While this is true, I would take away from your post an almost opposing viewpoint: That it would be better to invest in more startups, rather than fewer, because of the difficulty in identifying which companies are "good" and "bad" ahead of time.
How do you resolve the conflict between trying to only invest in good companies (almost regardless of price) versus investing in as many startups as possible (so as to increase your likelihood of investing in a good startup since they are hard to find and identify)?
That stops working if your "increase quantity" mechanism sets up a filter on companies with worse terms; it's an adverse selection problem, because the companies that are easiest to buy into are going to include a disproportionate share of the losers.
