Your points about why this is bad are entirely correct. But founders with shareholding may (do) work with later investors to their joint benefit, screwing over

Your points about why this is bad are entirely correct. But founders with shareholding may (do) work with later investors to their joint benefit, screwing over other early shareholders or investors. With VC money holding shares already, that is not so likely to happen - unless it is the VC buying-in more equity. However, smaller enterprises with startup beginnings are very likely to follow this pattern, as later investors (and perhaps greedy founders) do not care about those that came before.