A SPAC is a special purpose acquisition company. Someone creates a company with no business, puts cash in it (say, $100 million), and takes it public. It then has about a year to merge with an actual operating business, or it gets delisted.
In our case, a SPAC bought USA Rare Earth, and the SPAC sponsors took a big chunk of the equity. That cut into our return, and we made about four times our money. Without the U.S. government’s unexpected investment in the company, which drove the stock price up, it might have been more like a 50% return. We probably would have made eight or nine times our money if the company had gone public through a direct listing like Palantir did.
Key points
- A SPAC is a cash shell that goes public, then has about a year to acquire an operating business.
- SPAC sponsors take a large share of equity, which dilutes earlier investors.
- TTI made about 4x on USA Rare Earth, helped by an unexpected U.S. government investment.
- A direct listing might have produced 8x to 9x.
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