The risks in a SPAC, in the order they actually bite

A SPAC before a deal is one of the safer instruments in public equities. A SPAC after a deal is not. Most of what goes wrong happens in the transition, and it is worth knowing the order in which the risks arrive.

1. Dilution, which is certain

This is not a risk in the probabilistic sense. The sponsor's founder block, conventionally 20% of the post-IPO count, was bought for a nominal sum and converts at closing. The warrants issued with the units convert later. Both are disclosed in the prospectus, both are certain, and both reduce what a continuing shareholder owns.

It is why a de-SPAC trading at $10 is not the same as an IPO at $10. The $10 was never a claim on a tenth of the company.

2. Redemption, which compounds the first

When other holders redeem, the trust shrinks but the founder block does not. A vehicle that raised $300m and sees 90% redeemed arrives at closing with $30m of trust cash and the same fixed promote, which now represents a far larger share of a much smaller company.

3. The deadline, and what it does to incentives

The sponsor's founder shares are worth a great deal if any combination closes and nothing at all if the trust is returned. As the clock runs down, that asymmetry becomes the strongest force acting on the vehicle. It does not make sponsors dishonest; it makes almost any deal preferable to no deal, from where they are standing.

The practical implication is unglamorous: deals signed in the final months of a clock deserve more scrutiny, not less.

4. The target, which you cannot see yet

Before an announcement there is no business to analyse. You are underwriting a team and a structure. After an announcement there is a Form S-4 with audited numbers, but the window between announcement and vote is short and the document is long.

5. Liquidity and the post-merger drift

Once the deal closes, the register has usually turned over almost entirely. The arbitrage holders have redeemed, the PIPE has a lock-up that eventually expires, and the natural long-term holder base has not formed yet. Thin, unstable liquidity is a persistent feature of the months after a de-SPAC.

What does not appear on this list

Liquidation. A SPAC that returns the trust has done what it promised: holders get their money back with interest. It is a disappointing outcome for the sponsor and a neutral one for a public shareholder, and treating it as a scandal misreads the structure.