, a football team, a timeshare on Mars… Hell, you can even buy a president if you like. But the true status symbol of the new billionaire class is something more understated, more misunderstood, more mysterious, more, well, bubbly. Your very own blank cheque company. Otherwise known as Special Acquisition Companies (or SPACs), these are the latest highly-gaseous, highly-geared investment tools that have taken your favourite billionaires by storm. But what are they? What do they mean for the rest of us? And how can you get in on the fun?

A SPAC is an investment vehicle that goes public despite not really doing much or owning anything — yet. The plan is to raise lots of cash from keen investors and use it to buy into another company — usually a private company that hasn’t been picked yet. Essentially, the owners of the SPAC say: ‘give us your money (lots, please) and we’ll decide what to do with it later.’

If that seems like a topsy-turvy, back-to-front way of going about things, then fine — that’s because it is. But it’s wildly popular — faddy, even. More than 40% of the IPOs in 2020 by volume have been done in this way, to the tune of some $31.6 billion.

The trend is down to two simultaneous factors. One is very low interest rates. Bonds are paying out less than 1% , while stocks are changing hands at healthy valuations. So canny investors looking for a big buck are happy to shove some money into a SPAC, with the idea that the holding company will pull off a killer acquisition and everyone will get rich.

The second factor is the modern obsession with venture capital. Investors who bought companies in the last decade of ready private equity cash now want to make good on their investments and cash in. So suddenly the market is awash with compelling companies for SPACs to swoop in on.

The pandemic is the reason, however, that we’re all talking about SPACs now. During all the Covid-related volatility of the spring, companies found it hard to find a traditional route to IPO. Being acquired by a SPAC is a nifty shortcut. The company avoids some of the usual scrutiny, and doesn’t need to waste too much time flirting with investors.

Lots of people. Figures from the worlds of business, entertainment, sports and politics are charging into the fold. Sir Richard Branson has his own SPAC, as does former Speaker of the US House of Representatives, Paul Ryan. The biggest is owned by Bill Ackman, the American hedge fund goliath. Billy Beane, the innovative baseball manager who the book and film 

 is based on, has one too. Wall Street, unsurprisingly, is at the heart of the boom: 99% of all cash raised for SPACs comes from downtown Manhattan.

The lower-hassle route to market is obviously attractive for company owners who want to IPO quickly. But that’s exactly where the danger lies, according to the critics. Josh Brown of New York investment group Ritholtz argues that the more rigorous traditional IPO process is a necessary evil: it makes sure that owners face the scrutiny of “hundreds, sometimes thousands of other intelligent, sceptical professional investors”.

“We’re in silly season in SPAC-land,” Martin Franklin, an industry veteran, told 

. (Franklin has raised six SPACs in the US and the UK since 2006 and has another in the works.) “This is going to end badly.”

But investors are still signing up in their droves. Some of that comes down to the sexy, X-factor appearance of many SPACs. By their very nature, they tend to prefer more speculative, innovative, future-facing businesses — like Luminar Technologies Inc., a Peter Thiel-funded firm that makes sensors for driverless cars. Last year, Branson’s Virgin Galactic Holdings Inc. went public via a SPAC.

Sure, if you like. SPACs go public at around $10 a share and have 24 months to find an acquisition. If the blank cheque doesn’t find a mark, it folds, and investors get their cash back. So it’s not too risky — and most of the firms handling SPACs are heritage hedge funds and established vehicles. They’re not cowboys.

But SPACs still pose a risk. Once the deal is locked in, shares can obviously drop below your purchase price, just like any other stock. In fact, they often do. Of the 18 companies that went public via blank cheque vehicles in the past year, 11 are currently trading for less than $10 per share. Essentially, when you buy into a SPAC you’re putting your money behind the talent who is searching for the acquisition — usually big name money men or notable investors. There have been some serious flops, however. Electric lorry-maker Nikola went public via a SPAC in June. The blank chequers were thrilled — their shares soon went through the roof. But then, in September, the whole thing crashed amidst allegations of fraud and faked technology. As Josh Brown puts it, “The hype drowned out the diligence.”

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