[ELI5] How do SPACs work and why are they getting increasingly popular over traditional IPOs?

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[ELI5] How do SPACs work and why are they getting increasingly popular over traditional IPOs?

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An investment expert goes around and raises money in a public offering saying “I’m going to invest in a great new company”. They then take that money and buy out a small business, which takes over the SPAC’s trading symbol and becomes a publicly traded company.

The traditional IPO sees someone who’s founded a hot company paying an investment bank to go through the hoops of registration and starts public trading.

The problem is that founding a great company and knowing the insides of Wall Street aren’t skills often found together. The company founder sees the investment bank get a lot of money and not add much value to the company. They see a SPACer as someone who’s in the same area of business as them. It’s a more collaborative relationship where the founder stays focused on product awesomeness and the SPACer stays focused on finance and NASDAQ regulations.