However, you make a good point. Neither Color nor Instagram were/are "sustainable businesses". Sequoia just wants a return. Google is a sustainable business, and if you build one, Sequoia will get their return. You can also just get a bunch of users and flip it to Facebook. They'll get their return then too. And I'd bet Sequoia doesn't really give a crap which way you do it.
Very succint and clear explanation of the venture industry. All start-up teams shall print this in big letters and read daily.
Of course, my point excludes the examples of non-ethical behavior.
My point is that VC financing is high-risk, so things that you may think of as being high risk investments, or "duds", are probably potential investments.
VCs also have to deal with the agency effect. If five firms jump on one startup and your firm doesn't, and that startup ends up being successful/gets a return, you stand to lose your clients as a VC.