There is a big difference between a VC firm offering services like recruiting, technical support, etc. to portfolio companies and Partner 1 is partners in a sid

There is a big difference between a VC firm offering services like recruiting, technical support, etc. to portfolio companies and Partner 1 is partners in a side business with his old college buddy and post-funding, Partner 1 says, "Use this firm to do XYZ". There are a couple of issues, but for most, especially first-time founders, VCs on your board, especially the lead, has a disproportionate amount of influence over a CEO. Secondly, Partner 1 should disclose this to his own VC fund / LPs; it's like any other conflict of interest disclosure you would make at any other job. I haven't heard of this type of issue, more often it's use this law firm or recruiter or whatnot. Oftentimes they have relationships, get discounts, dinners / perks, etc. It's along the same lines as the $2,000 post-close dinner / night out many VCs come to expect.