It’s generally good advice for companies to only raise the amount of capital for what’s absolutely necessary, and no more. The definition of necessary is context specific, but most often it’s getting through a certain stage or getting ready for a future investment round, IPO, or another milestone.
When you raise too little, obviously that can handicap a companies ability to reach these goals. When raising too much, decision quality suffers - companies choose to do more and prioritize less. This leads to a decline in output quality - be it in product, sales, or any business leading function. Startups often tend to spend what they raise, and being overcapitalized leads to saying yes to everything. Ofcourse, there is also the issue of over-valuing your company too early and the difficulty in raising another round in that situation. These and other issues are discussed in Mark Suster’s article from 2016, Why Raising Too Much Money Can Harm Your Startup.
The funny thing is, this applies not just to companies but to VC funds too. There weren’t that many examples of the counter argument before but now there’s Softbank’s Vision Fund, obviously an easy target these days. Excess capital clouds decision making, especially you’re in the sole business of deploying capital. It obviously affects the leading fund, but also other investors as well.
At a time when funds are awash with capital, Softbank is probably not the only outlier, and it’s only a matter of time until the hens come home to roost.