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Founder Shares
exercised 30 days after the target company acquisition or merger takes place and after a year of the SPAC’s IPO.
The capital structure of SPAC is beneficial to institutional investors due to the option of buying warrants allowing them to purchase more shares once the target company for acquisition has been decided. They can also choose to redeem their shares if they are unsatisfied with the SPAC’s decision of acquisition and receive their money invested. For instance, if an institutional investor buys 1,500 shares for USD 10 each, they receive 1,500 warrants to buy more shares in the future at an already decided price which is slightly higher than the original price at which the shares were purchased (usually at USD 11.50) which would garner a higher profit if the stock of the company rises. In contrast, the retail individual investors (RII) make the decision of an investment in the SPACs after it has gone public and before the decision of acquisition/merger. They do not receive the additional advantage of receiving the warrants and redeeming the shares in the future like the institutional investors do.
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Founder Shares
As the name suggests, these are shares that are offered to the founders or sponsors of the SPAC during the inception of the SPAC registration. The founders pay a nominal amount to attain the shares which consist of 20% stake as owners in the total shares post the conclusion of the IPO. These shares are offered in the interest of the management team as they do not receive any money as commission for the participation in the SPAC process until the conclusion of the merger of acquisition with a private company. Founder’s stock is the equity that is offered to the sponsors and investors that played a vital role in managing and providing their expertise to the SPAC during its early stage. Founder’s stock is different from the common stock that is sold in the secondary market. In addition to the SPAC shares, they receive units which comprises one share and its subsequent fraction of warrants.4
4 Securities and Exchange Commission: Division of Corporate Finance, ‘Special Purpose Acquisition Companies’ (U.S. Securities and Exchange Commission, 22
