The SPAC Cycle: What $220 Billion Actually Bought

In 2020, 248 special purpose acquisition companies went public in the United States. In 2021 there were 613, raising more than $162 billion. Across the two years, north of $220 billion was raised by companies that had, by definition, no business, no revenue and no assets beyond a bank account and a mandate to find something to buy.

By 2022 the market had effectively closed: SPAC IPOs fell to 48, raising about $5.3 billion. Of the 613 vehicles raised in 2021, more than half — 324 — were liquidated without ever completing an acquisition. More than a quarter of the 2020 cohort met the same fate.

The easy conclusion is that this was a bubble and bubbles end. That is true and not useful. The more instructive question, and the one this piece answers, is where the money went — because the structure that determined that was fully disclosed, mathematically knowable, and largely unchanged from the beginning of the cycle to the end.

1. How a SPAC Actually Works

Mechanically, it is simple, and the simplicity is the point.

1. A sponsor forms a shell company and takes it public, typically selling units at $10 — usually a share plus a fraction of a warrant.
2. The proceeds go into a trust, invested in short-term government securities.
3. The sponsor has a fixed window — commonly two years — to find a target and complete a merger, the de-SPAC.
4. Shareholders may redeem their shares for their pro-rata share of the trust, roughly $10 plus interest, whether or not they like the deal.
5. If no deal completes in time, the trust is returned and the vehicle liquidates.

For the sponsor, the economics are the promote: typically founder shares equal to around 20% of post-IPO equity, acquired for a nominal sum. Complete a merger and that stake is worth a great deal. Fail, and the sponsor loses their at-risk capital — real money, but a fraction of the upside.

That asymmetry is the entire story. A sponsor facing a deadline is choosing between a deal that might be poor and a certainty of getting nothing. Any structure that pays enormously for completing a transaction and nothing for declining one will produce transactions.

2. The Dilution Stack

Here is the part that was always visible and rarely modelled.

Investors contribute $10 per share. By the time the median SPAC completes its merger, the vehicle holds substantially less than $10 of cash backing each share still outstanding. The most-cited academic work on this, Klausner, Ohlrogge and Ruan's A Sober Look at SPACs, found the median SPAC held roughly $6.67 in cash per outstanding share at merger — and considerably less in an earlier sample.

Where the roughly one-third goes:

• The sponsor promote. Around 20% of post-IPO equity issued for a nominal amount. This is not a fee taken out of the trust — it is dilution, which is why it does not appear as a cost anywhere on a cash statement.
• Warrants. Issued to IPO investors and often to the sponsor. Every warrant exercised later creates a share at a fixed price, diluting everyone. Warrants are cheap to give away and expensive to have given away.
• Underwriting fees, typically charged as a percentage of the full amount raised — including, critically, on money that later gets redeemed and never funds anything.
• PIPE financing terms. The private placement that usually accompanies a de-SPAC is frequently priced at a discount, which is a further transfer.

None of this was hidden. Every element sat in the prospectus. What was rare was anyone converting it into the single number that mattered — net cash per share actually backing the stock at the moment of the merger.

3. Redemptions: The Mechanism That Made It Worse

This is the most important and least understood feature of the structure, and it explains why outcomes deteriorated so sharply as the cycle turned.

A SPAC shareholder can redeem for their share of the trust and, in the standard structure, keep the warrants. That is close to a free option: put in $10, take $10 back, retain exposure to the upside if the merged company performs.

As sentiment soured, redemption rates rose — in many later deals to the overwhelming majority of shares. The consequences compound viciously:

• The trust empties, but the dilution stays. The sponsor's promote and the warrants are unaffected by redemptions. So the same fixed dilution is spread over a far smaller pool of remaining cash.
• The cost concentrates on non-redeemers. Every holder who redeems increases the per-share burden on everyone who did not. The people who paid most were those who stayed — which, since redemption required action and attention, disproportionately meant the least engaged holders.
• The target gets less money than the headline. A company that announced a merger with a $300 million SPAC could find itself receiving a small fraction of that, having already agreed terms and incurred the costs of going public.

By late in the cycle, the average de-SPAC was down around 40% — and much of that was arithmetic rather than operating disappointment.

4. Why Anyone Did This Anyway

It is worth taking the appeal seriously rather than treating participants as foolish.

• Speed and certainty. A negotiated price with a single counterparty, rather than a book-building process whose outcome is unknown until the night before — exactly the uncertainty our Snowflake analysis describes.
• Projections. The decisive advantage. Companies going public through a traditional IPO have historically been extremely constrained in presenting forward financial projections. A de-SPAC, structured as a merger, allowed detailed multi-year forecasts to be marketed to investors. For a pre-revenue company, the ability to sell a 2027 revenue line rather than a current one was the whole proposition.
• Access for retail. Investors could buy a SPAC before the merger, participating in something resembling pre-IPO exposure.
• Sponsor credibility. Well-known operators and investors lent their names, which for a period substituted for diligence.

The projections point deserves emphasis because it explains the composition of the cohort. The companies most attracted to a structure permitting aggressive forward projections were, predictably, the companies with the least present-day substance. The structure selected for exactly the businesses least able to withstand what followed.

5. What the 2024 Rules Changed

On 24 January 2024 the SEC adopted final rules addressing the structure directly. The two most consequential changes:

• Dilution must be disclosed explicitly, including net-cash-per-share style figures and identification of the sources of potential dilution. The number that academics had to reconstruct is now required to be presented.
• The projections advantage was substantially removed. The rules curtailed reliance on the statutory safe harbour for forward-looking statements in de-SPAC transactions and treat the target as a co-registrant, which brings liability far closer to that of a conventional IPO.

Between them, these address both halves of the problem: the cost is now visible, and the principal structural incentive to choose the route has been narrowed. That is why the market that has re-emerged is smaller and different, rather than a repeat.

6. The Honest Counter-Argument

The dilution analysis above is the dominant view, and it is not unanimous. It is worth saying so.

Critics of the Klausner and Ohlrogge line — including work published by the Committee on Capital Markets Regulation — argue that the framing mistakes the incidence of the cost: that a target negotiating a merger prices the dilution into the deal terms it accepts, so the burden does not simply fall on public shareholders in the way the net-cash-per-share figure implies. The authors have responded publicly, and the exchange continues.

Our reading is that the dispute is genuine on incidence and much weaker on magnitude. Whether the dilution is borne by public shareholders, by the target's existing owners through worse merger terms, or shared, the gap between $10 in and roughly $6.67 of cash backing at merger is real, large and structural. Somebody pays it. Anyone evaluating one of these should establish who, in their specific deal, rather than assuming the answer.

7. Who a SPAC Still Suits

The structure is not illegitimate, and dismissing it entirely is as lazy as the 2021 enthusiasm.

It can genuinely fit: a company that needs certainty of price more than maximisation of price; one with a complex story that benefits from a negotiated explanation rather than a two-week roadshow; a business where a sponsor brings real operating expertise and stays involved; or a situation where the IPO window is closed but a specific counterparty is willing.

It does not fit a company using it to present projections it could not defend in a registration statement — which is now substantially harder anyway — or one treating it as an easier route to being public. As WeWork's eventual SPAC listing illustrated, a lighter path to the public market does not make the underlying business any more durable; it only delays the reckoning and changes who is holding it.

Our comparison of IPOs, direct listings and SPACs sets the three side by side on cost, certainty and scrutiny.

Frequently Asked Questions

Is 20% a standard sponsor promote?

It was the convention through the boom, and it came under pressure as the market deteriorated. Later structures introduced reduced promotes, promotes vesting on price performance, and sponsors funding more at risk. Anyone evaluating a vehicle should treat the promote as a negotiable term rather than a fixed feature — and should note that a sponsor unwilling to tie their promote to performance is telling you something.

Why did so many SPACs liquidate rather than do a bad deal?

Because by 2022 the sponsors could not find targets willing to accept the terms, and PIPE financing — which most deals needed to replace redeemed cash — had become unavailable. Liquidation was frequently not restraint but an absence of options. That said, returning the trust is the structure working as designed: investors got their money back, which is the one genuine protection the format offers.

Did SPAC investors lose money?

It depends entirely on when they held. An investor who bought at $10 and redeemed before the merger generally did fine — they received their cash back and often kept warrants. The losses concentrated in those who held through the de-SPAC, and in those who bought after a deal was announced at prices well above trust value. The structure protected the disciplined and punished the enthusiastic, which is unusual only in how cleanly it did so.

Are SPACs coming back?

A smaller and more disciplined market has re-emerged, with better-aligned promotes and under the 2024 disclosure regime. What has not returned is the 2021 dynamic of hundreds of vehicles chasing a limited supply of targets under a two-year clock — which was the mechanism that produced the worst deals, quite independently of anyone's intentions.

What is the single number to check?

Net cash per share actually backing the stock at the point of merger, after expected redemptions and accounting for the promote and warrants. That figure is now required to be disclosed. If it is materially below $10, you know the size of the gap you are being asked to accept and can decide whether the target justifies it.

What should a founder considering this route ask?

What the sponsor brings besides capital; what happens to the deal if redemptions run high, and whether there is a minimum-cash condition; who funds the shortfall; whether the promote is subject to performance vesting; and what your diligence readiness genuinely looks like, since the 2024 rules moved liability much closer to a conventional IPO. If the appeal is that scrutiny is lighter, the premise has largely expired.

The Bottom Line

The SPAC cycle was not primarily a failure of judgement about individual companies. It was a structure that paid sponsors enormously for completing any transaction and nothing for declining one, on a two-year clock, with a dilution load that stayed fixed while the cash backing it drained away through redemptions.

Every component of that was disclosed from the start. What was missing was the arithmetic — which is precisely what regulators now require to be shown.

The recurring finding of this series holds once more: the decisive information was in the documents, and the cost of not doing the sum was borne by whoever did not do it.

Global Capital Network connects founders, investors, sponsors and the bankers and counsel who structure these transactions. See upcoming events or get in touch.

Accurate as at 2 August 2026. Figures are as reported contemporaneously and by academic research cited above; the incidence of SPAC dilution remains actively debated among researchers. Primary sources: Klausner, Ohlrogge & Ruan, A Sober Look at SPACs, the Committee on Capital Markets Regulation response, and SEC rulemaking and filings via SEC.gov. This article is general information and market history, not investment or legal advice.