CPC vs. SPAC
CPC (Capital Pool Companies) and SPAC (Special Purpose Acquisition Corporations) are two different formats of raising capital for business owners and investors alike. Because both CPCs and SPACs are publicly traded on the stock market yet vary in how they are formed, their rules, and what they include overall.
What is a CPC?
A CPC, formally known as a capital pool company, is a way for businesses to raise additional money and go public on the stock market. CPCs are used in Canada and are essentially companies with legitimate founders/directors/employees and money. A CPC is used for experienced business-people to trade on the stock market without having any current operations.
While the American financial system has intricate venture capital infrastructure, Canada’s venture capital ecosystem is relatively underdeveloped. Given this dynamic, many early-stage Canadian companies stand to benefit from CPC arrangements. These investment vehicles allow involvement of more experienced business operators and financial directors — similar to the benefits of the American venture capital system.
Purpose of a CPC
A capital pool company allows small and newer companies to:
- Grow with the help of experienced directors
- Enter the stock market in an IPO
- Raise capital
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What is a SPAC?
A SPAC, also known as a special purpose acquisition company, is a company created by expert investors looking to put capital into companies that currently do not have any assets or cash. Typically, these small companies are looking to raise money through an IPO. A SPAC is an ideal business practice for businesses who are interested in raising capital before beginning their business operations.
SPACs have garnered popularity in the past few years. In 2020, over 33 special purpose acquisition companies were created and generated over $10.5B. SPACs are a popular way for new businesses to raise the capital they need.
Purpose of a SPAC
A special purpose acquisition company allows small and newer companies to:
- Gain capital
- Gain interest and investments from expert investors
- Create a quicker IPO process
Differences Between a CPC and a SPAC
CPCs and SPACs are similar in some ways and different in others:
- Both CPCs and SPACs are for newly created companies, oftentimes shell companies
- Both CPCs and SPACs goals are to raise capital for an IPO
- CPCs work with small-cap companies and have a bracket of capital-gained that ranges from $200k to $1.9M
- SPACs work with large-cap companies and have a bracket of capital-gained that much have a minimum of $30M with no maximum amount
- For investor protection, CPCs require approval from the TSX Venture Exchange (Canada’s stock exchange)
- For investor protection, SPACs not only require approval from the TSX Venture Exchange but they also give investors voting rights in company acquisitions
A Popularity Contest
SPACs have been all the rage—especially in 2019 and in 2020. In 2019, SPACs raised over $13B for small companies. In the first half of 2020 (as mentioned above), SPACs have already raised over $10.5B. The reason why SPACs have gained increased popularity is due to underwriters coming from hotshot players like Goldman Sachs.
What to Look For to Make Money
When either CPC or SPAC companies hit Canada’s stock market, they are legitimate companies. Given that both types of companies undergo an approval process from the TSX Venture Exchange, they are safe for retail investors to put cash into on the market. Keep in mind that CPC companies are typically small-cap whereas SPAC companies are more frequently large-cap.
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