Sigh. I do this all the time as an early-stage investor. But I don't do it to game the valuation, I do it so we can share the task of due diligence. Maybe I understand the market/customer and the other VC knows the founders, or vice-versa. It's nothing sinister, it's just a more efficient way to get the information I need quickly and cheaply.

There is a lot more than gut judgement involved in deciding to give somebody I just recently met a large sum of my money. I don't let other VCs dilute my judgement but I certainly listen to them when they have more knowledge of the relevant facts about a company, its people, its product, or its market.

Note that I'm an angel investor, so I try to make sure the cost of due diligence is proportional to the amount I'm investing. If I were a fund and writing million dollar checks, I would spend the time to do all the due diligence myself.

Same here.

There are a bunch of investors out there that I know, like, and trust.

Also slightly less importantly, there are investors I don't necessarily trust.

The composition of the syndicate is an important signal.

Big difference, angel and VC are not interchangeable in this discussion and the article explicitly mentions VCs, not angels.

He does say that, that angels cooperate more with each other than VCs do. So yes.

But I think the salient point is whether the investor is asking who the other investors are so they can cooperate with them, compete with them, or collude with them. And that depends on the investor, not whether they are an angel or a VC.

Every situation is different, and the reasons for not sharing names change depending on the the stage of the discussions. For example, if discussions are advanced enough to involve negotiations on valuation, in general, you want potential investors to compete, not collude. Unless you know the parties involved well enough to know that they will not join forces to work against you in negotiating valuation and/or governance, it is not a good idea to share the names of other VCs you are talking to.

"Why not? "

One thought that comes to mind is if you mention that you are also talking to "Sam " then "Bob" (who you are having a conversation with) can start to game Sam, or Sam can game Bob (when Bob mentions it to Sam later if they know each other).

So in terms of general business "loose lips sink ships" this is something to avoid.

So either party can play mind games with the other. And depending on the relationship of the two this could create a problem.

Other thing is that this gives the VC you are pitching a chance to drop things in your mind about the other VC that might affect your judgement. "Oh well he's a great guy but the one thing you need to consider is..."

My guess is PG might feel that the type of people in YC don't have enough experience to manage this situation properly so it's really similar to an attorney saying "don't say anything let me do the talking".

Because they collude.

My guess as to the dynamic is this. If a VC knows that SOME other VC is interested in you, they can't feel out other VCs to see who it is because it might get a third VC involved.

But if one VC knows who the other VC is, then collusion is simple and clearly in the VC's best interest.

No, again it isn't. If you are looking to raise $1M on a $3M pre and you're talking to two firms seriously with the idea of picking one investor (who would end up with 25% in that scenario), you might negotiate some of that point, but its pretty unlikely you will end up taking 1 on 1 ( with the investors each putting in $500K, which would get them to that same 25% ownership threshold as in the original scenario).

they really don't. I realize this is one of those conversations entreprenuers think VC's have a lot, but most VC's have ownership and $ thresholds they are aiming for in an investment - just splitting the baby in half with another VC firm doesn't get you there, and you'd be surprised at how many firms like working with firm a / b / c but hate d / e / f. The better argument for not revealing this is that its leverage - ie, the investor might think your other option is AH/Sequoia/Accel/Benchmark/Khosla/some other top-tier firm, while in reality it might be some relatively podunk firm - you get some potential benefit from that (and also potentially some downside if its the other way around).

The compromise position here is being honest but guarded - ie, especially if you are talking to one of those above - As a founder / CEO's, come back to the investor here and say we're talking to a couple of top-tier firms, which gives the signal effect to the investor that they need to sell / convince quickly while maintaining your leverage as an entrepreneur.

My guess is that in negotiations the risk of telling them who they are competing against outweighs the benefit of keeping them guessing. I suppose they could think you are bluffing and not really talking to any other VCs at all, but if they believe you actually are meeting with other VCs, I could see the benefit of keeping them in the dark.

VCs are a small world. And VCs need each other more than they need you (as an individual startup). Most entrepreneurs will climb that VC hill once or twice, ever. But VCs will partner together on deals for years, decades. So if your negotiations really have you pitting one VC against another, it's likely that you will lose, not them. After all, there are always other startups.