This doesn't happen in the real world.
When more shares are issued, it's because you've raised another capital round and the new shares go directly to the new shareholders (new VCs) and future employees who haven't yet been hired.
New shares wouldn't go to the founders.
Yes, it's hypothetically possible, but it doesn't happen in the real world.
> In the last year, we have seen, on more than one occasion, a behavior among later-stage VCs that we’ve rarely observed in the years before
Which seems to imply it's not a common practice. As I mentioned, it's 100% theoretically possible to do it, but the percent of companies that actually do it is very low.
It would be not only bad for early employees, but also bad for early investors - it would hurt the founders reputation among their early investors (and employees) which most founders wouldn't be willing to do.
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.
Sounds like a bit of a moral hazard / principal agent problem for founders!
Usually in conjunction with a new round, but not always.
The company will do a massive 'down round' - even lower than what they really want, bring on new investors. Then issue shares to current staff founders.
That is de-facto like handing over equity from previous staff to new investors - you could almost do the math for how much 'old employees' stock was sold to new investors wherein said old employees didn't get a dime.
It's generally going to happen in negative situations, but that happens a lot.
Edit: and it's not something your ever going to hear about, it's obviously not something leadership wants anyone to know about. Even 'former employees' who were washed out may not find out - how would they? They're not entitled to be notified upon new issuance of shares.
It is most common when potential investors have most of the leverage, but there are some holdout stakeholders which can also sink the round.
Ultimately it was the right call from the company survival perspective -- everyone who was severely diluted (including early investors) at least still have something worth more than $0.