An avalanche of special purpose acquisition companies — better known as SPACs — raised capital this year to help startups bypass the lengthy and difficult IPO process.

Why it matters: Having more public companies is widely viewed as healthy for the markets and for the American economy, even if the SPAC path elicited skepticism and accusations of froth.

• Public companies provide greater corporate transparency than do private companies. They also offer more retail investor opportunity, whereas private company investments are often limited to the wealthy.
• Jay Clayton, the outgoing SEC chair, said in his 2017 confirmation hearings: “I believe that a reduction in the number of public companies, which is a function of fewer companies becoming public, is a problem for our capital markets.”

The big picture: The number of domestic operating companies listed on major U.S. exchanges has declined significantly over the past decade.

• A major driver was the massive increase in available private-market capital, which manifested itself both as take-private buyouts and as growth equity that enabled startups to stay private longer. Plus a slew of public company mergers.
• Between 2010 and 2020, the number of IPOs per year with a market capitalization over $50 million peaked at 275 in 2014 and hit a low of 105 in 2016. For context, there were a combined 856 IPOs in 1999 and 2000, during the dotcom boom.

By the numbers: Meanwhile, SPACs cropped up at an unprecedented rate this year, with 95 of them announcing deals to take private companies public.

• 248 SPACs listed in 2020, raising over $83 billion, per SPAC Research. And there are plenty more in the pipeline.
• That’s up from 59 SPACs that listed in 2019, raising $13.6 billion.

Between the lines: Much of the SPAC frenzy can be attributed to their super power of being able to take companies public now—taking advantage of favorable stock market conditions.

• The sea of SPACs accelerated the timeline for companies that were already planning to go public in a year or two, and even convinced some that weren't thinking about it at all.

Yes, but: If the stock market turns bearish, even SPACs might not be able to revive interest in going public.

• “Do you know where the Dow is gonna be in two years? I don’t,” says Niccolo de Masi, ex-CEO of gaming company Glu Mobile and a co-sponsor for two SPACs. “Valuations are good now, I can get you public now,” he says is the pitch to companies from SPACs.