SPACs are the investment of the moment. With interest rates on the floor and investors chasing young companies, this is a dream scenario for SPACs. To know what's next and how the boom will end, investors need to understand these quirky financial concoctions. What is a SPAC? SPAC stands for special-purpose acquisition company, which is Wall Street jargon for a publicly traded company that holds nothing but cash. Also known as blank-check companies, SPACs exist to buy private companies, and effectively take them public while avoiding the pitfalls of a traditional initial public offering. The hot market has drawn in Wall Street bankers, tech entrepreneurs and celebrities ranging from Serena Williams to former Cosmopolitan editor Joanna Coles. SPACs have taken popular companies like sports-betting firm DraftKings Inc. DKNG -3.09% and space-tourism company Virgin Galactic Holdings Inc. SPCE -4.78% public. The SPAC explosion Starting last summer, SPACs began surging onto the stock market and the momentum continued into this year. Now, hundreds of SPACs are doing deals or are on the hunt for companies to buy. Technology, electric vehicles and green energy have been especially hot areas. SPACs have been around for decades but are taking off now because the biggest players from Wall Street and Silicon Valley are using them to raise money and take companies public. They have raised nearly $95 billion in 2021, soaring past last year's record total, and account for about 70% of all IPOs this year, according to Dealogic. How do SPACs work? A SPAC's "special purpose" is to use the pile of cash it raises in its initial public offering and other funds it takes in to merge with a private company. The private company then gets the SPAC's place in the stock market. SPACs typically have two years to complete a deal or they must return money to investors. Lately, many have only needed a few months to announce mergers. Going public via a SPAC is appealing because it lets private firms talk up their business. It also means their valuation is finalized with a small group of players behind closed doors before a deal is announced. In a traditional IPO, pricing can change until the night before shares start trading. In the stock market, the SPAC has three lives. The first comes after the IPO, when the company's only asset typically is $10 in cash per share.