The founders have a fiduciary duty to all existing shareholders (angels, early employees, etc.) to exactly be pursuing VC3 at the same time as VC2, before anyth

The founders have a fiduciary duty to all existing shareholders (angels, early employees, etc.) to exactly be pursuing VC3 at the same time as VC2, before anything is signed, and to take the best deal. They already have no choice. Your point about herd behavior is well taken, though. And the result is that the VCs moan and groan, but ultimately the price goes up, and the entrepreneur wins, because they get the best valuation possible. (I've been in the room as an angel investor, and I was sure happy when the valuation went up 25% when a second VC got interested in the B round.) The only counter-argument I can see is, in your example, if Sequoia's money really is greener than fooVC's (which there are long-standing arguments for and against).