Refueling a high burn startup is extremely challenging, even when the startup is very hot.
I find this rule of thumb helpful: Can you repeatedly (emphasizing repeatedly) raise the next round at >2x price/share of the current round for <10% dilution? If you can, the high burn (high growth) strategy is fundable. If not, the strategy will likely crash and burn.
Why >2x the current price/share? It is tough to get a new investor to invest in this round, if the new investor does not believe that the next round will be at least 2x the price/share of this round. Otherwise, the new investor should wait until the next round, even if the new investor loves the company.
Why <10% dilution? Dilution is a very emotional topic, and everyone wants to minimize dilution. But, I find that many consider dilution up to 10% as minimal.
By following this rule of thumb, one company raised $100m from the private markets in multiple rounds.
This blog post is a follow-up to my prior blog post: Valuation Challenges, Financing Strategy and Growth/Profitability/Dilution.