In a recent paper published in Strategic Science, University of Michigan business professor Derek Harmon studies hundreds of SPAC-IPOs to see what communication strategies lead to successful financing. He found that when a SPAC-IPO properly communicates the uncertainty of its acquisition, they have a significant advantage in the marketplace.
The other two key takeaways:
- SPACs that disclose the risks and uncertainties of their business strategies are likely to gain more trust from investors.
- The background and track record of the SPAC founders play a crucial role in attracting investors.
Because of the uncertainty of their acquisition targets, SPACs are in an awkward position to communicate how they will be successful in the market. Harmon’s study asked – when you can’t clarify uncertainty, what is the best strategy? The study found that the more a shell company recognizes uncertainty in its communications to investors, the more likely they are to earn the trust of investors.
“What we’re arguing, which is consistent with research in communication studies on studying cancer, studying earthquakes, studying rare weather events, is when you don’t know what you don’t know – if you communicate your uncertainty – it actually makes people trust you more,” Harmon said. Read more.
