There is a joke in Silicon Valley that startups can have a booming business if they sell dollar bills for 90 cents—that is, until they run out of dollar bills. A bike-sharing crash in China shows the folly of taking such startups too seriously now that venture capital is drying up.

Ofo, one of China’s two leading bike-sharing companies, has run into cash-flow problems throughout the year, its founder, Dai Wei, admitted in a email to employees last week. Mr. Dai himself has been put on a government blacklist for unpaid bills, barring him from excessive spending such as on upscale hotels or first-class flights. Making matters worse, more than 10 million users have asked for refunds of deposits ranging from $15 to $30 from the company.

The bike wreck shouldn’t really be a surprise: Ofo never had a sustainable business model. Chinese bike-sharing companies rent out bicycles for just a few U.S. cents an hour, which is far from covering their costs.

Still, the sector dotted the streets of every major Chinese city with millions of bikes, supported by billions of dollars of venture capital. Ofo got $2.2 billion of funding, including $866 million as recently as March in an Alibaba-led funding round, according to data provider Crunchbase.

Ofo wasn’t alone: Chinese startups received record sums of money in the first half, including the $14 billion funding round for Ant Financial, Alibaba’s finance affiliate. But investments started to slow in the third quarter, while venture capitalists, especially smaller ones, are finding it harder to raise money amid Beijing’s crackdown on debt. Venture-capital funds raised 56% less money in the first three quarters of 2018 compared with the same period of 2017, according to data provider Zero2IPO.