Special Purpose Acquisition Companies (SPACs) once seemed like the future of public launches. But, where there were more than 300 SPAC IPOs in Q1 2021, less than 70 took place in Q1 2022.

Why should we care?
The decline in SPACs’ popularity—which is only accelerating—can have effects far beyond the terms of the individual fundraising deals behind them. Pegasus Europe, for example, a Europe-based fintech-focused SPAC that has raised €484M to date, has yet to find a fintech to merge with. Its prospectus stipulated that the company has two years to complete a merger, with the option for a six-month extension. Many investors signed a non-redemption agreement, which locks in that capital under seemingly inefficient conditions—an especially unfortunate prospect when startups are especially desperate for capital. “The Pegasus Europe guys made two mistakes,” a European investment banker told the Financial Times. “They raised too much money and they defined the scope [of the target] too narrowly.” But even if Pegasus did find a company to merge with, precedent suggests its ticket price would quickly crash. From Buzzfeed’s SPAC SNAFU to Chamath Palihapitiya’s tanking SPAC portfolio, these companies’ abysmal performances on the stock market suggest there’s a reason why traditional due-diligence processes for IPOs exist. And, what’s more, US regulators have homed in on this troubling corporate vehicle, and they seem to be on the cusp of major rulings on how SPACs operate. Beyond the subpoenas investors into former President Donald Trump’s SPAC, Digital World Acquisition Corp., received from a federal grand jury in the Southern District of New York, the SEC has proposed new rules to protect investors and expand disclosure requirements. Jon Parry, a lawyer who advises SPACs, thinks “SPACs are here to stay as an instrument”—but they might only survive if they drastically shift their structure and practices.