Chris Dixon General Partner Andreessen Horowitz, angel investor and former entrepreneur
When entrepreneurs raise seed money (under $1 million) from big VC firms’ seed programs, potential investors typically ask ““is the big venture firm following on [with financing]?”” If not, entrepreneurs will likely have difficulty raising more money because potential investors will question why they should invest if the big VC firm doesn’t. “[When entrepreneurs take big VC’s seed money],  effectively [they’re] giving [the VC a non-contractual] option on the next round, [acting as a VC lead generator.] And, somewhat counterintuitively, the more well respected the VC is, the stronger the negative signal will be when they don’t follow on.
[When] the VC does  follow on, [the company will likely] get a lower valuation than [had it] taken money from other sources” because new investors often offer to co-invest at a lower valuation, keeping an artificially low valuation or “hesitate to [bid] for fear of being used as [leverage to get a higher priced deal].  [Having] a big VC  as a seed investor  prevent[s] [the entrepreneur] from getting a competitive dynamic going that [generates] a true market valuation.
[Dixon] sometimes compete[s] with big VC’s for investments so [he’s] not disinterested here.” Chris Dixon, The problem with taking seed money from big VCs, August 14, 2009; http://cdixon.org/2009/08/14/the-problem-with-taking-seed-money-from-big-vcs/