The investors I know want to match their risk profile with the risk profile of the founders. That means that if they are risking 1% of their net wealth, they w

The investors I know want to match their risk profile with the risk profile of the founders. That means that if they are risking 1% of their net wealth, they would like the founders to also risk ~1% of their net wealth - even if that means $4m or $40. This is because they don't want founders to have incentives that don't align with theirs. You are right that no one wants a founder who is under-invested as they may end up not pushing hard enough. But a founder who is over-invested might cause even more problems because if a 2x return means they get to keep their house they might not go all out for a 50x return if it puts that 2x return at risk.