Why isn't there a race to the bottom to shrink the sponsor cut from 20% to 5% or something? If being the sponsor is as protected and lucrative as suggested surely plenty of people would be willing to sponsor for less of a cut, which in turn would make the deal less of a bad deal for others?
Every deal is different, 80% of a share in a good company is worth a lot more than 95% of a share in a bad company. If it's an extremely marginal case then the sponsor shrinking their cut might be the difference between the retail investors pulling out or not, so in that case you might see it happen, but most of the time negotiating the acquisition and the PiPE is the hard part, and if you succeed at that then the deal is going to happen.
What defines "good" and "bad"? From the market perspective "good" would be defined by its medium to long-term return to the investor that holds for a long enough period to cover the short-term loss. Whereas "bad" would be an acquisition that has declining value over time, even if its short-term performance is acceptable.
There is an abundance of capital chasing ever diminishing returns. I think it's at least somewhat likely there is little price elasticity on the sponsor cut and almost certainly a lot of retail investors who are irrational investing in these SPACs.
