How likely is it though that the board would have accepted the deal in a real scenario? The VC returns in the example aren't exactly home runs. Wouldn't they be incentivized to block the deal and wait for a better one?
I guess quite likely? In this scenario, it sounds like the goal of Series C was just to get some, any return. And getting back your initial investment sure sounds better than getting nothing back.
I doubt that was the goal of series C as any investor in that round would have been throwing good money after bad. If you're the VC in that case you're probably better off investing in a growth operation that trying to salvage a previous bet