The Theory and Practice of SPACs: A Retail Investor’s Perspective

Special Purpose Acquisition Vehicles (SPACs) promise retail investors a seat at the IPO table—a privilege traditionally reserved for institutional players. By design, SPACs issue shares at $10, then hunt for a merger target. Investors who dislike the chosen company can redeem their capital, theoretically mitigating risk.

In reality, the mechanism rarely delivers as advertised. While SPACs democratize access to pre-IPO pricing, their performance often disappoints. The Financial Times notes widespread underperformance, with ListingTrack data revealing a stark gap between promise and outcome. Retail enthusiasm frequently collides with structural inefficiencies—warrant dilution, sponsor fees, and the inherent gamble on an unknown target.

"You get the IPO price, but not the IPO upside," summarizes one market veteran. The redemption feature offers psychological comfort more than financial protection, as post-merger volatility often erodes the $10 floor. For now, SPACs remain a flawed experiment in financial inclusion.