Delayed returns . Another disadvantage of SPACs is that SPAC managers have two years to find and begin the acquisition process. Although investors ultimately receive their money plus interest, they have lost several years of potential returns from actively investing in the stock market.
Beware of conflicts of interest. The two-year deadline can also create conflicts of interest. “SPAC founders are very motivated to do a deal,” Matt Kennedy of Renaissance Capital told the Wall Street Journal , thanks to the pitch from sponsors . “Investors shouldn’t rely on their due diligence.” At the same time, once SPAC founders collect 20% of their shares, investors’ holdings are diluted.
Historically, returns have been weak. Of the 313 SPAC IPOs from spain mobile database the beginning of 2015 through October 2020, 93 completed a merger and went public. Of those, Renaissance Capital calculated an average loss of -9.6% for common shares and an average return of -29.1%, compared to an average return of 47.1% for traditional IPOs over the same period. Only 29 (31.1%) of the SPACs in that group have achieved positive returns, according to Renaissance Capital ( FYI, this isn’t necessarily the case. Some recent SPAC mergers — like Virgin Galactic, Luminar, and DraftKings — have had impressive returns).
According to Statista , there were 407 IPOs in 2020, double the number of the previous year. Some of the most notable IPOs in 2020 include:
Software developer Snowflake (SNOW) took the title of the largest software IPO of 2020, raising $3.4 billion. Its stock price rose 104% on its first day of trading in September. Starting at $120, investors jumped in and the price quickly doubled.
DoorDash (DASH) received the ranking of the third largest IPO in 2020. It went public in December last year and its stock price soared 80% on the first day of trading on the New York Stock Exchange (NYSE). The company's valuation rose to $60B.
Unity Software (U), a platform for creating and manipulating interactive 3D content, also made its debut in September, raising $1.3 billion as its stock price surged double digits at the opening.