SPAC and equity based crowd funding

 SPAC( Special purpose acquisition companies) and equity based crowd funding are generally two concepts of the U.S stocks which haven't really been ruled out in India but are being analysed by SEBI if they are vulnerable for the Indian markets too. But the question in what are they?

SPAC (Special purpose acquisition companies):- 

These are companies with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as "blank check companies." These companies are strictly asked to asked to complete their acquisition within a time frame of just 2 years or else written all the collected funds back to the public. In 2020, as of the beginning of August, more than 50 SPACs have been formed in the U.S. which have raised some $21.5 billion. The Investors in these SPACs can range from well-known private equity funds to the general public.

Usually when these companies bring a IPO at least one acquisition is already in the mind of the company but this company that they are planning to acquire is never made public. So investor truly has no idea about in which way is the post acquisition sentiment of the companies market going to move. After acquisition the acquired company automatically gets listed in the major stock exchanges and it becomes easy to trade in these companies. The money SPACs raise in an IPO is placed in an interest-bearing trust account. These funds cannot be disbursed except to complete an acquisition or to return the money to investors if the SPAC is liquidated. In some cases, some of the interest earned from the trust can be used as the SPAC's working capital. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.

These SPACs are are generally formed by investors, or sponsors, with expertise in a particular industry or business sector, with the intention of pursuing deals in that area. 

Selling to a SPAC can be an attractive option for the owners of a smaller company, which are often private equity funds. First, selling to a SPAC can add up to 20% to the sale price compared to a typical private equity deal. Being acquired by a SPAC can also offer business owners what is essentially a faster IPO process under the guidance of an experienced partner, with less worry about the swings in broader market sentiment.

One of the most high-profile recent deals involving special purpose acquisition companies involved Richard Branson's Virgin Galactic. Venture Capitalist Chamath Palihapitiya's SPAC Social Capital Hedosophia Holdings bought a 49% stake in Virgin Galactic for $800 million before listing the company in 2019.

In 2020, Bill Ackman, founder of Pershing Square Capital Management, sponsored his own SPAC, Pershing Square Tontine Holdings, the largest-ever SPAC, raising $4 billion in its offering on July 22. Even  tennis player like Serena Williams, Michael Dell founder and CEO of Dell and Venture capitalist billionaire Vinod Khosla have come to the lime light for investing in these IPOs

Till date almost 750 IPOs of blank check companies have happened since their beginning in 2009. Out of these 248 bought their IPOs in 2020 while already 281 have happened in the year 2021 so far, making these type companies very popular in the recent era. 

These companies are safe to invest in one way since if these companies fail to acquire a another company the full money shall be refunded and hence no loss.

Equity based crowd funding:-

Equity crowdfunding is the process whereby people (i.e. the ‘crowd’) invest in an early-stage unlisted company (a company that is not listed on a stock market) in exchange for shares in that company. A shareholder has partial ownership of a company and stands to profit should the company do well. The opposite is also true, so if the company fails investors can lose some, or all, of their investment.

In simple words these are some of the investments that are similar to the investments made in start ups and hence I wouldn't really suggest small retail investors to look for these.