I've been following Fred Wilson for a long time (like many others!), and I have a feeling that he genuinely cares, despite not enjoying full freedom on what to say and do, because that's the compromise you accept when you take money from others.

This topic, "Who are my investors?", is incredibly important, potentially complex, and hard to judge or evaluate fully. Let me try to share my thoughts.

Your job as a VC is to manage money on behalf of others; specifically, LPs (Limited Partners: pension funds, endowments, private funds, family offices, etc) give you money for 10 years, and want you to bet on very risky startups. VCs represent to them a specific asset class, with its geography, risks and rewards.

VCs are typically paid 2/20 (2% of the amount invested is given to them every year to pay for salaries and expenses; 20% is the "carry", or how much they take from profits). The "2" is given annually, the "20" is given at liquidation events (typically acquisitions or IPOs).

Each VC firm has its own approach to which money to accept. A simplified view is that if you can afford to say "no" (in other words, you are offered more money than you want to "raise" in your next fund), you typically choose based on your principles and morals, to an extent.

If you cannot afford to say "no", I'd bet most VCs would simply take the money they can get. Few decide they'd rather not be a VC at all, and stick to their principles.

Sometimes it's hard to know where the money comes from, but in most cases you get a general idea. Pension funds, etc, are straightforward. Family offices, well, they represent the interest of a specific family, which is tied to what business or inheritance or political situation allowed that family to gain money. If there's such a thing as the Gaddafi family office, you know the money comes from having been the dictator of Libia for decades.

On the VC side, the simplest thing to do would be to fully disclose who your LPs are, how much they invested, and what's the exact entity that invested.

Doing so would have two ripercussions: one, LPs might want to pull out, and based on their contractual agreement, might be able to do so; and two, you will probably have a hard time raising a new fund in the future, because a lot of powerful people will try to send a message to others.

A better solution would be for some very prominent VCs to "come out" all together (USV, A16Z, Benchmark, Sequoia, Kleiner Perkins, Index, GC, etc), so that their collective power couldn't be easily challenged by these powerful people.

However... Can you imagine tens of rich VCs being able to agree on something potentially destructive for the entire sector? What if money "dries out" for VC funds?

But let's not forget about startups, either. What about them?

As usual, you might be in the position to say "no" if you are offered more money than you need. Lucky you. But most of us (I'm a startup founder myself) are not in that position. We have been, are, and will be presented with opportunities where we might be interested in the "reputation" of that investor, but really don't care much about everything else.

How many of us have thought about which LPs invested in our VCs? I bet very few.

Imagine if, as a startup founder, I go out and publicly say that I refused money from a certain VC because I don't like their LPs. What kind of signal would I send to other VCs? Probably: "Seems a principled guy, but who knows? He's probably nuts, and not someone I would invest into. Dangerous.".

If that's transparency that we want, it should be VCs AND startups together. And my Italian pessimism tells me that this is even less probable than the "VC collective" initiative I was describing earlier.

I feel that most human beings, when facing a decision where the future is at stake, are not really capable of sticking to their principles, especially if doing so means dire consequences for their business, their money, and even the other people/employees involved.

A sad truth.

Message to Fred: this is an opportunity for you, and for other famous VCs, to be a hero. You don't have to, but please think about it.