(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.

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