VentureBeat

Updated

TheFunded, the controversial website that lets entrepreneurs rate venture capitalists, has rolled out a new feature that lets entrepreneurs pitch venture capitalists with help from their friends.

Called TheFunded Connect, the new feature, to be unveiled tomorrow, lets entrepreneurs solicit help from their fellow entrepreneurs to refer them to venture capitalists. Entrepreneurs wanting funding fill out a form, and then entrepreneur friends can look at the pitch and decide whether to recommend the company to contacts they might have among different venture firms.

At bottom is a screenshot showing how it works. The company called Weardrobe, run by chief executive Suzanne Xie, pitches itself using a simple form. Underneath you’ll see the forms filled out by a friend of Suzanne, pitching a VC on her behalf. You’ll see that Xie also has a way to let her friends know know who she wants to reach.

A video tour is embedded at bottom.

I contacted David Stern, a venture capitalist at Clearstone who checked out a test version of the feature, after someone referred a company to him.

Stern was critical of the service. While anything that makes referrals more efficient is a good thing, he said, he questioned whether any high-quality CEOs would use the service. Most good CEOs have their friends simply pick up the phone and call him directly. “If it’s putting up all its info at TheFunded, what does it really say about the company?” asked Stern. “You have to question the quality of the company.” However, he said some companies have very few contacts, so the service provides some value by giving them some exposure.

LinkedIn, which lets people contact each other more confidentially, is more effective for such communications, he said.

While Stern dissed this latest feature, he said TheFunded had wrought “powerful” change on the VC industry since the launch of its main offering. “It made us question whether we’re behaving the right way,” he said.

[Update: I just talked with Roelof Botha of Sequoia Capital, who differed somewhat from Stern, saying that he finds the service useful. Botha says it's one more way to get referrals that is much more efficient than getting email pitches from people he doesn't know.]

Founder Adeo Ressi countered the critique, saying the site is closed to the public (it is only open to entrepreneurs) and so the pitches are still being made in an intimate setting. Moreover, it gives entrepreneurs a more structured way of calling upon their friends to make the pitches. He said that similar offerings in the market, such as Open Deals and Raise Capital, charge entrepreneurs a fee to post their pitches. [Update: Actually, this isn't true. Raise Capital does not charge a fee for entrepreneurs to post pitches. It only charges for things like home page placement. More info here. <!– /* Font Definitions */ @font-face {font-family:”Cambria Math”; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:1; mso-generic-font-family:roman; mso-font-format:other; mso-font-pitch:variable; mso-font-signature:0 0 0 0 0 0;} @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:-1610611985 1073750139 0 0 159 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style-qformat:yes; mso-style-parent:”"; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:”Times New Roman”,”serif”; mso-fareast-font-family:Calibri; mso-fareast-theme-font:minor-latin; color:black;} a:link, span.MsoHyperlink {mso-style-noshow:yes; mso-style-priority:99; color:blue; text-decoration:underline; text-underline:single;} a:visited, span.MsoHyperlinkFollowed {mso-style-noshow:yes; mso-style-priority:99; color:purple; mso-themecolor:followedhyperlink; text-decoration:underline; text-underline:single;} .MsoChpDefault {mso-style-type:export-only; mso-default-props:yes; font-size:10.0pt; mso-ansi-font-size:10.0pt; mso-bidi-font-size:10.0pt;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.0in 1.0in 1.0in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} –>] Other sites, such as Vator.tv and TechCrunch, which also allow entrepreneurs to submit video pitches openly to the world, can be considered entertainment, Ressi said. Investors are unlikely to look for deals at those sites, because they are busy and prefer to rely on trusted referrals, he said.

Ressi is launching the service with five companies, which he says represent a quality bar high enough to draw interest from investors during testing. He’s hoping these companies will get funding within several months, which he said will help prove the viability of the service.

Bottom line, it’s hard to see how high-quality companies will use this service to get funding. Good companies with contacts will probably do it the old-fashioned way: The phone call.

Disclosure: VentureBeat has a business relationship with TheFunded, including linking to each other’s sites.

TheFunded Connect from Adeo Ressi on Vimeo.

TheFunded, a site that lets entrepreneurs rate and comment about venture capitalists, has drawn a lot of attention from folks eager to learn salacious gossip about bad VCs.

Over recent months, though, there’s been an odd development: Certain posts by entrepreneurs critical of VCs are being quietly removed and then replaced with more favorable comments. On its face, it looks like a whitewash. Or maybe it’s not so troubling. You decide.

The changes are notable because TheFunded has been struggling with how to handle entrepreneurs who post sour grape, inaccurate — and often viciously negative — posts about venture capitalists who rejected their ideas. Is TheFunded now assisting VCs in taking down these posts?

TheFunded’s founder, Adeo Ressi, says not at all. Rather, some of the posts are being removed under duress from venture firms — with threats of litigation. “TheFunded.com is surprised to learn that venture firms are spending money entrusted to them by their own investors to silence the opinions and constructive criticism of legitimate founders and CEOs,” he wrote in a statement.

My own conclusion after parsing through the examples is that there are always two sides to the story. My problem is that I wasn’t able to get through to any of the founders (they declined to return phone calls and emails), and so it’s hard to know for sure. But the truth is, stories are disappearing at a rapid rate. There are up to a dozen examples, including incidents at firms such as Dolphin Equity, GreenHills, Matrix, Greycroft and Steamboat Ventures (backed to Disney).

Take, for example, the post by an entrepreneur named Allan Levy on March 12 about New York private equity firm Dolphin Equity Partners. “Very dangerous fund,” Levy started. Dolphin partner Rich Brekka came on the board of his company, SilverCarrot, forced Levy out and “crammed” an investment into it to keep it alive long enough so that Brekka could successfully raise another fund, Levy explained. Levy claimed Brekka was having trouble raising the fund, and that his partners were defecting.

Suddenly, though, Levy retracted it, under threat of legal litigation, leaving behind it only a favorable post by the new CEO Dorothy Young, which praised Brekka, summarizing how helpful he was with advice and introductions. “I highly recommend working with Dolphin,” she says.

Something similar happened with a post about the New York firm GreenHills Venture. An entrepreneur Michael Linderman wrote that he’d paid $15,000 upfront to the firm for introductions to potential investors, but that the firm had collected the money, prepared an ugly Powerpoint and didn’t do anything for a year. “They are very experienced rip-off artists,” he wrote.

A month later, though, Linderman retracted the statement and said something almost exactly the opposite: GreenHills’ Emanuel Martinez did do work for the company, did identify investors, he said. In fact, he went on to say that GreenHills effectively lost money on the project, spending way more than the $15,000 charged on due diligence, and that the investors GreenHills represented ultimately asked Martinez not to invest unless some changes were made. In other words, it wasn’t Martinez’ fault.

Finally, a critical post about venture capital firm Matrix also suddenly disappeared. In the original post, experienced entrepreneur Paul Baier originally wrote in to say he and co-founder Raman Sud tried to raise money from Matrix for a start-up, but that Matrix passed. Matrix then called up Sud to express interest in pursuing another idea with him, in an apparent effort to “split” the founding team while it was fundraising, according to Baier. Baier said he was disgusted with the firm’s behavior. The post has since disappeared.

So why did all these posts vanish? Again, in all cases VentureBeat was unable to reach each of the entrepreneurs who posted them, so it’s hard to get the real story.

But VentureBeat was able to find out a little more about each case, by calling the firms or reaching co-founders. In each case, they give arguments for why the entrepreneurs overreached with their original statements, and why removal was the sensible thing to do.

Take for example, the post about Brekka and Dolphin Equity. I reached Brekka and he explained that it was the entire board, consisting of several members, that decided to replace the company’s founder, Levy. As Brekka tells it, Levy singled out Brekka for criticism because Brekka’s firm had led the round of capital, and was nominated chairman. Part of the severance agreement with Levy included a confidentiality agreement, which Brekka says Levy breached by making the comment at TheFunded. Moreover, Brekka contends he isn’t raising money for a fund, as Levy had suggested, so his comments were untrue. He threatened legal action and Levy removed it.

In the GreenHills case, I reached Martinez, the partner originally accused of being a “rip-off” artist. He explained that the investors he represented were “extremely interested” in Linderman’s company, and wanted to invest, but that they’d also requested a more experienced CEO in place of the founder, Linderman. Linderman, a scientist with little business experience, was better placed to negotiate a technology licensing deal with a university and work with SBIR grants, and to develop the technology, Martinez explains. When Martinez proposed that Linderman promote his partner, who had business acumen, to manage day to day operations, Linderman got upset, Martinez recounts, and decided against the CEO change. What’s more, Martinez spent $31,276 on diligence, including intellectual patent review and other costs helping Linderman, so had to write off more than $17,000 on Linderman’s deal, Martinez says. After seeing Linderman’s negative post, Martinez says he called him up, saying it was unfair and untrue, and Linderman agreed to take it down. He says there was no legal threat.

Finally, in the case of Baier, the critic of Matrix, we contacted his co-founder Raman Sud, who gave us his side of the story. He says Baier misinterpreted Matrix’s intentions regarding Sud, and that the firm had not tried to split the team. Sud and Matrix’s partner Tim Barrows, have a long relationship, going back more than a decade, and includes a stint when Matrix backed a former company of Sud’s, Oat Systems. Matrix and Sud had talked about a different business opportunity earlier on. Sud passed on that, and then decided to hook up with Baier, and made the pitch to Matrix for their idea. Matrix partner David Skok called Sud’s cellphone to say Matrix wasn’t going to invest, but that Matrix would be willing to talk with Sud about their earlier idea. Baier heard the message, and took it defensively, Sud says. Baier and Sud had been on the road trying to raise money and had been turned down by several firms, and so were somewhat frustrated, Sud explains. Upset, Baier wrote the negative post. However, Sud then got upset and told Baier that his response was an overreaction, Sud says. He says the two then decided to ask TheFunded to take it down. There was no legal threat from Matrix, he said. “This is really a non-issue,” said Sud.

Truth, or whitewashing? You decide. Below the fold is text of the original comments and copy of what replaced them:

Read the rest of this entry »

TheFunded, the site that lets entrepreneurs rate venture capitalists, often with aggressively snarky commentary, has released a new feature to reduce criticism the site is being gamed.

It has created an algorithm that looks for signs VCs are trying to manipulate their rankings to be more positive. It flags apparently guilty firms and puts them in a virtual penalty box. The site’s algorithm is already in effect, listing about a dozen firms among the transgressors, including Fred Wilson’s Union Square Ventures (see profile here) and Europe’s Mangrove Capital Partners.

Over recent months, it’s become clear that many venture capitalists have asked entrepreneurs they’ve backed to submit favorable commentary, so that they look good. This boosts the firm’s rankings on TheFunded’s leaderboard — and has thus plagued TheFunded with credibility questions.

The algorithm, disclosed in an announcement over the weekend on TheFunded’s home page, scans the venture capital firms for suspicious activity. For example, if a disproportionate number of members enter the site to provide a single comment on a given firm’s profile, this sends a red flag to TheFunded’s system. TheFunded looks for other behavior, too, for example, unusual semantic characteristics of the written fund reviews, such as excessive use of exclamation points and superlatives. It also looks at how many entrepreneurs voluntarily admit they were asked by their VC to submit a review (entrepreneurs are asked this when they provide a comment, and they check a box to say they’ve been asked).

After a firm is flagged, TheFunded allows the firm to get only one review every thirty days, a way to dock the fund while TheFunded investigates the matter.

TheFunded has implemented other features too, such as flags to tell users if a commenter appears to have submitted a single comment (such commenters can be considered less trustworthy than a member without such a designation). TheFunded has also given a separate designation to the most trustworthy members, pointing out that they are members of the site and have frequently been agreed with by other members.

Disclosure: VentureBeat has a relationship with TheFunded, which includes cross-linking to each other’s sites.

updated
TheFunded, the site that lets entrepreneurs rate venture capitalists, has just unveiled a new feature that could bring a whole new level of transparency to the cloaked world of financing deals.

It now lets entrepreneurs submit the terms (subscription required) of their funding deals to the site, so that other entrepreneurs can see them — and make sure they’re not getting a raw deal for their own company. Until now, this sort of resource hasn’t been made available. VentureBeat got an early look at the new feature yesterday.

The new feature lets entrepreneurs post things like the amount they raised and the valuations that venture capitalists have agreed to place on the company before investing. The latter, called “pre-money” valuations, are important because they determine how much of a company an investor gets to own in return for his investment — and how much an entrepreneur is left owning after the process.

To access the information, you have to be a member of the site. Membership is free for entrepreneurs. TheFunded doesn’t allow VCs to become members. Others, including limited partners or industry consultants, have to pay $250 a year for membership. Another requirement: Entrepreneurs must submit their own termsheets before they can view others.

The feature is the second effort by TheFunded’s founder, Adeo Ressi (left), to turn the tables in the investing world by giving more information to entrepreneurs. TheFunded has already helped change behavior in the VC industry, Ressi claims, by exposing to VCs to a public flogging in the forums if they are disliked (though some investors gripe they’ve been treated unfairly by entrepreneurs miffed at not getting funding; the site remains highly controversial). We’ve covered some of this. But by making deal terms available, Ressi says he hopes to help entrepreneurs on the economic front, too.

TheFunded’s new feature lets entrepreneurs post details on long list of other clauses that have crept into deals over the last few years. These terms can make the negotiation process extended and painful for entrepreneurs, who are likely to have far less information at their disposal than experienced investors. To collect the information, TheFunded uses a survey matching the format of a standard “termsheet,” a list of terms that venture capitalists provide entrepreneurs when they make an offer to invest. Entrepreneurs go down the list of their own terms, and input them into the appropriate fields provided by TheFunded. This makes the terms easily comparable for others wanting to view them.

For example, there’s entry field for the dreaded “liquidation preference.” This preference maintains that an investor gets his money out first if there is a sale, and only then does the entrepreneur get his money. While liquidation preferences have become normal, some investors demand a “3x liquidation preference,” which means they get three times their invested money out before the entrepreneur sees a dime.

Ressi says he’s seeing termsheets with a 3x liquidation preference, with participation, being offered to companies, even in today’s relatively favorable market. “That’s as abusive as not showing up to meet a CEO after he flies across the country,” he said.

He predicts that within 18 months, the new feature will lead to a standardization of deal terms.

One challenge is to get people to submit the data. When we looked at it yesterday, right after Ressi released the feature, there was a single term sheet in the database. A second floated in this morning. Ressi says he’s expecting a few more shortly. Ressi has taken some of the fear out of submitting terms, by making the submissions anonymous. Names of investor and companies are removed. Moreover, exact wording of the termsheets is removed. This way, termsheet can not be traced back to a particular investors who may use specific wording. TheFunded’s survey forms require entrepreneurs to manually enter information about terms in pull down menus (see screenshot below). All this, says Ressi, helps avoid legal problems stemming from the non-disclosure agreements contained in most termsheets. The flip side, though, is that it forces an entrepreneur to sit down and type in the terms, not the first thing a stressed entrepreneur wants to to do. Here, Ressi says he’s taken months to interview CEOs, and research the main terms — by consulting with start-up oriented law firms like Fenwick & West — to boil down the survey to request only the essential terms. Ressi says it should take about 10 to 20 minutes to fill out a survey.

However, here’s one more reason why TheFunded may attract termsheets: the requirement that you must load your own termsheet before viewing the others.

The feature is still being improved. For now, though, you can search for termsheets by stage of financing, geography and industry. So, for example, you can search for all Series A termsheets, on the West Coast, and in internet B2C companies.

I’ve been covering the venture industry for seven years, and entrepreneurs have talked about the need for such a database of terms the entire time I’ve been doing this. Many VCs I know dislike what Ressi has done so far. There’s no doubt, in many cases, VCs are being unfairly treated or praised in public comments at TheFunded because almost everyone has an agenda — and that’s a shame. I’d take the VC ratings with a serious dose of skepticism. But one thing is for sure, Ressi is winning fans among entrepreneurs, and this latest “term” feature has far fewer problems with it than the sites VC rating feature. In this fast-paced, fend-for-yourself world, few incentives exist for entrepreneurs to take time to band together for their own good. In this case, I’d encourage entrepreneurs to try it out themselves. This is one of those times where 15 minutes could help remove a lot of pain for lots of founders.

Disclosure: VentureBeat has a relationship with TheFunded, which includes cross-linking to each other’s sites.

updated
Last night, the founder of the TheFunded, the controversial VC-rating site, held a coming-out-of-the-closet event at Stanford University.

We pointed to a Wired story last night, which first revealed the founder is Adeo Ressi. That article recounts how and why Ressi launched the site. But only in seeing and listening to Ressi talk before a crowd of between 60 and 70 people did I appreciate the richness of contradictions and controversy of this man and his site.

In working the room last night talking with attendees — many of them well-known Silicon Valley entrepreneurs and investors — I heard two polar views. Some people derided the site, saying the anonymous comment system opens it up to abuse and hate-mongering, while others admire it, saying it is profoundly good for entrepreneurs who often know very little about the people they take cash from — despite the fact they may work with VC for years after taking the investment.

There were also those like me, who were conflicted, seeing both.

The man has estranged himself from many VCs, who are disgusted by what he has done, and yet he was surrounded by friends in the room last night: Phil Kaplan, of Adbrite, who also started FuckedCompany.com, and who admitted to me that he’d provided some advice to Ressi in the early days of TheFunded; Elon Musk, a co-founder of PayPal, who was a housemate at the Univ. of Pennsylvania, and who threw Ressi’s bachelor party; and George Zachary, a partner at Charles River Ventures. Serial entrepreneur Jason Calacanis, who wasn’t there last night, is also a friend.

Here are some notes, summarizing the contradictions:

1.) Ressi is clearly upset about how he was treated by VCs at his venture (read how some pulled out of his last company, while others engineered his ouster). On stage, blurted out how he’ll never take money from VCs, and singled out Matrix Partners as a firm he’ll avoid. Yet a few moments earlier, with all seriousness, he’d explained that he started the company with “no ax to grind” and designed it solely to help entrepreneurs. He speaks convincingly about the need to remove the asymmetry of power between VCs and entrepreneurship, and about the surprising void of data about VCs, forcing entrepreneurs to rely on hearsay. At one moment you think he’s a cynic, but the next, you can see he is dead serious and passionate: He implores VCs to learn two basic lessons, and if they do, he assures them they’ll get good ratings by members: 1) Say “no” to entrepreneurs quickly, to avoid stringing them along, and 2) keep their confidence; don’t spread confidential information. These are obvious things, but too frequently abused, he said.

2) Ressi said that he follows a policy of not editing member submissions, so that he can stay within bounds of the Communication Decency Act — i.e., so that the members making the submissions are responsible for their comments, and not his site. However, moments later he says he has chosen to delete some submissions because they are clearly wrong or malicious, and admitting that this goes against his own policy, he says. One the one hand, we’d like to cut him some slack here. However, from other remarks about VCs during the evening, Ressi displays a hint of flippancy that makes you question his role as a neutral arbiter. If he really dislikes Matrix, for example, and there’s no oversight of his behavior (he admits he’s the only one running the show), how do we know Matrix’s rating isn’t meddled with? Matrix is rated by his site at a 3 out of 5, which is quite low.

3) Here’s the promising side: Ressi has gone to a tremendous amount of work on this site to keep his promise to ensure anonymity and to avoid lies and errors. During a demo of his site’s back end, he showed how member names within his system are represented by numbers. If he is subpoenaed, anonymity can be upheld. His dashboard of member activities lets him track comments, and alerts him if they are engaged in repeated suspicious activity. His system send the offenders warnings, and he’ll delete members who don’t stop. He’ll triangulate several sources, to makes sure members submitting comments are who they say they are: He requires an email address, checks their work web site, google’s them, checks their LinkedIn profile — all part of an effort to stop VCs trying to sneak in under a different name. He’ll reject submissions by members that rate VCs with “5″ (the top mark) in every one of the five categories, assuming that such a rating is dishonest. Similarly, he’ll reject submissions with all “1″s for ratings. He has other features in the pipeline. He’s far more more competent and ambious than we realized when we first started writing about this company. Here’s the worrying side: Despite all these efforts, there’s really nothing to stop a VC from getting his entrepreneur friends to submit positive reviews to game the system. And the rating system is misleading. For example, the top-rated VC overall on the site is Kepha Partners, with a rating of 4.4. However, Kepha is run by a single person with a year-old firm that hasn’t shown any exits, according to Dan Primack, a reporter who asked Ressi about this last night. The second highest ranking VC, Draper Richards, is run by Howard Hartenbaum, who freely admits he contacted entrepreneurs he’d funded to submit ratings. Sequoia Capital’s rating, meanwhile, is down at a 3.9, despite its very impressive track record (Roelof Botha, the young partner at Sequoia, early backer of YouTube, attended the event). Ressi says the rating reflects an entrepreneur’s experience with the firm, and that performance is only one part of that. However, Primack made the point that its easy for a VC to get good marks by being friendly, but the VC may do a better job by being a hardass, a guy who prods with entrepreneur, sometimes with unpleasant persistence, to get the job done.

Another note: Ressi says he’s not making money. He has about 150 subscribers, paying about $250 a year. The rest of his members — totaling 3,480 — aren’t paying anything. All but 200 members are CEOs.

[Disclosure: VentureBeat has a relationship with TheFunded, which includes cross-linking to each other's sites]

TheFunded.com, a forum that lets entrepreneurs dish dirt publicly about venture capitalists, has taken another step toward accommodating the VCs.

The site now lets VCs provide feedback on any public comment made about their firm. Initially, TheFunded had banned VCs from commenting. Recently, it relaxed that stance, letting VCs provide comments on other funds, but not on their own. This latest, second step is an effort to get VCs engaged with the site.

However, it is still causing angst among VCs. The image above is the headline of a recent comment left by an entrepreneur about Sequoia.

There’s a condition imposed on VCs wanting to leave responses to comments: They must have a “certified profile.” To have a certified profile, a firm must provide the TheFunded with certain data about itself, such as an overview of its focus, names of its partners, and so on.

In addition, comments can only be left in response to other public comments. The “eat their own young” comment happens to be private, and so Sequoia can not respond. It’s not clear which comments are left public, and which ones private.

The recent move to let VCs respond to public comments was inspired by Draper Richards’ Howard Hartenbaum, who pushed TheFunded to introduce the feature, says TheFunded’s founder, who says he wants to remain anonymous for now, but lets us call him “Ted.”

He said Sequoia, one of the top venture firms, is playing along. Sequoia’s public relations person Mark Dempster engaged in a series of emails looking for ways to let Sequoia solicit feedback and respond to the comments being left, Ted said. We contacted Dempster last week for comment, but he did not respond. Sequoia has provided the data necessary to certify itself. Here’s Sequoia’s profile.

Below is a screenshot of the first couple of comments when we looked on Thursday. You’ll see that both of these headlines are public, but that the specific comments are accessible only by members only. Membership is free for all CEOs and founders. Entrepreneur “advisers” and “lower level managers” can pay for access. VCs don’t get access.

It’s surprising that Sequoia would choose to play along with this site. (See our disclosure about possible conflict here.)

Updated again: To clarify paid membership vs. free access.
Updated: To clarify confusion about certification process at Thefunded, and to include Ignite’s response.

TheFunded, the controversial Web site designed to let entrepreneurs rate venture capitalists, says it is finally winning over cooperation from many VC firms.

It says some 50 firms, from Draper Fisher Jurvetson, Mohr Davidow Ventures to NEA have submitted key facts about their firms for entrepreneurs to review. These are called “certified profiles.” However, some VCs remain critical, and refuse to play. Also, it’s not clear whether Thefunded’s certified profiles are really “certified.” Take, for example, Steve Payne, from the Ignite Group. He apparently has a certified profile here). Yet, this morning, Thefunded sent out the contents of email it said had received from Payne after he was asked to “update” this certified profile: “Thanks, but no thanks,” he responded. “I’ve already been slammed anonymously in a review, with no ability to respond.”

We previously reported the criticism from Howard Hartenbaum of Draper Richards. Thefunded still does not let VCs respond to comments on their own profiles (it does lets VCs comment on other profiles). Moreover, it doesn’t let VCs comment on the unfunded (entrepreneurs), something Hartenbaum has suggested to make it fairer. Finally, it doesn’t let VCs read the juicy comments that entrepreneurs write and designate as “private,” and which only members can access. VCs aren’t allowed to become members. Membership is free for all CEOs and founders. Entrepreneur “advisors” and “lower level managers” can pay for access.

Here are the things contained in a certified profile:

Estimated Closing Time of a Funding
Fund Position in a Round (Lead, Follow, etc.)
Fund Description
Fund Special Investment Criteria
Detailed Display of the Fund Numerical Reviews
Partner Contacts with their Specialty and Blogs
Reference Deals with the Lead Partner, Highlights, and Terms

See the list of approved certified profiles.

Thefunded includes Ignite under its checked and approved certified profiles because Payne’s firm submitted initial information about itself. However, while Thefunded was fact-checking that profile before final approval and publishing, a user wrote a negative comment about Payne on the firm. That’s what made Payne withdraw from the process, according to TheFunded’s founder, who declines to reveal his name. You’ll see that the Ignite profile (screenshot below) carries little public information; it is kept private for paying members. We’ve tried to contact Payne about this, and will update if we hear back. It is odd, though, that Payne contributed a profile without knowing that people would review his firm.

Update II: Payne has since responded. He says he didn’t submit the profile for certification, but that someone else at his firm may have. Moreover, said he liked the concept of what Thefunded is trying to do, but that the implementation “has issues” — something he told Thefunded in his email.

Update III: Some VCs are telling us they feel forced to play along, fearing a hit job if they don’t.

See our disclosure on our last story about how we feel conflicted about this story.

TheFunded, a site where entrepreneurs can rate VCs, has capitulated and is allowing venture capitalists to participate.

Until late yesterday, the site had prohibited venture capitalists from responding. However our post a few days ago about the unfairness of that policy – in light of the ugly, spiteful comments being left about VCs – created a surge of demands for a policy change.

It’s just the latest in a string of controversies where character assassination and hateful comments is causing consternation on the part of Web site owners about how to police their site. Today, another brouhaha broke out over at PEHub, another venture capital site, which we’ll get to shortly.

First, here’s what happened at TheFunded: We reported about the comments by two entrepreneurs left at the site about Draper Richards venture capitalist Howard Hartenbaum, who were apparently upset because he wouldn’t fund their idea. Then, after our post, more than a dozen entrepreneurs who liked Hartenbaum swarmed to the site to support Hartenbaum. Bizarrely, the site tried to shut out those entrepreneurs, saying it was closing comments on Hartenbaum’s profile, to stop gaming of its system. Hartenbaum, upset, called the chief executive, and told no one would take the site seriously if it only provided a single point of view. Simultaneously, comments on our original post showed that many readers supported Hartenbaum’s position. So, TheFunded finally relented late yesterday, and agreed there would be no restrictions. Entrepreneurs have since left favorable comments about Hartenbaum, some of them “over the top, they are so nice,” Hartenbaum tells us. As a result of the controversy, TheFunded is processing a chief executive request a minute, said “Ted,” from TheFunded in an email to us earlier today.

It is the right call. It is fairer. Draper Richards’ report card is now a 4.2 out of 5, up from 2.4 out of 5. The firm didn’t really change much in two days. But its rating rocketed. So is TheFunded more useful? You guys be the judge.

Here’s where VCs can go to submit profiles, and “set the record straight.”

Separate but related: Unfortunately, ugly comments has gotten the better of another VC-related site, PeHub. The site carries news about venture capitalists and private equity, and columnist Alexis Lakes said today she was stepping down because of hostile comments (she has a sense of humor about it, saying she has fired herself). Larry Aragon, an editor of the site, carries a post about it. The negative comments referred to are now locked behind PEHub’s subscription wall. Sometimes, hateful comments are so dispiriting that even the right to respond isn’t enough.

[Full Disclosure: A friend asked me last night whether I feel conflicted on the TheFunded story, because VentureBeat has its "Midas List" feature, where people can leave comments about the top-ranked VCs. I have two answers. One side of me was blind to conflict, because the Midas List, by definition, was for the best VCs only, as ranked by Forbes, and while I was thinking of building out this feature at VentureBeat, it wasn't on my immediate road-map. However, since this incident, I'm indeed thinking about this feature more seriously. I haven't come to any conclusions about how to do this, but yes, as of this post, I'm feeling conflicted. And if anyone has any idea about how to implement a better version of TheFunded, let me know. I'm not going to rule out a partnership with TheFunded, either. If there's a way we can both work together to provide a little more transparency in this secretive world, it'll be for the better.]

(See update here: TheFunded has capitulated, and allowed VCs to respond to these attacks)

The Funded, the Web site that lets people anonymously rate venture capitalists, is causing some concern in venture capital circles about the hatchet jobs on VC firms.

Rejected entrepreneurs are flaming VCs with snide remarks at the site, often with no grounding in reality. The site came up during a talk again today when I spoke before a group of 40 or so venture capital professionals at the National Venture Capital Association in Menlo Park.

Howard Hartenbaum, of Draper Richards, wasn’t at the event, but the early Skype investor also recently pointed out a couple of comments on his firm’s profile at the Funded. Comments call Hartenbaum rude, arrogant, slow and vomit-inducing. Of course, the comments came from an entrepreneur who had sought money from Hartenbaum but was rejected. Hartenbaum had been blunt enough to give them the straight “no,” something he says he tries hard to do — so that he can move on and give them advice about how to improve their idea and take it to the next step.

Btw, I know this first hand, because Hartenbaum sent some entrepreneurs my way to seek advice about how to think about monetizing a content-driven Web site, for example. So I don’t think I’m being a shill for Hartenbaum here.

So it’s like “Yeah, she is a bitch because she wouldn’t sleep with me.”

The debacle is forcing Hartenbaum to reconsider his policy of a straight rejection. Seeing the comments, he’s thinking about ways to improve. Indeed, it may be safer do what most VCs do: Stall the rejection, lead them on with a permanent “maybe.” Ironically, that’s precisely what drives entrepreneurs batty.

The comments, Hartenbaum tells me, also left out the fact that when he was running late, he asked them if it was OK to run late and then extended the meeting to give the full promised hour.

To top it off, Hartenbaum can’t submit feedback to the comments, because he’s a venture capitalist, and VCs can’t comment on the site. And with only two or three people negative people filling out actual reviews (see below) of the firm, Draper Richards now has a 2.4 rating out of 5.

This is the big drawback to TheFunded, and one we mentioned when we first wrote about it. There has to be a better way. We’ve noticed, with our Midas List profiles, that mainly unsubstantiated negative comments have rolled in. We’ve rejected most of them, because they’re flames without substance. We’ll continue to think about ways to generate a healthy debate. Nothing wrong with negative comments, but they’ve got to be based in fact somehow, and at least open to response from the attacked.

In short, this is turning out to be a useless site. This post will probably drive more traffic to the site, and perhaps even more hateful comments to Howard’s profile. However, I feel it’s important to say something, because my review initially said it’s a “very useful” site. I regret that.

TheFunded is a Web site that rates venture capitalists, giving entrepreneurs more information about whether or not to take money from a particular VC

This is a very useful service to have, because the venture process is still secretive, and there is little public and objective review information about venture capital firms and their partners.

TheFunded, which we first saw mentioned on Techcrunch, lets its “members” rate a venture firm (using a scale of 0 to 5) on each of the following criteria: its track record, operating competence, pitching efficiency, favorable deal terms, and execution assistance.

Notably, you have to become member to submit ratings and leave comments, and you can’t be a member if you are partner or an agent of a firm. Also, you can only become a member if you are invited by another member or somehow convince TheFunded that you should be a member.

It is early days: It only has 23 reviews by 45 members, meaning reviews are highly subjective because each firm will only have few people passing judgment. Another, related drawback is that an entrepreneur’s experience with a venture firm is highly subjective, precisely because the entrepreneur either had a good outcome or a bad outcome while pitching the company. If an entrepreneur is rejected by a firm, he has great incentive to write in a bad review, particularly if his identity is shielded. TheFunded could try to find a way of disclosing whether the entrepreneur was rejected by the firm — but this is tough because rejection itself is difficult to document (it is usually oral, and so a pissed-off entrepreneur would have the incentive to say he wasn’t rejected).

Significantly, TheFunded was started by an entrepreneur who says he was really “burned” by a VC firm.

Further, if someone has not gone through the pitching process with a firm, they will not know enough, which discounts them too.

While registering, you have to disclose what company you are with, and submit a bio page. These are good steps, because this acts as a filter to avoid flaming criticism without justification (presumably, TheFunded can step in and remove a useless, spiteful comment providing otherwise little information).

TheFunded has a profile page for each firm (see Sequoia’s here, for example), listing their ratings, key information about the firm such as size of its fund, partner names, and even contact information for these partners (again, you have to be a member to get this information). The site has 16,559 contacts from 3,529 firms.

If you’re not a member, you can see only the first few lines of the comments. To see the full comments, you need to become a member.

We don’t know who is behind this, but we’re interested in finding out.