Investors are savvy enough to realize that a large part of the value they bring is diversifying risk -- otherwise paying market salaries would be a point of contention. So the words "should" and "argument" really do enter into it. It's a debate over what is reasonable compensation for the equity on offer.
Considering that the market is generally non-frothy for companies without revenue and pretty damn frothy for those with cash and growth, this sort of thing is to be expected: there will always be companies that can't or don't take funding until the founders can insist on stronger terms.
It's almost not a moral issue (I pretty much don't care at all), but it's worth mentioning: both negotiating parties in a VC deal are presumed to be sophisticated, but there's a third party that isn't: the company employees. When founders of companies with many employees take cash-out financing, they are taking liquidity that their employees do not get to access, regardless of their vesting.
Posted mostly because I think Nirvana is dead on. There are lots of bootstrapped founders on HN and no reason for this community to perceive ridiculously onerous terms as social norms. The more people speak up against them, the more fair treatment all founders will get and the more pressure investors will face to get involved at an earlier stage.
Fully agree selective cash-outs can be ethically problematic if there are other stakeholders without the same option. That said, it's probably safe to assume the transfer is happening via a private equity sale rather than having the company issue new stock. And given the evidence this is a first round by a bootstrapped team it seems unlikely there are any outside equity holders. Maybe California is different, but the bootstrapped teams I've known don't tend to give out equity, in part because they only tend to hire when they can afford it, and in part because dealing with legal issues is a luxury before there are revenues.
Considering that the market is generally non-frothy for companies without revenue and pretty damn frothy for those with cash and growth, this sort of thing is to be expected: there will always be companies that can't or don't take funding until the founders can insist on stronger terms.