉 Hitting the Peak… and the Wall

By mid-2021, the market was saturated. There were more SPAC vehicles than there were quality targets, and new listings chased the same few precedents. As the cycle matured, aggressive projections often missed, especially for pre-revenue EV, space, and biotech deals.

Dilution, a perennial SPAC issue, caught up with retail. One analysis pegged a post-merger $10 share as being worth only $4–$6 after sponsors took their promote, plus fees and warrants. In contrast, late coming retail often paid close to $10 (sometimes $12–$15) in the post-merger excitement. As risk appetites faded and interest rates rose in early 2022, SPACs quickly lost their sheen. The SEC rolled out stricter rules, aiming to align SPAC oversight with traditional IPOs.

A few stats underscore the reversal:

• Broken promises: By late 2023, about two-thirds of 2021 SPACs were on track to liquidate and return just $10 plus minimal interest. Sponsors collectively absorbed over $3.2 billion in setup costs.

• Dismal returns: The average 2021 de-SPAC fell about 64% within a year. By April 2023, more traded below $1 than above $10. (Example: BuzzFeed listed at $10 in 2021 but was trading near $0.30 by 2023).

• High-profile flops: Bill Ackman’s $4 billion SPAC liquidated in 2022; Shaquille O’Neal’s BeachBody deal sank to pennies. Chamath Palihapitiya saw five of six SPACs drop over 70%, while reportedly earning about $750 million and facing lawsuits.

🔎 Why Did the SPAC Bubble Burst? What’s Next?

The SPAC downturn was driven by a mix of structural flaws and external shocks:

• Poor fundamentals and overpayment: Value leaked to insiders through promotes, fees, and warrants. A $10 share could easily be worth just $4–$6 post-merger, after institutions and redemptions picked the deal clean and retail moved in. Most post SPAC companies started at a disadvantage.

• Market climate shift: Easy money and wild optimism in 2020–21 vanished as rates rose and risk appetites cooled. Many mergers unraveled; blank-check deals lost their air of inevitability.

• Regulatory scrutiny: The SEC toughened up requirements for transparency and accountability. Lawsuits alleging misleading disclosures loomed, chilling new launches.

• Oversupply and trust gap: There were simply too many SPACs chasing too few viable targets. The resulting crowd bid up mediocre deals or none at all. After successive post-merger crashes, confidence eroded even further. By 2023, new SPAC IPOs had dropped to 31 from 613 just two years earlier.

📌Are SPACs Dead? Closing Thoughts

By 2024, the “SPAC mania” had run its course. Humbled, but not entirely dead. Some pipeline deals will close quietly while many will liquidate and return investors’ cash. The SEC’s new rules have enforced a much higher bar for disclosure, and litigation risk ensures that sponsors are more cautious than ever. Survivors will be fewer, more selective, and more conservative in their deals and projections.

But the structure itself won’t disappear. A cash shell that can list a company quickly remains useful when IPO windows are shut. SPACs may adapt to the new climate rather than vanish, likely reappearing in specific use cases under a more disciplined regime.

Still, the era of mass launches is almost certainly behind us. Failed mergers have left investors more wary, and speculative capital has migrated to other corners such as meme stocks, crypto, and AI among them. The 2020–2021 boom reads as a classic bubble: easy money, heady promises, and a harsh return to reality.

SPACs went from a Wall Street favorite to cautionary case in just a few years. In the heat of the market, sponsors sold the dream of the next big thing. As always, the dust settles on the old lesson: if it sounds too good to be true, it probably is.

That’s it for today!

Feel free to let me know what you’d like to see next: investor profiles, deal deep dives, or outlooks on recent PE trends. Always open to ideas.

Until next time,
PE Bro

P.S. Was this forwarded to you? Subscribe here.

Disclaimer: This publication is for general informational purposes only. All views expressed are the author’s own, based on publicly available information believed to be reliable at the time of writing. No statement should be interpreted as fact, investment advice, or a specific claim about any individual, company, or security. References to persons or entities are for illustrative or historical context and do not imply wrongdoing, endorsement, or criticism. While efforts are made to ensure accuracy, errors or omissions may occur. The author and publisher accept no liability for any loss or damages arising from reliance on this material. Readers are encouraged to verify information independently before drawing conclusions or making decisions.