Why Too Much Dry Powder Is Bad

It’s time to address the downsides of the $290 billion mountain of cash raised by venture capitalists over the last few years.

About a month ago, I wrote that this dry powder, as it’s referred to, would revive startup funding after what’s been a rather sleepy year for deals. I still believe that to be true. But recently, a top limited partner reminded me of what happens when there’s too much money sloshing around: Bad companies get funded, good companies get overfunded. 

“It’s worrisome,” Stanford University’s endowment chief, Robert Wallace, told The Information in an extended interview. “You worry sometimes that when companies get overcapitalized early in their life…there’s not enough discipline on spending, and that the companies themselves can make some poor decisions as they grow.”