SPACs are legal business entities that don’t have any assets or conduct any sort of business activity. In effect, they’re empty husks. That’s why they’re often called “blank check companies.”
As for how a SPAC takes a company public, the process is basically a reverse-merger, when a private business goes public by buying an already public company.
SPACs are designed to raise money so that they can acquire their target. To raise money, they need investors, which is why they’re generally publicly traded. Since they’re publicly traded, it’s pretty easy to invest in SPACs—in most cases, a brokerage account is all that’s required.
SPACs really exist for one reason: To acquire a target company and take it public. But there’s a chance that some could fail to do so—something that prospective investors should take seriously.
SPAC investors also run the risk that their shares could be diluted, or lose value. Though an investor may buy into a SPAC at $10 per share, the SPACs sponsors—the folks running the SPAC—may throw in additional funding that can erode the value of those shares.
It can be easy to get caught up in the hype around certain SPACs. Whether the SPAC itself is targeting a particularly noteworthy company to take public, or if it’s being managed by a big-name investor or famous person, the glitz and glamour may blind investors to certain risks.