TheFunded.com Open Letter
Posted by Anonymous on 2007-10-30
I refer to a recent complaint from an entrepreneur about a VC stealing ideas and funding a competing venture through its Entrepreneur-in-Residence (EIR), followed by an indignant response from the EIR refuting the accusation.
Regardless of who is telling the truth, I think the important point here is the inherent CONFLICT OF INTEREST posed by EIRs sitting with the VCs who in turn sit at the gathering point of new ideas from trusting entrepreneurs.
I can't imagine that it's ok for a doctor to refer his patients to surgical clinics owned and funded by himself. There could be all kinds of arguments as to how that would be practical, but it still appears inappropriate and fraught with ethical compromises. Which is why the American Medical Association rejects this concept of self-referral. The EIR concept is even more problematic, even with full disclosure, since there is no easy ethical resolution for the inherent conflicts of interest.
For those VCs who would shy from any hint of impropriety, it would be a simple matter to set a policy that no EIR would form a startup in an area where someone has pitched an idea in the last 12 months. Alternatively, don't receive pitches where an EIR wants to start something.
But I'm sure we'll hear a thousand reasons why such guidelines would not work ... which then leads to a simple solution: Do away with EIRs entirely.