Couldn't the fund just use arms-length consulting patent attorneys to answer the question: does defending this case have a reasonable prospect of success?
It could. It could also force the startup to hand over control of the defense (which the startup would most likely be ill-suited to control) and therefore control the defense strategy.
All that is required is a big enough defense fund that acts as a true deterrent.
Mind you, if the startup loses it doesn't mean that it would not be responsible for the payout - but at least the startup wouldn't fold simply because the costs of defending itself are out of reach.
