Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra-Wealthy Families Use SPACs for Private Market Access
Transcript
- Lucas: So back in early 2025, a family office out of Dallas committed forty million dollars to a SPAC that was merging with an electric aviation startup — one of those eVTOL companies building air taxis. By the time the deal closed, that family office had negotiated a side letter that gave them a preferred return before any other common shareholders got paid. Luna: Wait — they got special treatment just because they were a big investor in the SPAC? Lucas: Exactly. And that's the story of how ultra-wealthy families use SPACs not just for public market access, but as a negotiating tool to get terms that ordinary retail investors can't touch. Today we're going to unpack the mechanics, the incentives, and the risks. Luna: So let's start with the basics. A SPAC — special purpose acquisition company — is essentially a shell company that raises money in an IPO with the sole purpose of merging with a private company to take it public. Lucas: Right. And wealthy families have been using them as a way to get into private deals that used to be reserved for venture capital or private equity funds. The SPAC IPO itself is usually priced at ten dollars per unit, and each unit typically consists of one share of common stock plus a fraction of a warrant. Luna: And the warrant gives you the right to buy more shares later at a fixed price, usually eleven fifty. Lucas: Yes. So if a family office buys a big block of units in the IPO — five million dollars or more — they often get to negotiate what's called a 'sponsor promote' carve-out. The SPAC sponsor typically gets twenty percent of the equity for almost nothing, but large investors can sometimes negotiate for a piece of that promote, or for reduced warrant coverage, or for a liquidation preference. Luna: That's the side letter you mentioned. The family office in Dallas got a preferred return — meaning if the merger didn't work out well, they'd get their money back before the sponsor or other common shareholders. Lucas: Exactly. And that's a huge advantage over buying a traditional IPO, where everyone gets the same terms. With a SPAC, the wealthy can use their size to negotiate better downside protection. Luna: But why would a SPAC sponsor agree to that? Doesn't it dilute their economics? Lucas: It does, but sponsors need anchor investors to get the SPAC IPO done. Without a few big commitments, the IPO may not price. So they give up some upside to secure the capital. Plus, the sponsor's promote is still huge — even after giving away some, they often keep fifteen percent or more of the merged company. Luna: And then after the merger, the family office can sell their shares or hold them. But there's a catch — lock-up periods. Lucas: Right. Most SPAC investors are locked up for six to twelve months after the merger. But larger investors can sometimes negotiate early release provisions, or reduced lock-ups. The Dallas family office got a six-month lock-up instead of the standard twelve, which gave them more flexibility. Luna: So they could exit earlier if they didn't like how the air taxi company was performing. Lucas: Exactly. And that company — let's call it AeroLift — had projected two hundred million in revenue by 2027. But those projections are a whole other story. The SEC's 2024 rules now require SPACs to include more detailed financial projections and to treat them as forward-looking statements subject to safe harbor. That's actually made projections more useful for investors. Luna: Right, before the 2024 rules, SPACs could include overly optimistic projections without much liability. Now they have to be more careful. Lucas: And that's a double-edged sword for wealthy families. On one hand, better disclosure helps them assess the deal. On the other hand, if the projections are too rosy, the SEC could come after the SPAC sponsor — and by extension, the investors who signed off. Luna: So what about the warrants? That's another place where wealthy families can get an edge. Lucas: Warrants are a big part of the SPAC story. In the IPO, each unit typically includes one-tenth or one-fifth of a warrant. So if you buy ten thousand units, you get one thousand warrants. Those warrants become exercisable after the merger, usually at eleven fifty per share. If the stock goes to twenty, you've doubled your money on the warrant. Luna: But if the stock stays below eleven fifty, the warrants expire worthless. Lucas: Right. And that's where wealthy families sometimes negotiate warrant coverage adjustments. They might ask for full warrants instead of fractional, or for a lower strike price. The Dallas family office got their warrants at a strike of ten dollars instead of eleven fifty — a small change that made a big difference when AeroLift's stock traded at twelve dollars after the merger. Luna: So they made money on both the shares and the warrants. What's the downside? Because there must be one. Lucas: The biggest downside is that most SPACs underperform. Academic studies show that the average SPAC stock trades below ten dollars three years after the merger. The sponsors make money from fees and the promote, but common shareholders often lose. Wealthy families can negotiate protection, but they're still exposed to the underlying business risk. Luna: And there's also redemption risk. At the time of the merger, any shareholder can redeem their shares for the trust value — typically ten dollars plus interest. If too many shareholders redeem, the SPAC might not have enough cash to close the deal. Lucas: That's a key risk for the family office that wants the deal to happen. If they've negotiated a side letter with a preferred return, they might not want to redeem — they want the merger to close so they can get their terms. But if other investors redeem heavily, the deal could collapse. Luna: And then the family office is stuck with a failed SPAC that liquidates and returns their capital. They don't lose money, but they've tied up capital for a year or more with zero return. Lucas: Exactly. So the strategy is not without opportunity cost. But for ultra-wealthy families, the ability to negotiate custom terms — lower warrant strike, preferred return, reduced lock-up — can tilt the odds in their favor. It's one of the few areas of public markets where size actually gets you a better deal than the retail investor. Luna: And if this kind of insight is useful to you, we should mention that these episodes stay ad-free because of listener support. Lucas: Yeah, that's right. If you found today's deep dive valuable, you can help keep the show going at buy me a coffee dot com slash fexingo. It's a simple way to say thanks, and it means we never have to interrupt the conversation with commercials. Luna: And we really appreciate it. Okay, back to SPACs — one more angle I want to explore: how do wealthy families actually source SPAC deals? Are they approached by sponsors, or do they go hunting? Lucas: It's a mix. Many family offices have relationships with SPAC sponsors — often former investment bankers or PE partners who raise the SPAC. They get early access to the deal pipeline. Some family offices even co-sponsor their own SPACs, putting up the seed capital in exchange for a larger promote. Luna: Right, I've heard of family offices that started their own SPACs focused on a specific sector, like healthcare or climate tech, where they already have expertise. Lucas: That's becoming more common. In 2025, about fifteen percent of new SPACs were backed by single-family offices, up from maybe five percent a few years earlier. The advantage is that the family office gets the sponsor promote — typically twenty percent of the merged entity — for putting up just five percent of the IPO capital as seed funding. Luna: And if they choose the right target, that promote can be worth hundreds of millions. Lucas: But the risks are real. If the SPAC can't find a target within two years, it liquidates, and the sponsor loses their seed capital. So it's not free money — it's a high-risk, high-reward bet. And the SEC has been watching more closely since the 2024 rules, especially around sponsor compensation and conflicts of interest. Luna: What about the tax implications? Because wealthy families care a lot about that. Lucas: A big one is that SPAC warrants are treated as derivatives for tax purposes, which can trigger ordinary income treatment when they're exercised or sold, depending on holding period. Some families structure their SPAC investments through a corporation or a trust to manage the tax bite. Luna: And the preferred return side letters can also have tax consequences — the IRS might view that as a separate security, not just common stock. Lucas: Right. So it's not a simple product. But for families that have the scale to negotiate and the patience to research the target, SPACs remain one of the most accessible ways to get private equity-like returns in a public vehicle. Luna: And with the 2024 SEC rules bringing more transparency, the space is becoming a bit more institutional. It'll be interesting to see if the family office share of SPAC activity continues to grow. Lucas: I think it will, especially if the IPO market stays choppy. SPACs offer speed and certainty of execution that traditional IPOs can't match — and for families that can negotiate the right terms, that's worth a lot.