This will keep happening until it literally becomes illegal to collect personal information.
They are responsible to the Board of Directors of the corporation, not the shareholders. The Directors are responsible to the shareholders.
They have a responsibility of care (including a fiduciary responsibility) to operate the corporation in the corporation's best interest, not the shareholders, as directed by the Board.
That best interest can be measured in all sorts of ways as established by the Directors, which may include increasing shareholder value.
The practise of CEOs also being the Chairman of the Board, of executives being major shareholders, of bonuses being driven by share price, are all practises that should be eliminated, given that they are not in alignment with an executive's actual responsibilities and duties.
Drilling a hole in your ship may be immediately helpful because you are thirsty, but ultimately it’s not going to end well for you.
I’d say it’s well within the realm of reason to say a hard ‘no’ to investors in this case.
Telemetry was always going to be a concern with services that promote themselves as "open-source" or "free-software". The subject is so important that it is one of the reasons that the mass exodus from GitHub to GitLab happened. So to say that "there were many more concerns than we expected" is complete bullsh*t and appears more like the VCs are puppeteering the founders with this talk here.
Like other companies that are at the mercy of VC funding, they will do anything to please them over the "community" to show that they are growing. So don't be fooled by this empty response.