Scarcity as a Service: The Discipline of Resource Allocation

Founders build product; investors deploy capital. 

On paper, these jobs couldn’t look more different. Yet both tribes live or die by one equation: how to allocate scarce resources under uncertainty.

Scarcity is friction—and friction creates focus. It rewards ingenuity and punishes waste, and turns finite inputs into disproportionate outputs.

Remove that friction, and focus fades into accumulation. Each new dollar buys noise, not insight; motion, not progress; effort, not outcome.

Today, the industry makes this mistake at scale—confusing more dollars with better odds, bigger bets with smarter plays.

1 · Size Is the Strategy

Venture capitalists keep score two ways: base hits (raising funds) and home runs (investing in outliers). A base hit—a successful fundraise—earns the right to play the game. It brings a management fee of roughly 2% per year, funding modest office space, travel to source founders, and lean salaries. A home run, by contrast, is the carried interest—20% of profits—from betting early on the next Uber.

Management fees were designed to sustain the search for home runs, not replace them. Yet as funds balloon, these once-modest fees begin to feel like trophies themselves. Every additional $100 million of committed capital generates $2 million per year for a decade—cash that demands the appearance of productive use.

So investment teams spend it, creating roles and launching programs: recruiting desks, GTM workshops, campus initiatives, accelerator programming. Fees metastasize into headcount, turning investors into operators and lean partnerships into bloated platforms.

Founders mirror this impulse.

As funds inflate, so too do seed rounds. In 2024, one in five U.S. seed rounds surpassed $5 million; the top decile crossed $10 million on pitch decks alone.

Teams scale before reaching product-market fit, just as VCs scale “platform” services before proving they move the needle.

Both groups optimize for spend velocity rather than outcome velocity—busier, louder, but no closer to the outlier they seek.

2 · Source · Select · Support — but Narrow the Third “S”

Venture investing, distilled to first principles, operates on three levers:

1. Sourcing

2. Selecting

3. Supporting

According to NBER, investment selection accounts for twice the variance in returns compared to post‑investment support. In other words, your odds of finding the outlier depend far more on what you pick than on what you add after.

Our experience at OVO Fund matches the pattern. Nearly all (~90%) of our leverage comes from guiding founders through their next raise—clarifying metrics, defining milestones, brokering high-signal introductions.

Founders can navigate this process on their own, and often do. But a pre-seed GP shortens the curve at minimal incremental cost. Other forms of support—recruiting desks, design studios, PR shops—are helpful on the margin, but peripheral at the core.

No concierge service transforms a 2× exit into a 100× outlier.

Yet as funds inflate and fees compound, visible support becomes proof of effort—especially when actual returns remain years away. More staff, more slide decks, more events all crowd out the only lever that compounds: selection.

It’s the right impulse, at the wrong dosage. Platform support, taken neat, dulls the precise kind of experimentation on which pre-seed thrives.

When capital is scarce, funds spend to select; when capital is abundant, funds spend to support.

3 · Constraint Is the Alpha

A supersized seed round buys 36–48 months of runway—but it saps the hunger that drives the ruthless experimentation essential to reach product-market fit.

Infinite runway is not infinite learning; abundant runway blunts ramen-profitable urgency.

In a capital-flooded market, scarcity becomes a self-selected edge. The founder who pegs a raise to the next milestone sharpens focus. The GP who caps a pre-seed fund at $50 M sharpens precision.

Depart from that discipline, and adverse selection follows:

• If a startup requires a large support team just to survive the early stages, it’s probably not meant to.

• No amount of platform support can transform a 2× exit into a 100× outlier.

Consider Union Square Ventures (USV), who played this game at its best:

• From 2004–2016, USV kept every flagship fund under $175 M, operated with zero platform staff, and returned $1.18 B to UTIMCO from just $129 M invested—a 9.1× MOIC and 59 % net IRR.

• Selection trumped services: Twitter, Etsy, and Coinbase needed conviction capital, not concierge support.

Zoom balances USV nicely: it reached PMF on roughly $6 M (Seed + Series A), while competitors burned ten times more. Focused discipline—not headcount—won the market.

When capital is abundant, discipline fades and support expands; when capital is scarce, discipline sharpens and selection wins.

4 · A Modest Proposal

• Founders: Cap your raise to the next critical milestone. Aim for 18–24 months of runway—just enough to sharpen judgment without sedating urgency.

• Investors: Size the fund to the strategy—fees should underwrite judgment, not optics.  

• Both: Tattoo one line on every term sheet: discipline over ego.

Capital efficiency is the easiest story to sell, but the hardest creed to master. Oversized rounds and supersized funds are the same indulgence, each polished from opposite sides of the cap table.

When allocation is disciplined, the outlier arrives almost inevitably.

When allocation slips, every marginal dollar diminishes the signal.

Let scarcity—silent, relentless—do what it always does: transform modest resources into unreasonable returns.

Thanks to Eric Chen for his feedback on this essay.