The sponsors of the SPAC set aside for themselves a big chunk of the shares of the newly combined entity. So in general, the company gets a worse price than it would if it had gone public via an IPO.

So if the principals involved in a startup set up their own SPAC to take the company public, they could screw minority shareholders in the original company like, say, employees?

The laws generally require that these things be “arms length transactions”, basically meaning that the two parties are legitimately at odds over the price. Your example would not be that.

Most sponsors don't hold shares unless for the stock pops way beyond the $10. For the average company, you may end up as a public company with no cash raised. This can be mitigated by a concurrent PIPE, but otherwise you're SOL.

Right now it kind of seems like every IPO does happen this way. There's kind of a SPAC mania going on. I can name at least 5 companies that are going public through SPACs, and two more that are rumored to be doing the same soon (Virgin Orbit and Lucid Motors).

What I mean is why don't traditional businesses IPO in this way? If it's a pain to do due dilly with a real business, why isn't this a back door?

Theoretically, you get a lower price with an SPAC. However, if so much money is looking for returns, then the price might not be so low as to discourage it compared to other traditional ways to IPO.

SPAC acquisitions raise significantly less money for the target acquired company, so generally a target only goes the SPAC route if their financials aren't in good enough shape to go the traditional IPO route (offering, dutch auction, or otherwise).

Most SPAC acquisitions involve high-risk companies, for recent examples: Lucid (10 years on and still no actual product for sale), Nikola (fraud), 23andMe (its financials are reportedly not in great shape), Opendoor (huge portfolio of risky real properties), EVgo (history of massive losses), Clover Health (accusations of fraud, under DOJ investigation).

SoFi is the only company I can think of that is going the SPAC route that was potentially in the shape to IPO (their potential IPO was tenatively valued at $17 billion at the start of 2020, but the SPAC acquired them for around 8.65 billion). They apparently chose not to IPO because they wanted "deal certainty." However, leaving that much money on the table is a huge red flag for a financial company; it suggests that 2020 was a bad year for them and that they wanted to avoid disclosure, or that their financials are not in great shape.