Blank-Check Companies, a Hot IPO Fad, Contain Pitfalls for Investors (Wall Street Journal)
Some people are seeking to raise cash from investors with which to buy companies and profit from their success – venture capitalism.
But what is the worth of a company that just has cash and no other assets? What can investors look to for assurance that the cash they provide will not be lost or wasted?
Again, giving a present valuation, a market price, to a future intangible is central to the creative dynamic of capitalism and to its repeated failures. An overly-optimistic price or valuation (sub-prime mortgages? CDOs, dot-coms? tulip bulbs?) draws forth wealth and wastes it, leaving investors the poorer.
These special purpose companies have little more than the intangible asset of the smarts of their managers.