Is there ever any such thing as too much money? Warren Lee, a partner in venture-capital firm Canaan Partners and author of blog Yet Another VC, seems to think so, in the cases of Veoh Networks and Joost. In an article for AdAge.com, Lee shares his opinion that those two struggling online-video companies received too much funding, too soon, which helped to speed their demises.
Raising lots of money is not a problem, per se. Raising too much money too early and before hitting key milestones (e.g. getting paying customers, showing attractive margins) can be. This is particularly important for online video startups, which, due to their costs, need to be run with tighter margins from the start.
This year and next, these companies’ venture backers and boards will have to make wrenching choices: continue to fund these companies with the hope that the economy will turn around or a generous buyer shows up, shut the companies down, or sell on the cheap. This will turn into a buyer’s market for the next several quarters.