You must be interpreting this article very differently from many others since you're trying to turn this into an example of VC greed, but I don't quite understand how.
My reading is that the VCs for this round are not getting screwed in any way, they know exactly what they're getting (X% of the company for $Y, with $Z ending up in the company's accounts). For them it doesn't really matter whether all the shares they buy are newly issued or whether some are sold by existing shareholders, as long as X/Y/Z are the same.
Any possible investors in earlier rounds are not particularly getting screwed, since they have shares that will now receive a dividend.
But the employees with options are getting shafted, as they have been dilutied more than if the founders' cash-out had happened by them selling shares.
The delta between this deal and every other deal ever is not "Employees are uniquely getting screwed." Employees always get diluted. Three things you can count on: death, taxes, and employees getting diluted. You've got to come up with a fairly elaborate scenario to make this particular marginal dilution sound morally significant for me, since it is likely to be on the order of "We stopped stocking one particular brand of free soda" for most employees, since employees start out with wee little stakes and always get them progressively diluted over time anyway regardless of this micro-controversy.
The delta between this deal and every other deal is that the founders are getting treated in a way typical for VCs, not in the way typical for employees.
Here's some numbers about a hypothetical company FooCorp to make a point: assume that the employee option pool is 20% of the pre-market valuation of FooCorp when FooCorp raises $1 million on a $5 million valuation. (That pre-market bit is significant because putting it pre-market rather than post-market is a easy way for VCs to change the price of the deal without changing the price of the deal, which is a theme we will be returning to shortly.) Prior to the first round, employees (present and future) own or will eventually own 20% of the company, and the founders own or will eventually own 80% of the company. (We'll pretend there are no angels to keep the math easy.)
After the first round, employees own 16% of the company. Wait, didn't we say 20% literally on the piece of paper we signed the deal on? Yes, but some 20%s are better than others, for example 20%s which are written by people who do this for a living. This is garden-variety VC screwage and only tangentially related to the point.
Anyhow, say we raise $3 million on a $15 post for Series B. Employees get diluted again, with the founders, and they now own 12.8%.
We'll stipulate that the company goes red hot and the numbers around Series C are getting thrown about in the neighborhood of a billion dollars. They want to raise $80 million for business use. If the founders negotiate a post-money valuation of a billion, the employees get diluted to about 11.8%. If the founders instead raise $100 million and return $20 million of it to themselves, the employees are instead diluted to about 11.5%.
But wait. That is exactly equivalent to the founders raising $80 million (i.e. taking no money) but just not negotiating quite as well: if the VCs wheedle them down to $800 post, then employees end up with 11.5% anyhow. (That's a perfectly reasonable outcome for the negotiation because valuations for non-public companies are set by slicing opening a goat's entrails and successfully arguing that they look more or less auspicious than the other guy thinks while insinuating that if he doesn't like it he can go cut a different goat with other people.)
This (the OP) is a discussion about the price of the deal (and, secondarily, about the diminished leverage a hypothetical VC would have for subsequent deals if he had to deal with a counterparty who was already rich). It just doesn't sound like one, because we have invented a rich vocabulary under which people who understand money can manipulate the price paid to people who understand computers without ever saying the word "price."
Returning back to tangible reality of possible interest to HN readers, an early engineer promised .5% of the company when he joined waaaay back before they were famous is looking at this discussion and going "Honestly, guys, why do you care?", because the differential is between him ending up with 0.295% of the company (that's 2.95 million per billion if they should take no money and then exit) and 0.2875% of the company (that's 2.875 million per billion if they should take no money and exit). i.e. In the still-quite-unlikely event that he receives a pot of gold at the end of his rainbow, it is not a meaningfully different pot of gold than he would have otherwise gotten.
But here the founders may be finding an incentive to do the equivalent of not negotiating well, making it dramatically more likely. I'd have even greater reservations about the whole early-employee thing if it were commonplace that nobody at the bargaining table has interests aligned with mine. I don't even think it was a very good idea to allow the vastly different treatment of share classes we do.
My reading is that the VCs for this round are not getting screwed in any way, they know exactly what they're getting (X% of the company for $Y, with $Z ending up in the company's accounts). For them it doesn't really matter whether all the shares they buy are newly issued or whether some are sold by existing shareholders, as long as X/Y/Z are the same.
Any possible investors in earlier rounds are not particularly getting screwed, since they have shares that will now receive a dividend.
But the employees with options are getting shafted, as they have been dilutied more than if the founders' cash-out had happened by them selling shares.