VC Mobius doled out capital “as if there was no tomorrow.”

We’ve mentioned the demise of the well-known Silicon Valley venture firm Mobius Venture Capital before.

The WSJ’s Rebecca Buckman follows up on the story (sub req), and explains how things turned sour after the Internet bubble burst, and how leaders such as Gary Rieschel and Charles Lax, moved on. Lax left in 1999 to form Grand Banks Capital, and Rieschel left a couple of years ago to launch a fund in China.

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The firm invested in companies like Verisign, Danger and Infinera, but also bet on dot-com bust, Webvan, and Terabeam. The kicker quote comes from Lax, who says “the writing was on the wall” when Rieschel left to China.

Mobius partners are “devoted, focused people” who are now trying hard to return money to their investors, he adds. “But…they raised too large a fund, they committed the capital as if there was no tomorrow, and they dug holes like Terabeam that were insurmountable.”

Lax’s Grand Banks, we note, has a much smaller fund size. Word is, Brad Feld, the Mobius partner in Colorado, who now has perhaps the highest profile of the remaining partners via his a well-read blog, is at the center of an effort to launch a separate fund. He didn’t mention this when he confirmed a few months ago that Mobius had decided not to raise another fund.

We’ve often wondered aloud in these pages about what happens to firms that underperform, and are always surprised when investors step up to give them more money to keep going. Apparently, the capitalist system is still at work. Of late, several firms have been forced to give up fund-raising, at least in their current form, including Silicon Valley’s WorldView.