Culture Hack

Culture Hack

What Are SPACs and Why Are Celebrities Involved With Them?

In late 2020, news emerged that Shaq was involved in a SPAC. During a time when the future of the traditional IPO process was uncertain, SPACs started to emerge as a new way to raise funds and list a business publicly without filing for an initial public offering. In partnership with Martin Luther King Jr.’s son and three former Disney executives, the SPAC — Forest Road Acquisition Corp. — set out to make assets in the media and technology fields, with a goal of $250 million.

Since March of 2021, US-listed SPAC IPOs have raised around $48 billion, a good amount of that fund attributed to SPACs backed like influential leaders such as Shaq. Though Shaq would be serving as a strategic advisor and would have less of a hands-on role compared to other partners, his involvement noted a significant shift in how other celebrities were viewing their roles in the finance world. And this involvement has put eyes on the concept, confusing most but intriguing others. 

What is a SPAC? How Does it Work?

SPAC stands for Special Purpose Acquisition Company. Often referred to as “shell companies,” the main purpose of SPACs are to raise funds that will acquire a private entity in hopes of taking it public. Compared to a traditional IPO, SPACs require less steps to enter onto public markets. To form a SPAC, all you need is investors who are familiar with a specific industry that want to pursue more opportunities in that area. The acquisition target in mind is not extensively disclosed, hence SPAC’s other nickname “blank check companies,” and so the investors generally do not know what they’re investing in. The money SPACs raise in an IPO is put into an interest-bearing trust account, meaning the funds cannot be distributed except to complete an acquisition or to return money to investors if the SPAC is liquidated.


Why are SPACs Appealing to Celebrities?

SPACs require a fair amount of risk in that investors need to have immense trust and faith in whatever the company has planned. For smaller businesses who have a semblance of what the SPAC will do, it’s a great model. But, for the most part, celebrity-backed SPACs are likely to be more successful because investors will most likely know and love the figure they are doing business with. Confusing the celebrity for the investment could lead to bad business decisions but most of the celebrities getting involved in SPACs have some business background. Shaq isn’t the only one getting in on SPACs — baseball star Alex Rodriguez, pop star Ciara, and others are just a few of the names associated with SPACs. 

What are the Risks to SPACs?

In a recent interview, CNBC’s Jim Cramer has called SPACs the “inside joke for the super rich.” While there is no real way that SPACs can officially be exclusive to the rich and the famous, the name recognition celebrities have is definitely a leg-up on the smaller business owner. Because these popular figures have been exposed to a variety of business models, they are also most likely to understand the minds of investors. But no matter how popular a SPAC can become, each company needs to have specialized management teams that fully understand going public. Even one mistake in making the right bet could lead to massive losses for investors. 


What’s The Verdict on SPACs?

Although these newer IPOs have been grasping the attention of all business news lately, it is safe to say that they are a trend mostly popular among those that can ensure success and take a hit from a fail. Some specialists have gone so far as to say that the SPAC surge is just a telling sign that their might be a potential bubble in the market but there is no telling how long that financial euphoria will last.