The Problem of Overcapitalization

blog.snaptalent.com

22 points·sharpshoot··5 comments

Everything in the article dealing with the problems of overcapitalization from the entrepreneurs end is pure speculation ("lavish salaries, expensive office chairs and generally a hunger killer for execution"). He has no knowledge that those things are true for FatDoor and nothing even anecdotal from other companies.

He does have a point that if they didn't execute well the first time, that doesn't bode well for the next try. However, that's not a problem with capitalization, that would be a problem with the team.

I was on the Odeo team that became Twitter. We were overcapitalized for a podcasting startup and that's exactly why we ended up with a bigger hit. We had the runway to experiment and the knowledge that we hadn't hit on anything big enough, so we kept trying new things.

In that case overcapitalization wasn't a problem in terms of being successful.

I have to agree there. Fatdoor raised themselves enough to be able to try something else when Idea A looked to be a dud. And exit strategies don't even come into play yet.

Also, their new idea seems to be a logical extension of (and possibly an improvement on) the old one. If Idea B works they will be fine. If not, they'll be no less or no more bankrupt than if they raised less money earlier.

If some omniscient person told me my idea was going to turn out a dud, I'd want more money rather than less.

Ha! At first glance, I thought he was talking about something more like this: http://bloggoergosum.us/2006/11/20/engineers-dont-get-capita...

Raise enough money to get a few things wrong, and spend it as if it were your own money (because it is).

I SEE NO PROBLEM WITH IT.

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