Abstract

Federal securities law creates a divide between the haves and the have-nots: On one side are the wealthy, who can invest in private companies; on the other side stand the rest of us, noses pressed up against the glass. Ordinary (or retail) investors are on the outside looking in because generally they can only invest in companies after they have gone public. Even the traditional process of going public typically keeps coveted initial public offering (IPO) shares in the hands of the rich. Put differently, even as a private firm debuts on the public markets, the wealthy take their cut before everyone else can get a taste.

Special purpose acquisition companies (SPACs) invert the traditional process by using a merger, rather than an IPO, to bring a private company public. In doing so, they allow the public access to those private companies the conventional IPO denies them. But today SPACs are in decline, due in part to pressure from scholars and regulators who argue that SPACs are nothing more than back-door IPOs.

Bucking the dominant narrative, we argue that SPACs are more than disguised IPOs. Indeed, their innovation is to radically expand the investment opportunities available to ordinary investors. Thus, SPACs offer a rare chance to reevaluate core assumptions underpinning the U.S. public securities markets— chief among them, that the law must prevent average investors from investing in anything but publicly traded securities. SPACs create a revolutionary public market in information about stillprivate companies, a situation unseen since before the Securities Act of 1933. In this Article, we use hand-collected data to empirically examine what this public market for private firms looks like. We argue that, with much-needed reform, SPACs could offer a viable, valuable, and more democratic alternative to the traditional IPO.

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