At least 21 firms that went public by merging with special purpose acquisition companies, or SPACs, went bankrupt this year, according to data compiled by Bloomberg. Measured from their peak market capitalizations, the insolvencies bookend the loss of more than $46 billion of total equity value.

The failures span money-losing electric vehicle startups and forward-thinking farming companies. Blank-check firms were good at propelling their targets to the public market even when they lacked well-formed financials, said Gary Broadbent, an executive guiding former SPAC AppHarvest Inc. through its liquidation. Many weren’t “ready for primetime,” he said.

Some were more promising than others, but all drew dollars from excitable investors caught up in the SPAC craze, including mom—and-pop traders. Plenty of shareholders are now suing SPAC sponsors over their losses.

The largest SPAC bankruptcies included that of flexible workplace provider WeWork Inc., which boasted a $9.4 billion market value after going public in 2021. It succumbed to Chapter 11 last month with plans to jettison expensive office leases. Electric vehicle makers Proterra Inc. and Lordstown Motors Corp. also carried sizable market values, topping out at roughly $3.7 billion and $5 billion, respectively, before filing for bankruptcy earlier this year.

Many of these companies sought protection from creditors less than two years after going public. Software firm Near Intelligence Inc. filed Chapter 11 in December, less than 9 months after its stock debuted on the Nasdaq.

Of course, many predicted the ongoing wave of bankruptcies. Critics called the SPAC frenzy a bubble soon after it began. 

Going public via SPAC has historically been faster and faced less scrutiny than traditional initial public offerings. During the boom, companies targeted by blank-check firms also often made more optimistic projections about the trajectory of their businesses than would be seen in old-fashioned IPO processes.

Plus, arrangers had incentives to complete less-than-pristine mergers. Early investors could redeem SPAC shares at $10 if they didn’t like the deal, for one. Excitement over meme stocks and the promise of high valuations encouraged private companies to complete blank-check mergers at a rapid pace, said Usha Rodrigues, a law professor at the University of Georgia who has studied SPACs.

The result was a glut of SPACs which Rodrigues described as “a ticking time bomb” of corporate failures that materialized in 2023. “Everyone should have seen this cliff coming,” Rodrigues said.

More Trouble

More trouble is likely on the way as higher interest rates weigh on company balance sheets. About 140 other former SPACs will likely need more financing in the next year in order to keep operating, according to data compiled by Bloomberg in mid-December that estimates a company’s cash needs.

SPAC companies were also more likely than their corporate peers to raise doubts about their future, according to Hudson Labs, an investment research software firm that analyzes regulatory filings. Nearly 44% of SPAC companies that filed annual reports in 2023 have reported going-concern warnings compared to roughly 22% of non-SPAC companies, Hudson Labs said.

Some shareholders are hoping lawsuits can help recover their losses. Lordstown stockholders accused sponsors behind its SPAC of overstating demand for its flagship Endurance truck. As Lordstown was preparing to go public in 2020, the company touted a backlog of 38,000 vehicle pre-orders. But unlike Tesla Inc. and other competitors, Lordstown didn’t require a deposit and shareholders claim company officials were aware those lofty Endurance pre-orders were unlikely to net actual sales.

Lordstown’s stock fell after short-seller Hindenburg Research accused the company of overstating demand for the Endurance. Lordstown never sold close to the number of Endurance trucks it had once projected. After the company filed Chapter 11 in June, its chief financial officer testified the company sold less than 40 vehicles.

Lordstown officials and its SPAC sponsor have denied wrongdoing. The vehicle maker’s proxy statement disclosed that Endurance pre-orders weren’t binding and didn’t require deposits, the company said. Lordstown stockholders were provided enough information to decide for themselves if the stock was worth the risk, they said.

Federal regulators have been slow to respond to the SPAC craze, even as Gary Gensler, chairman of the Securities and Exchange Commission, has been a vocal critic of the maneuver. In March 2022, the SEC proposed new rules that would require additional disclosures about sponsors and bolster investor protections. Shortly after, Wall Street giants started to distance themselves from deals involving blank-check companies and the SPAC pipeline dried up. 

But the failures keep coming. Just last week, Bird Global Inc. — the company whose electric scooters once blanketed major cities’ sidewalks — filed for Chapter 11 protection. Once the holder of a $2.5 billion market value, the firm revealed in court papers it had $3.3 million of cash when it entered court protection.