Do the investors care? If they're not making 100x return on an investment, will they truly care about 0.5x return? My feeling is that most would just say "OK, you have a good team, you have money in the bank, pivot and go wild".
Depending on timing (and here it was just over a year between the round closing and the acquisition), you may be able to easily re-deploy the capital you get back as another investment included in the same fund, and get another shot at a 100x return.
I'd be curious to hear what others think (particularly actual VCs, not just pretend ones like me) but this seems like a very rational outcome to me.
There's no chance the investors were happy with this- if a company had years of runway they almost certainly advised them to tough it out. Even a downround would be preferable compared to a total writeoff