The more common case is where the cap rises for later investors. Later investors gripe about that when it happens, but it's justifiable. The earlier investors took more risk. Plus the company actually is more valuable on account of their investment; a company that has raised $1m is at least $1m more valuable than when they started raising money.
(There was a big kerfuffle a while ago when an email of this type got leaked.)
There's another case, though, when the startup has initially raised money at a higher cap than the market will bear. We warn founders about this, but they don't always listen. In that case they give the earlier investors the same lower cap that they negotiate with later investors.
The alternative would be a low initial offer which would essentially keep anyone else from paying more. In essence the YC start-ups are giving the initial investor a money back guarantee on the difference between their offer and the lowest offer.
I feel like it would make more sense for someone in that scenario to get advice for their specific situation, rather than spelling it out in the protocol.
http://www.askthevc.com/wp/archives/2011/09/convertible-debt...
The way it works: instead of negotiating over true valuation early on, the seed investor hands over the cash as a debt instrument (so the startup technically owes the investor the money they paid), under the agreement that if the startup later raises a "real" (venture) investment round, the debt converts to equity at the price of the later round.
Of course, to avoid screwing the seed investors over, they typically insist on a "valuation cap" -- maximum valuation -- (so if you later raise venture at $10mm, but the cap was $5mm, the seed investors get twice as much equity as the venture investors per dollar paid). But if the venture investors only pay for a $5mm valuation, then they get the same equity-per-dollar as the seed investors.