You might think it's impossible for a company to have too much money. What startup wouldn't benefit from a few extra million dollars? At best, you use it to fund growth. At worst, you just let it sit comfortably on your balance sheet, a financial cushion against uncertainty.
But money, like medicine, can turn poisonous in excessive doses. And too much cash too early often becomes the very thing that transforms a promising startup into a lethargic flop. This isn't a theoretical problem. I’ve seen it happening consistently for the past 5+ years, across sectors, with predictable and devastating results.
The most obvious example is SoftBank's Vision Fund, the $100 billion behemoth that practically reshaped venture capital overnight. SVF poured hundreds of millions into companies like Brandless and Wag, before they found stable customer bases or positive unit economics. Then there was WeWork, perhaps the most spectacular example of what happens when unlimited capital meets unlimited ambition without the guardrails of financial discipline.
But SoftBank wasn't an anomaly. It was a symptom of a broader disease that infects startups when capital becomes too abundant, too easy, and too divorced from the fundamental realities of building real businesses.
The problem with excessive capital isn't just that it gets wasted (though it often does). The real damage runs deeper. Too much money too early creates two interconnected problems that can kill even the most promising companies.
The first is what happens inside the company itself. Abundant capital fundamentally changes how teams think and behave. When money isn't scarce, the natural pressure to validate assumptions disappears. Why spend months testing whether customers actually want your product when you can just hire more engineers and build more features? Why worry about unit economics when you can subsidize growth with investor dollars?
This psychological shift is subtle but can be ruinous. Teams start focusing on expansion and big-swing projects before they've validated product-market fit. They overhire. They increase their lease obligations, opening offices and retail locations before they really need the space. They overspend on marketing, throwing money at acquisition channels without understanding which ones actually work.
Of these mistakes, marketing overspend is the easiest to correct. You can simply turn off the ads. But overhiring and overexpansion create structural problems that are much harder to fix quickly and cheaply. These decisions create momentum in the wrong direction, and momentum is, by definition, hard to reverse.
The second problem emerges when it's time to raise the next round. Those outsized early valuations that seemed like victories become anchors. When a startup's initial valuation is set sky-high based on potential rather than performance, every subsequent round becomes an uphill battle. The company is forced to "grow into" their valuation, which often means achieving growth rates that are simply unrealistic given their stage and market dynamics.
This creates a vicious cycle. The pressure to justify inflated valuations leads to more aggressive spending, which burns through capital faster, which creates pressure to raise again sooner, which makes the valuation problem even worse. Eventually, the company faces a choice between accepting a down round, which can create challenges for morale and future fundraising, or running out of money entirely.
I witnessed this dynamic play out in real time during the climate tech frenzy of 2020 and 2021. Several (three in particular) well-funded venture firms, flush with capital and eager to deploy it, poured enormous sums into early-stage (sometimes very early-stage) companies. They drove seed-stage valuations into astronomical territory, with startups still years away from generating meaningful revenue receiving term sheets for $10 to $20 million rounds at valuations frequently exceeding $100 million.
The funds behind these investments showed little concern for realistic pricing or long-term sustainability. They were focused on winning deals and hitting ownership targets. Because these funds were so large, the actual dollar amounts mattered less than the competitive dynamics of getting into the best companies. It was a game of musical chairs played with other people's money.
The startups they backed have genuinely brilliant teams working on important problems. But they found themselves trapped by their own success in fundraising. Despite having more capital than they had ever imagined, they couldn't scale fast enough to meet the impossible expectations embedded in their valuations, particularly as the market moved and investors cooled on climate. The vast majority now face dramatic down rounds, which, as previously stated, are incredibly difficult to recover form, both financially and psychologically.
Climate tech is somewhat unique in its challenges. The long development timelines, high capital requirements, technical uncertainty, and emphasis on scientific rather than commercial teams create a particular set of constraints. But these characteristics aren't actually that special. They also define biotech, defense tech, robotics, and other deep tech sectors. If we want these industries to survive and thrive – and we should, because they're working on some of the most important problems facing humanity – then we need to be more disciplined about aligning capital deployment with the actual needs and capabilities of companies.
This doesn't mean being pessimistic or risk-averse. Abundance and optimism are essential, particularly in early-stage, high-risk markets where the potential rewards are enormous. But restraint is equally critical. The goal should be to provide companies with enough capital to achieve their next meaningful milestone, not enough capital to avoid having to think carefully about priorities.
The best investors understand this intuitively. They know that constraints breed creativity, that scarcity forces focus, and that the discipline required to build a sustainable business is often incompatible with unlimited resources. They provide capital strategically, in doses calibrated to the company's stage and needs, rather than flooding promising startups with more money than they can productively deploy.
The irony is that this approach often leads to better outcomes for everyone involved. Companies that are forced to be disciplined about capital allocation tend to build more sustainable businesses. They develop better unit economics, stronger cultures, and more realistic growth strategies. When they do raise follow-on rounds, they're raising from a position of strength rather than desperation.
For founders, the lesson is counterintuitive but important: sometimes the best thing you can do for your company is to raise less money, not more. Take enough to reach your next major milestone with some buffer for unexpected challenges, but resist the temptation to raise as much as possible just because you can. The extra capital might seem like insurance, but it often becomes a liability.
For investors, the challenge is even greater. In a competitive market, it's tempting to win deals by offering higher valuations and larger check sizes. But this approach frequently damages the very companies you're trying to help, and has dramatic ripple effects in the broader market, which might not be seen for years, but can’t easily be undone.
Venture capital has always been cyclical, swinging between periods of abundance and scarcity. We spent several years in a period of relative constraint, and now the pendulum is clearly swinging back into abundance territory. I just hope we don’t go off the rails again.
Money is a tool, not a goal. And like any tool, it's most effective when used precisely and purposefully. Too little capital can kill any company (of course), but so can too much. The art of building and funding startups lies in finding the right balance, by providing enough resources to enable growth and innovation while maintaining the discipline and focus that turn good ideas into great businesses.