2020 - SPACs and A Year Defined by an Abundance of Capital and a Shortage of Entrepreneurs and IPOs

2020 was a great year for IPOs. That makes sense. Interest rates are incredibly low (which drives up the value of future profits), savings are incredibly high during the pandemic which has helped to create a relative glut of capital, and the business landscape has changed as rapidly in 2020 as in any previous year and that change means new opportunities that require capital to realize.

For me, the really clear indication that capital is abundant and entrepreneurship is scarce is SPACs: special purpose acquisition companies. What's a SPAC? Essentially it is a mutual fund for companies that haven't yet gone public or perhaps don't yet exist. You put money into a SPAC as an investor and the manager of that fund uses the money to go shopping for private companies, almost like a proactive IPO. The weird thing is, you don't know which companies the SPAC will buy - you're just giving them money to find deserving entrepreneurs.

How popular are SPACs? There were 183 traditional IPOs and 242 SPACs. And these SPACs are not trivial. One was valued at $4 billion, more than any of the 183 IPOs.

Article here.