I think the argument is that since they're all passed anyway they are now passed by Sequoia which may hurt their further chances for VC.

Presuming some superior ability by Sequoia to choose wisely. If in this particular case Sequoia is already "ambulance-chasing", hanging around YC's alley door hoping to pick up strays, I presume they are relying on YC's expertise, and simply expanding the opportunity to invest in worthy startups YC could not affort to fund. Otherwise why aren't they running their own show? Not to criticise Sequoia; I've been in 2 startups they funded. But VCs are notorious for herd mentality.

> If in this particular case Sequoia is already "ambulance-chasing", hanging around YC's alley door hoping to pick up strays,

That's a wonderful analogy, thank you for that one!