I’ve gotten a lot of questions in the past couple days about Jeff Brown’s “Pre-IPO Code” presentation, in which he teases the idea of this “Pre-IPO” investing strategy as he pitches his new Blank Check Speculator newsletter.

And I’ve got good news… and bad news.

The good news is, I can explain what he’s talking about and answer some of those reader questions, and provide some perspective…

The bad news is, he doesn’t drop any hints about which specific “Pre-IPO Codes” he’s recommending, so we won’t be providing that kind of answer today.

Brown’s offering, by the way, is one of the typical infomercial “hard sell” stories — you’ve got to “get in now,” and he “fought with his publisher” to make sure he could offer it for $2,000 instead of the $4,000 “retail price.” That $2,000/yr comes with few guarantees and absolutely no refunds — the guarantee is that “I pledge to identify a SPAC that combines with a unicorn in your first year of service, or you get another year free” … which I guess is better than no guarantee at all, it means he won’t just take your money and disappear, but it certainly doesn’t mean that Brown has to have a successful year… that might be the easiest promise to keep that I’ve ever heard of in newsletter world. And it certainly doesn’t mean that he’s taking any risk — it remains, of course, only your money, that $2,000 plus whatever you risk on his investment ideas, on the line.

So what’s the deal? The presentation is structured as a interview by Chris Hurt, who is introduced as the Host and seems like some kind of in-depth 60-minutes interviewer but is, as is typical of these kinds of “presentations,” actually an actor — a guy who followed up his career as a Disney tour guide with a career as a self-employed voice over artist and spokesperson-for-hire (according to his LinkedIn profile, at least). Not that there’s anything wrong with that, but I find pricking a little bit of the bubble of silliness that surrounds these ad pitches is useful in helping us to think a little more slowly and deeply about what they’re actually selling.

The basic pitch is that you can be part of the new wave of IPOs, of companies that will change the world, and that you can get in before the IPO excitement and therefore collect massive rewards. Here’s a little bit of the “story” of the kinds of companies that are being created:

“In the Southwest, the world’s first commercial spaceport is ready for launch. In Silicon Valley, a college dropout has all but won the self-driving car race. And in the rust belt, GM has shipped thousands of jobs overseas until… the local plant was saved by an electric truck company.”

And because we’re all primed to believe that the secret cabal of insiders are keeping the best stuff for themselves, we’re primed to believe it when we’re told that these IPOs are shaking Wall Street to its core, and “Jeff Brown says it’s being kept from you.”

Plus, to be even sexier, “there’s a code”… And Jeff Brown says that, “if you know this code, you can invest before IPO day and see the potential millionaire-making names once reserved for the wealthy.” More from the presentation:

“The Pre-IPO code is a new innovation that will let you secure a stake in billion-dollar tech unicorns before IPO day. With the right codes, you don’t need to be an accredited investor, and taking advantage of these kinds of deals could mint millionaires.”

So what do these codes get us?

“The moment you enter a Pre-IPO code and click buy, you’re awarded units — not ordinary shares of stock, I mean units, contractual share of the enterprise you’re buying.

“Back the visionaries, men and women who are bold enough to change the world.”

And that is, of course, all a lead-in to a pitch about Special Purpose Acquisition Corporations (SPACs), which are often also called “blank check” companies. They’ve been around for decades as a marginal part of the investment banking world, with occasional little jolts of interest, but over the past two years or so they have exploded and become dramatically more popular. Jeff Brown insists on calling the lack of public awareness of SPACs a “cover up,” which seems to just be conspiratorial goofiness, but it’s true that they are not often well-understood — even by the folks who got really excited over the past year and started speculating on lots of these stories.

So let me explain SPACs as well as I can, just to make sure you know what you’re getting yourself into, and then I’ll get back into some other examples and notions that Brown shares in the ad. I’ve shared some of these words with the Irregulars in the past, but here are the basics on SPACs:

A Special Purpose Acquisition Corporation (SPAC) is often called a “blank check” company — these are companies that go public in a regular IPO, raising money from the public on the strength of some internal and institutional sponsorship and a vague notion of what they might do with the money they’re raising.

That sounds inherently risky, and it is, so to make it palatable and less likely to screw over investors who are putting money into this pool of capital with no promise about what might happen to it, there’s both a sweetener and an escape hatch:

The escape hatch is that the SPAC sponsor has a set amount of time, usually two years, in which to find a use for the capital that they control, which is tied up in a trust fund — typically, that means they leverage both of the SPACs assets (their public listing and their pool of cash) to take a private company onto the public markets (or sometimes more than one company, as when what became DraftKings was formed from DraftKings, the gambling tech company SB Tech, and the Diamond Eagle Acquisition SPAC).  

The “escape hatch” opens right before that deal to merge with another company is consummated, and only for a brief while — shareholders of the SPAC get to vote on the deal, which gives them some power, but, more importantly, they also get the right to redeem their SPAC shares for their portion of the trust fund at the time the deal is done. If no deal is ever found, that trust fund gets distributed back to SPAC shareholders. The trust fund’s value to shareholders is essentially the $10 per share that almost all SPACs start out with (there are occasional exceptions), plus a tiny bit of interest… the estimated per-share redemption value is usually disclosed in filings along the way to keep shareholders updated.

And the sweetener is warrants. Each SPAC goes public initially as a stapled unit, typically with a U at the end of the ticker (so in the case of Yellowstone Acquisition Corporation, for example, it is YSACU). That unit includes one share of equity (YSAC), which is what can be redeemed at the time of deal consummation or if no deal is found before time is up, and usually a portion of a warrant.

There is no rule that says all SPACs have to be identical, but in general each unit will have one warrant if the manager is not well known enough to easily raise capital, or a half or a third of a warrant (or less) if that’s all that’s needed to get attention (particularly if they have a strong brand name with investors, like Bill Ackman’s Pershing Square or Chamath Palihapitiya’s Social Capital). A third of a warrant per unit seems to be most common now (each Yellowstone unit, to continue the example, includes half of a warrant).  

Within the first two months or so after the SPAC units go public, the Units can be separated at the investor’s option, and they will begin trading separately as regular equity shares (YSAC) and publicly traded warrants (YSACW). SPACs are the source of most of the publicly-traded warrants that exist in the markets these days.

A warrant is essentially like a call option, with a few key differences. They are individual securities, and they are not standardized, so you have to pay attention — but almost all the time they are five-year warrants (starting from the date the SPAC consummates a deal) that give you the right to buy the underlying stock at $11.50 a share, so that’s kind of like a long-term call option… with the leverage somewhat limited because there’s typically an early redemption or expiration right, at the company’s option, that kicks in if the shares trade above a certain level (usually $18 for 20 days out of 30).

Warrants require active attention, because they do not get exercised automatically by brokers like stock options do — so they can expire worthless even if they should be “in the money” and valuable, and that’s particularly true if the share price soars to that $20+ neighborhood and the company chooses to redeem the warrants early. If you aren’t paying attention and don’t exercise them or sell them before redemption, the company can seize your warrant for a penny (depending on the specifics in their prospectus), and you’re out of luck. Watch your mail and broker notifications about corporate events, and watch your SPACs.

The fractional nature of warrants sometimes gets confusing, too, so make sure to pay attention to the filings and understand, in each case, how many warrants are attached to your SPAC units, and what the exercise terms of the warrants are — sometimes a warrant is effectively for a half share, for example, so it might require two warrants plus $11.50 to exercise, and there are many different permutations out there that impact the value. Most of them follow the same basic structure, but, like snowflakes, no two are exactly alike.  If you don’t want to read SEC filings, SPACs are probably not for you.

Warrants can be bought or sold, of course, and speculators often trade them, so they should trade at a price that equals their exercise value (usually the current share price minus $11.50), plus some assessment of the “time value” of the warrants, adjusted for any early-exercise rights… but they don’t always trade at a price that makes immediate sense in relation to the underlying share price. And they can’t be exercised until the shares are registered to underly those warrants, which usually takes place shortly after the merger deal is consummated but can vary (back when the government shut down over budget disputes a couple years ago, for example, the SEC went deep underwater and it took months for some shares to actually get registered, so there was very little trading volume and some thinly traded SPAC shares and warrants traded at nutty prices — look at the chart of PHUN in January of 2019 if you want an example).

A few other things to note: If you buy a SPAC unit (with the U on the end of the ticker), you’re buying what originally went public, including whatever warrant(s) are stapled to that SPAC share. If you buy after the split, (YSAC instead of YSACU, to continue with the example of Yellowstone), you don’t get any right to that warrant. Once the units split you can also buy just the warrant if you prefer, which, to continue the Yellowstone example, most brokers will report with ticker YSACW (or YSAC/W or YSACws or some similar notation).

If you wish to use a SPAC as a low-risk option on a possible future company combination, as many institutional investors do, then the redemption value is critical. If you buy SPAC units at $10 a share, you’re taking very little risk because of the redemption right, it’s just that your money is “tied up” to some degree (you could always sell your SPAC units, of course, but at the market price, which might not necessarily be as high as the full redemption price). It used to be fairly common for SPACs to trade at a little less than their $10 “trust” value when they were in “seeking a deal” mode, mostly because nobody loved SPACs and the market’s expectation was that they would probably make a dumb deal and would continue to be below-average investments in the long run… but given the current SPAC mania, finding a SPAC trading well below the trust value is pretty unusual.

If you pay meaningfully more than $10 per share for a SPAC share (the regular equity, so YSAC in this case), everything above $10 is your speculation on what company the SPAC will merge with, and how successful they’ll be. If you pay very close to $10 a share for the original SPAC units (YSACU, in this case), then you are essentially getting all the leverage of the warrants for free.  You will have a redemption right that hits within two years that will almost certainly be for very close to $10, perhaps a little higher ($10.15-$10.20 or so seems pretty average), so you get to know that you have the option to participate or not participate in the deal at that point… but if you buy the original units you also get the warrants as a free option on that future potential.

Nothing is guaranteed like Treasury Notes or a bank account are gauranteed, but I’m not aware of any SPACs that have blown up, due to fraud or anything else, and not paid out their redemption value. That’s why hedge funds love investing in SPAC IPOs — they can get in at the $10 IPO price, which most of us cannot (as with all IPOs, the original fundraising for SPACs is usually directed to the broker’s favorite customers — who are mostly high-volume traders and hedge funds). If you get in on that IPO, there’s no downside if you hold until the redemption date, and there’s possible upside from the equity, if investors get excited about it after a deal is rumored or announced, and from the “free” warrant (many hedge funds and institutional investors just do an arbitrage to get a small return plus free warrants — buy the SPAC units at the IPO, with the intent of redeeming, effectively just getting the cash-like return to the redemption date and earning some free warrants, while also maybe getting lucky if investors bid the SPAC up for some story-driven reason along the way). Brown teases it as being somehow special and avoiding the con men on Wall Street, but Wall Street always does get at least a little taste — the sweetest deal is always off the table before “regular folks” get access — getting in on a SPAC IPO at the $10 IPO price is essentially a no-brainer, a guarantee of no downside and some possible upside.

Who pays for all of this? The founding sponsor of the SPAC who originally takes it public… but you don’t have to thank them, because they also reap a huge portion of the reward. In exchange for buying founders shares or founders warrants that are not redeemable (or publicly traded), and which essentially cover the cost of the IPO and of the manager’s overhead for the two years that they spend looking for a deal, they typically get a huge chunk of the equity in the new company that is created out of the SPAC when a deal is done (usually 20%, though sometimes it’s adjusted down to make a deal work). If a deal is not done, they eat those costs and generally get nothing.  It’s a bargain for them, their initial investment in getting this set up and buying those founders warrants or getting that free future share is often just $25,000 or so, total, for 20% ownership of a SPAC that could raise maybe $200-500 million (some founders invest a lot more into their SPACs than that, but many don’t).

That is the primary problem with SPACs, historically — founders get outsize rewards and take almost no risk, and to earn those rewards they are highly incentivized to make a deal, which means that during a time like this when there are SO MANY SPACs out there seeking deals, I’d worry that the edge goes to the seller of those companies, not the buyer. That’s not necessarily true in each specific deal, but it’s certainly true for the “hotter” names that are out there, like the well-known venture-funded technology companies, so those private owners are sometimes getting awfully good deals from these SPACs.

Other important things to note? The “escape hatch” redemption clause is not perpetual — you get to exercise your right to redeem your shares for your portion of the trust fund only at the point when a deal is made or the point that the deadline (usually two years) expires. If the deal is not easy or quick to close and the deadline is about to be reached, then most SPACs have an automatic extension right of a few months, or can go back to SPAC holders and ask them to approve a longer extension, but the extension itself is the second trigger for redemption — if they ask for an extension, they can have it but you also get the right to redeem for your $10 or so instead of leaving your capital in the pool for that extended period. You usually get a set amount of time in which to exercise your redemption option, it won’t be very long, so do pay attention to whatever notification you get — those redemption requests would typically be placed through your broker, and may incur a fee from the broker for doing that work.

Traditional SPACs are pretty ugly when it comes to egregious compensation for the sponsors, which is one reason why they have historically not done terribly well as investments after the SPAC deal has been struck (recent “story stock” victories like Virgin Galactic, Quantumscape and Draftkings notwithstanding), so I would never argue that they’re a good deal as an asset class — but I still think there are occasional interesting deals in SPAC mergers, and that buying a SPAC at the IPO price remains a pretty easy “free option” if you have cash lying around. And certainly there’s been a mad rush into SPACs over the past year, so a lot of folks have enjoyed trading profits on some hot stories… which feeds on itself, sending more investors into the weeds to look for what they hope will be the next SPAC to make a high-profile deal.

There was a good story on Bill Ackman’s SPAC in Institutional Investor a little while ago, here’s a little excerpt about that compensation issue:

“One of the things SPACs have in common with other forms of asset management — specifically alternative asset managers — is the outsize compensation for their founders.

“‘SPACs are a compensation scheme, like people used to say about hedge funds, but it’s even worse,’ Ackman tells Institutional Investor. ‘In a hedge fund, you get 15 to 20 percent of the profit,’ he says, in reference to the incentive fees hedge funds earn on the gains in their portfolio. ‘Here you get 20 percent of the company.’

“For a small fee of $25,000, he explained in a recent letter to investors in his hedge fund, ‘a sponsor that raises a $400 million SPAC [the average size this year] will receive 20 percent of its common stock, initially worth $100 million, if they complete a deal, whether the newly merged company’s stock goes up or down when the transaction closes.’

“Even if the stock falls 50 percent after the deal closes, ‘the sponsor’s common stock will be worth $50 million, a 2,000 times multiple of the $25,000 invested by the sponsor, a remarkable return for a failed deal,’ he wrote.

“Meanwhile, Ackman noted, the IPO investors will have lost half of their investment.

“And there is another advantage: The 20 percent stake is also referred to as the ‘promote,’ a nod to the work sponsors perform in landing a deal. However, that money is considered an investment, not a fee, which means sponsors can pay a lower capital-gains tax on the return if the stock is held longer than a year.”

Ackman’s SPAC Pershing Square Tontine Holdings (PSTH), by the way, is non-standard — it uses a tontine structure for warrants, doesn’t have the same free founder’s share position as most, it was priced at $20 instead of $10, it’s much larger (they raised $4 billion). Pershing Square Holdings, Ackman’s hedge fund, is the main sponsor, and is likely to provide most of the extra capital required to consummate a deal, if any, so there might not be a private funding round in connection with whatever deal they manage to find (those private investment in public equity deals, called PIPE deals, are also often close to a “free money” opportunity for the founders and institutions). PSTH trades at a premium price, which is one reason I haven’t put capital into it, particularly since I’ve already got quite a bit of exposure to it through Pershing Square Holdings (PSH.AS, PSHZF), and I think owning a discount-priced sponsor is safer than owning a premium-priced pre-deal SPAC but it might still work out if Ackman finds the right deal… and it would probably be appealing to me at a lower price.

In my book, four things make sense as my personal “rules for SPACs”:

1. Warrants on SPACs from managers you expect to make a strong deal can be a worthwhile speculation that doesn’t require much cash — five year warrants are a rare beast, otherwise, and getting that kind of warrant on a company that has some actual growth potential is valuable… if you can do so on the cheap (particularly early on, when warrants are often trading for less than a dollar). Size those positions as if there’s a very good chance they’ll lose 100%, which is what will happen if the SPAC fails to make a deal (that doesn’t happen often, particularly because SPAC sponsors are so heavily incentivized to make a deal, but the risk of failure grows as the number of SPACs explodes).
2. SPACs are a good resting place for excess cash with a free “what if they succeed” option if you can buy them near (or preferably below) the redemption price, either before or after the units split (and almost a “no brainer” buy if you can get an allocation at $10 in their initial SPAC IPO, though that’s very unlikely for most of us)… buying in the first month or two before the units split tends to be better, because then you also might get that warrant exposure for free. That doesn’t mean they’ll make money in the short term, the market price fluctuates based on investor interest and “story” (and to a very limited degree, interest rates — since the trust fund earns a tiny bit of interest), but there’s a chance for gains if it turns into a SPAC success story, and it means you almost certainly won’t lose money during the next couple years. Just remember that the redemption option only exists up until the time the merger deal is being finalized, so be prepared to make a dispassionate assessment of the actual company they plan to take public when they present the details.
3. Buying SPACs as an asset class, or building a portfolio to buy and hold through their deal consummation and into the future, is likely to be a mistake, given the historical weakness of SPACs in general and the fact that founders both reap an unusual share of the rewards and are likely to overbid for target companies during the current over-SPAC’d market. Therefore, I don’t think the SPAC ETF makes sense (that’s the Defiance Next Gen SPAC Derived ETF (SPAK).
4. That said, the likelihood of the average SPAC being a disappointment in the long term doesn’t mean there won’t be big winners — every once in a while, an appealing young growth company, or a company that doesn’t easily fit the IPO mold (like Virgin Galactic in late 2019, for example), will go public through a SPAC, and some of those will eventually grow into being great investments. Maybe there will be more of those, given the huge number of SPACs that are out seeking a deal right now, but I’d guess that big long-term success in this segment of the market will continue to be rare, and the sexiest stories are likely to be chased to silly price levels very rapidly, so be careful and pay attention to the real underlying financials of the company being acquired… SPAC deals can include a lot more overpromising than typical IPOs and sweeter deals for the founders of those private companies, and their investor materials and predictions are far less monitored or regulated or vetted than typical IPO roadshows are, so pay attention to the specifics of the deal, and try not to get too excited about theoretical potential that’s four or five years off in the future.

So… go forth and invest or speculate, but remember that SPACs are not magic. They have generated accelerating and sometimes ludicrous returns over the past year, but that’s not because they’re an unknown or secret investment idea, it’s probably largely because of the unique nature of the market during that time (lots of SPACs, a few high-profile winners early on, some extremely “hot” trends that investors are willing to chase at any price, like electric vehicles, and a huge new crop of trend-chasing day traders during the pandemic… all at a time when most of the smaller niche investment banks have disappeared, and the big banks have lost interest in the “small cap IPO” market).

The “free money” in SPACs that’s baked into the initial structure (warrants plus redemption value) is small, on average, and a little complicated, the speculative fervor can be high, and the structure of most of these deals will probably make you want to hold your nose a little bit. If you can launch your own SPAC, by all means, do it — that’s where the real money is, in being a SPAC sponsor — but otherwise, be careful and examine each individual SPAC investment on its own merits. And read those filings. Go to SEC.gov and read the EDGAR filings for the SPACs you’re considering, usually the prospectus (form 424B4) will be the final and most informative and definitive word on the structure of the SPAC that gets filed with the SEC not long before they actually go public and raise the capital — it should include the size of the offering, the terms for the founders shares and the specific terms for the warrants and the deadline for a deal, among other details (the Yellowstone Acquisition prospectus is here, if you’re curious to see one).

And no, to be clear, I don’t think Jeff Brown is recommending Yellowstone Acquisition, I just used that example because it’s a SPAC that I’m familiar with and own shares of (or units, actually, I haven’t bothered to split them yet).

Back to the pitch, in case you’re interested in some more chatter on this topic…

Brown talks up two aspects of SPACs that are appealing — the huge potential gains of the warrants, and the guarantee of the redemption clause. And those both exist, though you need to balance how you’re thinking about it — he talks up Quantumscape (QS), for example, which came public through a SPAC merger with the Kensington Capital Acquisition SPAC (KCAC) and for a moment boasted gains of 3,292%… but those gains would have been for the warrants, not for the shares, and the warrants don’t carry that redemption guarantee.

QS is probably the most dramatic of the fairly large SPAC IPOs in the last year, and deals take a while to close so it had a very high profile with investors for a couple months before the deal between KCAC and Quantumscape was finalized in late November and the combined company changed its name to Quantumscape (QS)… but it’s true that if you had bought the shares of Kensington Capital Acquisition (KCAC) before the deal was rumored and then announced in early September, you could have bought it somewhere in the $10-11 range (where most pre-deal SPACs should trade), and if you sold at the speculative recent top of over $120 you could have gotten a gigantic gain of 1,100% or so. A true windfall return.

The return on the warrants, which would have been available to buy separately in the neighborhood of $1 and peaked in the low $40s in December, would have been well over that. If you had bought the warrants the day before the deal was announced, on September 2, you might have paid $1.25 or so… they shot immediately to over $5, then fell back to $2 or so as the wait for the deal to be consummated ticked on, then peaked at about $40 after the deal closed and the shares shot (briefly) into the hundreds, and it’s that roughly $1.25 to $40 run that would be the “3,292% return” Jeff Brown says pre-IPO investors could have gotten.

And he name drops a few of the other big hits of the past year as well, including DraftKings (DKNG), Lordstown Motors (RIDE) and Desktop Metal (DM). In most cases, he continues to reference the code as “buying for a dollar” or “buying for 90 cents,” and that means he’s talking about speculating on the warrants before a SPAC deal has been announced, not on the SPAC shares or on the company that is formed by merging a SPAC with a private company.

And he also mentions one that is not as sexy, interestingly enough…

“Shift Technologies was locked out of the IPO market since 2013, but they found a way in by merging with INSU. Before IPO day you could have typed INSU and invested for as little as 50 cents, and your reward was a peak gain of 1,900%. After Shift went public, main street investors set you up with nothing.”

And that’s true, and brings to mind one of the risks of SPACs — that in seeking the Quantumscapes that might soar dramatically higher after the merger deal is done (Brown calls that “IPO Day,” though it isn’t an IPO), you might end up with a Shift Technologies instead. Or, to include a few SPACs from slightly before the current manic wave, Akerna (KERN) or Phunware (PHUN) — hot stories where the share price got well ahead of the fundamentals, and they got overheated and imploded.

Yes, it was possible, very briefly, to generate a massive return on the warrants in Shift (or on Phunware or Akerna in 2019, for that matter), but 1,900% would have been a pretty extreme example of that. If you bought the warrants on their own at the low, at 50 cents or so as Brown teases, the highest price at which those warrants traded in June or July, when the deal excitement was heating up, was about $4. Frankly, it’s crazy now that SFT Warrants are still currently trading at $2.70 when SFT shares are down at $8 or so, well below their $14 peak (they dropped to $6.50, and are now around $8) — and it’s an indication of the kind of volatility we’ve seen, because volatility drives the value of warrants. Warrants used to be almost an afterthought, an odd little backwater of the speculative markets, and now they’re often the most rabidly traded part of a SPAC deal.

And the downside is, of course, minimized… in the presentation they say, “either the billionare finds us a deal, or we take our money back.”

That’s true, but it’s only true of the ~$10 equity stake that represents the SPAC shareholder’s piece of the trust fund — it’s not true of that speculative and levered $1 or fifty cent investment, which would have been the warrants. Redemption is offered to unit holders or shareholders who invest something near $10 a share to buy the SPAC before it’s exciting or sexy, but you lose that right to “take your money back” once the deal is consummated to buy whatever company they’re going to buy — either a disappointment like Shift Technologies, or a barnburner like Quantumscape. You can sell the shares anytime you want, of course, at whatever the market price is… but you can only redeem them at one point, once the deal is done there’s no longer any backstop “guarantee” that gets you your money back.

Brown says that he’s recommending investing in people and smart money, not in the company itself — so that implies he’s only buying pre-announcement SPACs, which means it’s still a gamble… but a gamble with relatively low downside, even if we don’t know what the probability of success might be (for a pre-deal SPAC, your downside risk is everything between the price you pay and the per-share value of the trust fund — so Pershing Square Tontine (PSTH), for example, one of the sexier pre-deal SPACs, trades at $29 but has ~$20/share in trust today, which means you’re paying a 45% premium and taking $9 of risk with each share, so even though there’s a “you can claim your money back” clause you could still lose 30% of your money if you bought it today). And he say they’ll recommend a dozen or so SPACs a year, most likely, along with three particular SPACs that they are pitching in their “charter member” deal… but they don’t actually hint at which specific SPACs are in that special report they’re launching with, so we don’t really have any guesswork.

If you want to start exploring in this world, the best free listing of the currently trading SPACs that I’ve seen comes from SPACTrack.net, which (they say) lists all of the 300 or so SPACs that currently exist — including more than 200 that went public just in 2020, by far the biggest year for SPACs in the history of this investment vehicle. That site lets you sort them by the value of the trust fund, the intended sector, whether or not they’re reported to be in talks or have a merger deal, as well as listing details like the structure of the units and warrants. I can’t vouch for the accuracy of their data, you should still confirm details by looking at the SEC filings, but it’s a great list to use if you’re trying to get an idea of what’s out there.

The world is not black and white or binary, two different things can be true… SPACs on average are an imperfect vehicle, set up with often exorbitant “free money” provisions for their sponsors and prone to overpay for their target companies… and SPACs are also a compelling way to let small investors participate in interesting new companies, particularly those who are relatively small and who would not otherwise get much attention in an IPO managed by the big investment banks.

You can come at it from either perspective, just be aware that the mania over a lot of the higher-profile SPAC deals (and, for some of the better-known managers, even some pre-deal SPACs) is very much a story-driven mania, very similar to the mania that often follows traditional IPOs or other “buzzy” sectors of the market, and that means what you’re investing in or speculating on matters. You can’t just throw money at every SPAC and assume it will provide 1,000% returns, or chase them when they get investor attention and buy a $10 trust fund for $15 and expect to always win. Be careful, and be discriminating, there are far too many SPACs to invest in all of them… and the odds are that the average SPAC will disappoint, so don’t get too excited about chasing the ones that trade at above-average prices.

And since we didn’t get any specifics from Brown and I mentioned a few examples above, I’ll just tell you that the only pre-deal US SPAC I currently own is Yellowstone Acquisition (YSACU), and I own it only because it was available at less than the redemption value and I trust and like the managers of the sponsor company (Boston Omaha (BOMN), which I’ve owned for a few years)… and indeed, I’d generally be tempted to buy the shares of the sponsor when available, over the shares of the SPAC, though the sponsors are rarely public (that’s part of why I find Pershing Square Holdings, the hedge fund, more appealing than the SPAC they sponsored, Pershing Square Tontine Holdings, a distinction I went into in much more detail on Friday).

I’ve speculated on warrants and other SPAC investments in the past year as well, including Virgin Galactic (SPCE) and DraftKings (DKNG), but don’t own any of those high-profile ones today… and I’ve also been quite critical of some deals that have done very well for investors, and specifically chosen not to buy some hot ones, including Quantumscape and a few of the other battery, LiDAR and electric vehicle names, so I certainly don’t have a crystal ball. If you’ve got a favorite SPAC to throw on the pile for our consideration, particularly a pre-deal SPAC who hasn’t yet announced a merger partner, feel free to tell us what it is (and why) with a comment below. Thanks for reading!

Disclosure: Of the investments mentioned above, I currently own shares of Boston Omaha, Yellowstone Acquisition and Pershing Square Holdings, and a small position in Akerna warrants. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.