Does your assessment change at all if your horizon extends beyond the next round?
An analogy: Amazon is $1k/share today. Let's say you think there's a 30% chance it will 3x in the next year. Would you like to invest at $2.5k/share today? The answer is No because that has negative expected value, and you'd rather just wait a year and invest at $3k/share than investing at a small discount to $3k/share today when the stock is worth much less than that.
Also, the time horizon doesn't change the misaligned incentives here. Because I get in at next round's price, I would prefer for that price to be lower.
Would it be more appealing if you the round was closed in the next few months, so you investing early would be well rewarded with the discount?
I agree that 20% discount by itself is not appealing enough incentive for the risk of early stage investment. But what about 40%? ...50%? A discount is just the mechanism that most accurately captures the variable nature of valuation. Finding the right number is where the modeling happens.
As was mentioned elsewhere, smaller discounts tend to apply to shorter horizons, such as when bridging immediately into a round. In those cases, they can be a good way for VCs to get on the cap table with prorata rights without having to muck around in series-A drama.
For a lot of people, I see the difference being the start of the process, and the end of process which can be a few months - in which case, an uncapped with discount seems entirely reasonable.
It seems like you are referring to a case where a substantial time has passed to materially affect the valuation in a substantive way?