Investing in a newly public company can be risky, but so is investing in a special purpose acquisition company (SPAC). In this segment of Backstage Pass, recorded on Nov. 1, Fool contributors Toby Bordelon and Danny Vena answer a member's question about SPAC investing.  

Toby Bordelon: JP Stradbally asks, "How can you get your money back from a pre-IPO investment?" I'm not quite sure exactly what he asking here. I think it depends on how you do this. If you're talking about buying the publicly traded SPAC before they do the merger with a target you can only get your money back, you own shares of that SPAC. If it fails or if they pick something you don't want to, you can just sell the stock.

Now, you may be selling for a loss, but as long as the stock has value you can get something back when you're selling on markets. If you're talking about if it was a private investment, I don't know. It depends on maybe there was a mechanism in your document that said, if we don't end up doing this investment we'll refund your money or something like that. I think SPACs don't they Danny, have a mechanism for refunding the money if they don't actually do a deal? 

Danny Vena: From what I have seen and I'm not sure this is the case with everyone, but I think there are a number of SPACs that have said, you buy our SPAC for a certain amount of money and once we make the announcement about what our target acquisition is, then you will have the opportunity then to sell your shares back to us before the merger is completed. I don't think that's the case with everyone. But I know that I have seen that option for a number of companies and of course SPACs. 

Toby Bordelon: I think to be clear generally what that means is they'll buy it back at the price they originally offered it back, which is generally that $10 mark. If you bought it like at $17 because there was a lot of optimism, you might not get that back. They, might say, oh, we'll buy a back for $10. Again, it depends on the specific company, specific documents, but that will be disclosed in their filings to you if you want to look at that before you actually invest.

Checkout the SEC website for them and you can see whether there's any buyback mechanism or whatnot. I mean, I would not assume you can get your money back as a general matter I would just assume that yeah, it's just your investing and that's the end of it. Go carefully with some of this stuff.

Danny Vena: Yeah. Caveat emptor, let the buyer beware.