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SPAC | Hole
The Wall Street Skinny
August 22, 2025
This Week on The Floor
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SPACs are back…but should they be?
Why the Fed surprised us today at Jackson Hole
Markets Recap / Deal News
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SPACs Are Back…But Should They Be?
Special Purpose Acquisition Companies, aka SPACs, are making a comeback. After the mania of 2020–2021 fizzled out, we assumed the product had been consigned to the dustpile of Wall Street history. But Chamath Palihapitiya, once hailed as the “SPAC King,” has filed for a new vehicle: American Exceptionalism Acquisition Corp. If history is any guide, this could mark the start of another cycle.
For context, Chamath was an early Facebook executive turned venture capitalist, and current co-host of the “All In” podcast, who gained retail investor fame by championing SPACs as a “democratized route into hot private companies”. His track record, however, tells a cautionary tale. Past vehicles like Virgin Galactic, Opendoor, and Clover Health are now trading 60–95% below their debut prices. Only SoFi remains above its $10 IPO level. Still, SPACs offered an attractive proposition in 2020’s zero-interest-rate environment: a quick, meme-worthy path into high-growth companies, often juiced by retail enthusiasm.
History of Chamath’s SPAC performance
How SPACs Work: The Mechanics
To successfully execute a SPAC, there are two steps.
Step 1: The IPO. The first thing that happens is you must raise money in an IPO for a company that does nothing. Unlike a traditional IPO where investors scrutinize a company’s full financials before listing, SPAC investors are essentially writing a blank check to the sponsor (in this case to Chamath), by investing in a shell company. Shares are typically priced at $10 apiece. Since this particular SPAC is raising 25mm shares, they are going to raise $250mm (ignoring the greenshoe).
The sponsor then has 18-24 months to find a private company 4-5x larger than their cash pile to merge with. In other words, Chamath is seeking a target company worth roughly $1-1.25bn
Step 2: Once the sponsor finds a private company to buy, SPAC shareholders vote. For the deal to go through a majority must approve. If shareholders don’t like the deal they can either sell or redeem for the $10 per share they invested (plus interest) rather than stick around for the merger. Once this merger goes through, the private company becomes public through this “backdoor”.
Economics, Costs, and the “Promote”
Sponsors receive founder shares at a steep discount, in this case, Chamath paid $25,000 for 12 million Class B shares, which can convert into Class A shares, representing ~30% of the SPAC. While these founder shares are subject to performance hurdles (meaning the SPAC post-merger must trade up 50% - 100% in the first month), they’re short-term in nature and say nothing about long term value. For perspective, many of Chamath’s previous SPACs traded above these thresholds in that initial post merger period before subsequently collapsing.
Beyond the sponsor promote, the insane amount of fees charged in a SPAC includes the underwriting discount at IPO (in this case roughly 3% of proceeds, or $0.31 on a $10 share in this case) and M&A advisory fees at the merger stage. On top of that, investors face dilution from sponsor promotes and any PIPE (private investment in public equity) financing used to close deals. By comparison, underwriting fees on a traditional IPO are typically 1–7% (depending on size), and there’s no 20–30% giveaway to a sponsor. For shareholders, that makes the SPAC route an inherently more expensive way to go public.
Performance and Market Context
SPACs often shine in the short term, when hype drives post-merger trading. In 2020, it wasn’t uncommon to see share prices spike 3–5x in the first 30 days. But long-term results have been dismal. The average SPAC from that vintage has badly underperformed the S&P 500. The reason? Misaligned incentives. Sponsors earn promotes regardless of whether deals succeed long-term, and retail investors are left holding depreciating stock once the excitement fades.
It’s telling that SPAC mania coincided with a zero-interest-rate world. When capital was cheap and investors were desperate for yield, speculative vehicles thrived. Now, with rates higher but trending lower again, SPACs may find a fresh window of opportunity. But unless structural issues around dilution and fees are resolved, history suggests investors should be cautious.
The Bottom Line
SPACs are back, but their flaws remain. While eliminating warrants may close one loophole, sponsors still capture massive upside at the expense of retail shareholders. If you’re investing in one, remember: you’re not betting on a company, you’re betting on the sponsor. And with Chamath’s track record, the odds of long-term outperformance look slim.
Jerome Powell Surprised Us at Jackson Hole
Going into Jackson Hole, it felt like the market was primed for disappointment. But Powell delivered. What happened?
We started the day with an exuberant market priced to perfection. Expectations that the Fed will cut interest rates at their September meeting seem fully embedded in nearly all asset valuations. Yet after a spate of surprisingly high inflation data, it seemed highly likely to me that Fed Chairman Jerome Powell might equivocate somewhat on the mixed signals in the market, preserving optionality over the course of the next month.
He did no such thing. In his remarks, Powell said:
Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.
At the same time, GDP growth has slowed notably in the first half of this year to a pace of 1.2 percent, roughly half the 2.5 percent pace in 2024. The decline in growth has largely reflected a slowdown in consumer spending. As with the labor market, some of the slowing in GDP likely reflects slower growth of supply or potential output…
…The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts. The question that matters for monetary policy is whether these price increases are likely to materially raise the risk of an ongoing inflation problem. A reasonable base case is that the effects will be relatively short lived—a one-time shift in the price level.
TL/DR: Powell is emphasizing the downside risks to employment over the potential upside risks to inflation, giving a firm justification for a 25bp ease in September. On the spectrum of Fed language, this was a clear proclamation that the Fed is adopting a more dovish stance.
The market’s response? Nothing short of jubilation.
Risk assets are up across the board led by equities, 2 year yields immediately dropped 10 basis points, and the dollar is weakening, all consistent with affirmation that a rate cut is nigh.
And I should have learned my lesson. Last September when the Fed, cut 50 basis points rather than the 25bps the market was anticipating, I was caught off guard (along with many of the world’s most prominent investors and economists). I thought Powell would want to preserve optionality in the face of conflicting data at the time rather than making a big move. But it seems instead his M.O. is to respond decisively to weakness in the data market.
The title of the Jackson Hole symposium this year is, after all, “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy”. Addressing the softening labor market head on, knowing full well how the market would interpret his remarks, Powell has now left VERY little room for optionality next month.