Study: among 44 tech startups that completed a SPAC deal from the start of 2020 through April 2021, their share prices had fallen 12.6% on average by May 17
Entrepreneurs are increasingly wary about the money-raising tool after watching peers' stocks slide and investors balk
Context & Ripple Effects
The 2020 SPAC boom created a widely used IPO alternative for tech companies, with more than 66 SPACs raised that year. This study supplied an early market-price warning that the route was losing appeal for entrepreneurs and investors.
Later coverage reinforced the pattern: many VC-backed SPAC listings in 2021 traded down, and startups that used the vehicle increasingly missed operating targets.
First-order effects
- The 44 tech startups in the study face weaker public-market valuations immediately, while prospective SPAC candidates confront investors who are less willing to back new deals.
- SPAC sponsors and entrepreneurs lose a key selling point for the transaction structure as peer share-price declines become visible.
Second-order effects
- Venture firms renegotiating startup financings have a stronger basis to cut valuations as tech IPO and SPAC performance deteriorates, as reflected in later funding pullbacks.
- Early trading losses raise the cost of using SPACs as an exit path, pushing startups and their backers to assess public-market readiness more closely.
Third-order effects
- The SPAC market shifts from a rapid alternative-listing channel toward a more selective one, with investor scrutiny focused on whether young public companies can meet stated revenue and earnings targets.
- If poor post-merger performance persists, fewer new SPACs will attract capital—a trajectory later reflected when no new SPACs raised money in July 2022.
The trend: The SPAC boom is giving way to a public-market discipline cycle in which post-listing performance constrains private companies' access to alternative IPO routes.