What funding happens in a SPAC? Well, funding is important for determining who owns what in a SPAC. We start here where the sponsor invests funds in return for promote shares, and these are sometimes called founder shares. These often have a low par value, often close to a negligible value. These promote shares will be a key source for the sponsor to earn a return. In addition, at IPO, the sponsor receives warrants. Now warrants give the sponsor the discretion to buy more shares if they wish. The sponsor will have to pay for those warrants, providing a little bit more funding for the SPAC.

Also, at the IPO, outside investors will receive shares and warrants, again, the discretion to buy more shares should they wish. Now, whereas the sponsor buys their promote shares and then completely separately buys the warrants at IPO for the outside investors, those shares and warrants are combined and they're called units. The sponsor now normally holds 20% of the SPAC, leaving the outside investors holding 80%. However, once we then do the acquisition of the private company, we may need to give a large shareholding away to those target shareholders, which would dilute the sponsors and the SPAC shareholders.

The Shell Co now acquires a target. Those target shareholders can take new shares, which would be an equity issuance by the Shell Company, or those target shareholders can exit, take cash and leave.

Now, the slight problem that may happen at exactly the same time as the acquisition of the target operating company is that some of the outside investors, the SPAC shareholders, they may decide, this is not the target for us. This is not who I imagined investing in. I'd prefer to exit and they redeem their shares. This is completely normal. However, it can mean we have a shortfall of funding. In addition, the SPAC may want to buy a much, much, much larger target company than it's got funding for, so they may want to go find additional funding. This is PIPE funding and it's extra funding available for the acquisition if needed. PIPE stands for a private investment in public equity.