A company that doesn’t do any business saw its stock soar as much as 400% this week on word it would help launch Donald Trump’s social media platform. The same day, another “blank check” company helped lift WeWork in its Wall Street debut — two years after the work-share company ditched plans for an IPO amid skepticism about its finances and leadership.

Both ventures are centered on special purpose acquisition companies, or SPACs, which exist solely to raise money from investors and find a private company to merge with and take public.


Though SPACs in their current form have been around since the early 2000s, they have exploded in popularity in recent years, drawing in celebrities like Shaquille O’Neal, Jay-Z and the former president. But they’ve also drawn regulatory scrutiny, the ire of scorned investors, and some harsh pullback from the market. Here’s what you need to know about this recently popular alternative to an IPO.

What is a SPAC?

SPACs are essentially shell companies that allow groups of investors to raise money, list on a stock exchange, and then quickly take a private company public in a way that bypasses the rigorous process of a traditional IPO.

SPACs are also known as “blank check companies” because they exist as pools of cash without an explicit investment target — until they find their corporate soul mate.


Trump is pitching his new social network as an upstart rival to the Big Tech companies, granting him unfettered space to deliver his thoughts and build an alternative to “the liberal media consortium.” In addition to building out a social network, Trump Media & Technology Group plans to have a subscription streaming service spanning news, entertainment and podcasts.

Digital World Acquisition, the SPAC partnering with Trump, sees in the former president a massive following, and plans to expand the company to provide “world class leading technology services” with “strong and secure social networks and diverse media offerings.”

It already is posting staggering gains. Last week, before the Trump venture was announced, DWAC was trading around $10 a share. On Thursday, they shot up to $40. By Friday afternoon, they were above $109 — a 1,000% climb in just a few days.

Digital World SPAC is “outpacing gains previously seen across the SPAC universe, likely fueled by retail investors driven by Trump’s large following and notoriety,” said Nicole Tanenbaum of Chequers Financial Management. But, she noted, other SPACs that sailed in price after merger announcements often see shares fall later, “bringing potential losses to individual investors while the sponsors and early investors have still cleaned up nicely as a result of the SPAC structure.”

The deal could also fit a familiar Trump business model: lending his name and reputation to other people’s businesses, generating revenue for himself with little work or overhead.

While the Trump Organization faces an array of challenges — including mounting losses at some businesses and an indictment of its chief financial officer — the social media venture would allow Trump to make a run at the tech sector without much risk.


“There’s nothing surprising. The only surprising thing would be if he actually put his own money into it. He’s always an other-people’s-money people guy,” Gwenda Blair, who wrote a biography of Trump, his father and his grandfather, told The Washington Post. If the SPAC venture doesn’t require Trump to invest money, she said, “What’s the downside? It’s all upside.”

The former president previously ran a publicly traded company, Trump Entertainment Resorts, which included many of his Atlantic City casinos. It operated for roughly two decades starting in 1995, but for Trump’s investors, it was a disaster: The company lost more than $1 billion, its stock price nose-dived, and it filed for bankruptcy three times, in 2004, 2009 and 2014. Trump himself made out well, however. The company paid him more than $44 million in salary, bonuses and other compensation.

“Avoiding being responsible, in any ultimate sense, is a constant in his strategy,” Michael D’Antonio, a Trump biographer, told The Post.

“If you think of him always looking for ways to try businesses without being truly responsible — combined with his sense that he can do anything — then this is kind of natural,” he said.

Why are SPACs popular?

SPACs have drawn immense interest in the past year because they can save companies and investors time and money. They allow stakeholders to strike quickly, taking advantage, for example, of the dramatic upturn on Wall Street, where the S&P 500, a benchmark for the market, has nearly doubled since the initial shocks of the pandemic.

The broader investment frenzy unleashed by the COVID economy has also played a factor, as hedge funds, celebrities and retail investors scramble to find the next hot moneymaker amid so much volatility and uncertainty. Shaq was tapped as a strategic adviser to a SPAC eyeing acquisitions in the media and technology industries and former Speaker of the House Paul Ryan, took a chairperson role at another SPAC, to name a few notable examples.


Through the first six months of the year, 350 SPACs have been registered with the Securities and Exchange Commission and have been priced, raising more than $100 billion, according to the data provider Dealogic.

But after a frenzy of activity, investor appetite appears to have cooled. SPAC IPOs dropped significantly in April, according to the findings, as the bulk of activity took place during the first three months of the year. Still, the splashy SPAC activity this year dwarfs historic levels: There were 248 new SPACS last year, and 59 in 2019.

WeWork’s second go marks a stunning turn of fortune for the office-space provider, once valued at nearly $50 billion. Adam Neumann, the company’s founder, stepped down as CEO in 2019 amid concerns about the company’s governance structure and massive losses. Neumann’s own erratic behavior and reported self dealing became the subject of intense investor criticism, marking a rapid fall from grace, as the company ditched plans to proceed with a much-hyped IPO.

But the SPAC deal appears to have given the WeWork another life. On Friday, its shares were up more than 11% in afternoon trading.

How do SPACs differ from IPOs?

SPACs typically have fewer regulatory demands than a traditional IPO, which involves an arduous process that can entail months of negotiations with underwriters and extensive vetting. A SPAC can bring a company public in three to six months, experts say, where a traditional IPO rarely takes less than a year, and often double that.

“Importantly, SPACs can provide a faster and less expensive route to the public markets, where target companies can also often negotiate higher valuations,” Tanenbaum said. Backers potentially stand to gain massive payouts.


But the swifter process and diminished transparency also comes with added risk, since the safeguards of having a traditional underwriter with a robust due diligence process are removed.

One danger, Tanenbaum said, is the possibility of a SPAC merging with a company not well suited for public markets.

Investors are ultimately betting that SPAC managers will choose the right partner. But they also come with deadlines: People in charge of SPACs typically have a two-year window to identify a company and complete the merger. That means a SPAC’s managers might rush their company decision, more focused on beating the clock than fully weighing its suitability, she said. Or they may simply fail to adequately vet the target company, potentially chaining investors to a dud.

What about the SPAC backlash?

Some of the demand for the SPAC structure has slowed, coinciding with warnings from U.S. regulators. Earlier this year, SEC Chair Gary Gensler told members of Congress that his staff is contemplating new rules or guidelines for SPACs, as he questioned whether the structure adequately protects small investors.

Other pushback has come directly from investors, who bet on SPACs and lost, and who allege that they were misled. A wave of class-action lawsuits this year is targeting SPAC companies, after some suffered brutal stock price drops.

The electric truck maker Nikola, which went public through a SPAC, and was riding high during the market euphoria last summer, has since shed roughly 80% of its value, as federal officials allege the company misled investors. Federal prosecutors have cited charges against Nikola founder Trevor Milton to warn investors about the risks of SPACs.