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Many business critics of Uber contend that the company is spending “unsustainably.” Despite that nearly all venture-backed startups burn capital unsustainably, Uber’s level of spending is viewed as particularly problematic among its naysayers. Negative press notwithstanding, Uber has now raised billions of dollars — many times over. How is this possible?

Uber’s investors, myself included, are still wildly enthusiastic about the unprecedented velocity of the company. It will be able to sustain its burn rate based on that excitement unless something surprising happens to its business, or it goes public.

It doesn’t matter whether a company’s burn rate is $10K per month or $10 million per month, companies die when their burn rates are greater than investor enthusiasm. Burn rate is a bet on the potential of a business. That bet, re-evaluated at each round of funding, is based on the belief of venture capitalists that multiples of value will be created with the money they invest in a company. Unfortunately for founders, enthusiasm can be fickle while burn rates are stubborn. The two can easily get out of sync.

Quirky is an example of what happens when a startup loses investor enthusiasm. The innovative home goods manufacturer raised huge amounts of capital, struck partnerships with GE and major retailers, and promised to disrupt the way household goods are made. Investors bought into this vision and the company hired a large team of engineers and designers, built world-class facilities and retail shops, and spent heavily on marketing.

Then products were delayed. Critics ridiculed their offerings. Their slick inventions stuck to store shelves. Expensive gambles failed to pay off. Quirky wasn’t worthless, but it no longer could justify its burn rate or sustain investor enthusiasm and ultimately died with the remains to be sold off as scraps.

The enthusiasm cycle

Founders exude enthusiasm. This enthusiasm is the currency for any startup. Co-founders join when they have drunk the Kool-Aid of the first founder. Then additional team members. Then investors. Investor pitches are inspiring and grandiose. Pitches are designed to garner enthusiasm.

Venture capital financing rounds suggest an implicit burn rate, typically intended to be invested in the startup over 12-24 months. Some basic math would suggest that for an imaginary $1.8 million financing to be burned down over 18 months, the company is spending $100K a month on average. Of course there is a curve to this burn rate that starts lower, as the company is scaling up, and finishes the period higher — more like $200K per month — which becomes the new baseline. It is this exit burn rate that needs to be sustained with new capital.

As a startup exits each financing period and needs more capital, it hits an important inflection point. Investor enthusiasm internal or external to the company hasn’t been tested in 18 months. The exit burn from the financing stage doesn’t necessarily reflect current enthusiasm. Instead it reflects the autopilot burn rate based assumptions 18 months earlier. Now the company needs to raise more money to fund at least a $200K per month burn rate (and hopefully additional growth). The key question is how enthusiastic is everyone now?

If the money invested is showing great signs of return, then enthusiasm will likely be high and the company will attract more capital with little difficulty. Unfortunately, this frequently isn’t the case. More often, money has been spent, the company has made some progress, and the results are mixed.

Given that there is a deepening curve to burn rate over the post financing period, sustaining the burn rate nearly always requires more capital than went in at the previous financing round. But because the burn rate increased to $200K/month, buying another 18 months now costs $3.6 million. Are the investors twice as enthusiastic about the company as when they wrote the last $1.8 million check? If not, the company is in trouble.

Never think of burn rate as a prescribed plan at the time of investment to be set on autopilot, and don’t assume that investors will keep funding the burn when the bank account approaches empty.

Why investors lose enthusiasm

The dream dies. Investors write checks into big dreams, which are validated by traction. If the trend line of the previous 18 months isn’t accelerating up and to the right, the excitement that generated the original investment is lost and the dream becomes a nightmare.

Founder flailing. Few startup founders are truly exceptional, and it’s hard to build an amazing startup. I’ve met many investors who are thrilled about the concept of a company, work hard with the team to make it a reality, but become frustrated by the inability of the founders to execute. Sometimes an investor will look to replace the founders in this context. Other times they’ll throw up their hands and lose interest in the startup.

Macro changes. The macro environment plays a significant role in whether investors are open-minded or close-minded to a vision of the future. The more traction a company has, the less impact the macro environment has on investor enthusiasm, but even startups with solid metrics struggle to raise money during major macro shifts, like the 2008 financial crisis. Moreover, startups that are doing well, often face down rounds in a souring economic climate.

It may be that the company had an easier time raising the previous round because the investor confidence in the macro environment made it possible for investors to dream along with the founders, and by the time the company is out for more capital, that environment has shifted. It is hard to dream big dreams when the prevailing economic sentiment is fear.

During the 2008 financial crisis, companies that were funded 12-18 months before and had solid metrics struggled to inspire enthusiasm from fearful investors. Sometimes the shift is less dramatic, and a single sector will fall out of favor. I think many early-stage e-commerce companies are feeling this squeeze right now, where investor enthusiasm for e-commerce was much stronger a couple years ago.

What to do if enthusiasm wanes

Should the startup search for external money without strong internal support? This rarely works out. Outside investors are always trying to read the tea leaves to understand how insiders feel, as they have way more insight into the company and leadership.

So how can a company manage the enthusiasm challenge? Keep a very close eye on the disconnect between burn rate and enthusiasm. Never think of burn rate as a prescribed plan at the time of investment to be set on autopilot, and don’t assume that investors will keep funding the burn when the bank account approaches empty. It’s the founder’s job to drive enthusiasm for more financial support by building traction in the business and not burning ahead of that enthusiasm.

Remember that the burn rate represents the plan from a moment of high enthusiasm and that the enthusiasm may or may not sustain. The key question is whether the investors would still write their check, if given the choice, as time passes and the burn increases. Are they as excited today as when they wrote the last check? If not, don’t hit the gas; perhaps even back off the burn. Find some metric and make it grow fast. Nothing sparks enthusiasm like momentum. Seek out kindred investors who are willing to back your audacious vision through a tough macro turn.

Don’t let your most enthusiastic supporters burn out. That’s how startups die.