What are the implications of approaching a venture capitalist firm that is affiliated with a potential competitor of the product for which you are seeking venture capital?

Typically, Venture Capitalists will tell you that their ethics prevent them from sharing your information with a competitor and that they are able to maintain a firewall in such cases. However, keep in mind that people in all walks of life have different ethics. I once had to admonish a VC that handed me a competitors business plan. While I'd say that this behavior is extremely rare, once a VC has read your material it will be almost impossible for a VC to completely erase everything they learned, so to some extent some of what they learned may inadvertently bleed over. Having said that, a lot depends on the nature of your potential competitor and how damaging knowledge of your company falling into their hands might be. On the other hand, if such a VC has learned a lot about your space and wants to invest in your company, such a VC might prove an excellent partner. If I like and reasonably trust a VC, I tend to favor risk while employing common sense and caution. It is hard enough to raise money without making it even harder by being too circumspect.

My view is that VCs tend to limit their investments in a specific technology space. If they've already invested in a competitor/leader, its fairly tough to get them to invest in you. I do think they're happy to see what their portfolio companies are facing however, and it may not be in your interest to make those disclosures. I don't believe they act unethically, but as pointed out above, residuals are hard to erase.