February 25, 2021 | less than a minute read

Early-Stage Venture Backed Companies Can Benefit from a SPAC Merger

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Jeremy D. Glaser

Member / Co-Chair, Venture Capital ＆ Emerging Companies Practice

Get in touch

Jeremy D. Glaser

Member / Co-Chair, Venture Capital ＆ Emerging Companies Practice

There have been a record number of SPACs formed in 2020 and the first two months of 2021. The number of SPACs looking for good merger partners has increased the opportunity for early-stage companies to tap the public markets earlier than they might otherwise have been able. Access to the broad and deep public markets can help a company grow by increasing access to capital at lower cost than available in the private markets, can give the company marketable securities to use for accretive acquisitions and can provide needed incentives to employees by allowing them access to a public market for their shares.

This demand has created a tantalizing opportunity for founders of early-stage startups. Besides offering access to a frenzied market for public shares, SPAC deals give companies a way to provide employees paid with equity a chance to cash out. These deals also remove some of the uncertainty a startup would face pricing an eventual IPO, a process influenced by stock market conditions. When a company merges with a SPAC, it establishes a set valuation at the time of the deal.