| Eric Paley from Founder Collective has written a lot about the mechanics of over-funding. The basic mechanism is that companies start scaling marketing efforts that don't return $1 for a $1 investment. That's obviously startup 101 stuff, but scale makes a huge difference. Losing money is fine if there is a long term network effect, but more often than not it's just an effort to make toppling growth look good enough to attract a VC in the next round. So instead of being a modest company, that's nearly profitable with loads of potential, you become a company that is wildly expensive to keep afloat and seem to have less potential since you've already spend hundreds of millions experimenting with acquisition. Instead of having a million potential customers, there are maybe a couple dozen VCs that can make or break your future. That's overly generalized, but here's a reading list for a more detailed explanation: Wasting Time with the Startup Joneses: https://techcrunch.com/2015/07/30/wasting-time-with-the-jone... When Burn Rate Outweighs Enthusiasm: https://techcrunch.com/2016/01/13/never-let-burn-rate-outwei... VC is a Hell of a Drug: https://techcrunch.com/2016/09/16/venture-capital-is-a-hell-... Overdosing on VC: Lessons from 71 IPOs: https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f... |