Silicon Valley entrepreneurs must now ask where the actual investment is coming from

I’ve been following a story on PandoDaily this week with great interest. It’s about VC’s in Silicon Valley using “scouts” to find and invest in early stage startups. Following some great reporting by Sarah Lacy, Sequoia is the first to step up and admit that they use scouts to help invest in startups that they might not otherwise have access to at such an early stage. They use entrepreneurs who they call “would-be” angels to use their network to source and invest on their behalf.

You wouldn’t be blamed for thinking that this is ok. And for some, it is ok if you don’t care about where the money comes from. Investment is investment, especially if it’s via a trusted proxy. But I personally don’t like it. It’s probably only legal because the final documents highlight who’s really behind the money. It would otherwise be illegal in many countries.

I can’t speak for everyone, but as the founder of a company that is soon to announce investment from 8 angels and counting (counting because we close the round next week and are in discussion with some more awesome investors), and as the co-founder of a non-profit microfinance charity in India, it is absolutely vital that all parties know where the money is coming from. Knowing where money is coming from is one of the most important aspect of an investment – whether you are an entrepreneur in Silicon Valley lucky enough to secure funding for your new tech startup, or if you are a poor entrepreneur living in a slum in India and lucky enough to secure a micro loan to help create new scarves.

Don’t get me wrong. I would love to be lucky enough to have Sequoia invest in MetaCert. But only when our team believes it’s the right time. Bringing VC’s into the fold is determined by chemistry and timing.

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