funded-warning.jpgTheFunded, 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.

funded-flag.jpgTheFunded 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.