In last weeks blog entry, I raised the the issue of start-ups needing to be ready for the possibility that  that their VC seed investor might pass them up during a larger equity round and the problems that come along with that decision. 

Yesterday, Brad Feld, a VC and the author from FeldThoughts fame, describes it as "The Signalling Problem" and highlights it in his latest blog. See http://www.feld.com/wp/archives/2010/09/addressing-the-vc-seed-investor-signaling-problem.html.

Feld also highlights one VC's approach to dealing with the problem (which doesn't seem to to do the start-ups any favors).  Liquidating your seed position for $1 might sound nice, but if anything it exacerbates the signalling issue .  The best way to avoid/deal with this-try to ensure that your VC is taking this seed funding as seriously as they would a Series A round. 

Apart from Feld's post (which are always a good read), take a look at the comments.  There are some entrepreneurs who share anecdotal advice that the problem is not a big deal at all.  I don't know if that's the majority opinion out there....