We took seed money from one of the largest VC firms in the valley. We didnt know they even did seed rounds, and this is not publicized. Additionally, they invest as an angel syndicate, and don't use their official VC name. All of this because they understand the problem entrepreneurs face with taking seed money from big VCs. The fact that they've thought this through from the entrepreneurs point was a huge plus factor for us.
So that's the downside: the Big VC will make a Series A harder if they are the first to reject you when shopping for that Series A.
Solution: don't approach the seed VC for a follow-on, skip it or postpone it until last resort, in which case the new alternatives can used as 'Stalking Horses' on the seed VC anyway if playing hardball.
Big VC seed money is a good endorsement and help for a company, and the upside is the chance of an easy follow-on from them because they have the pockets: but wait for them to come calling first, or have some Stalking Horses ready if you sense being played. Otherwise just skip them altogether on a Series A.
This argument doesn't play... All investments have similar if not equal concerns: is your current investor going to re-invest? Might potential rivals instead collude in their offer?
If I take $100K from an angel no one is going to wonder why the angel isn't putting in $2Mil in the next round - angels just don't handle deals that big.
If I take $100K from a VC and that VC opts not to put in another $2Mil, everyone will wonder what the VC saw that made them not want to invest.
You're missing the point of the article. It's that the seed VC will essentially have control of the appearance of your startup's chances for success.
If they don't reinvest (for whatever reason, even if your company is in good shape), you will look bad. If they do reinvest, they won't be doing so at fair value.
I'm sorry, but these points don't play in the real world. The concern is fair but over-simplified and thus moot.
If your business' prospects depend primarily on the outward appearance of your investors, it really shouldn't exist. And a VC that depends on another VC to "pick the winners" should just turn over their funds since they have abstained from their purpose.
