If there was something useful for Digg to be spending that money on it's one thing, but using more people to do the same thing causes failure. IMO the goal should be to be profitable based on your income stream. With new capital you can setup some R&D or spend that money on new projects outside of your core company or advertising etc, but you need to avoid supporting the core of your company with new capital. That way you can cleanly dump everyone that's not part of making money and not kill the company.

PS: Every dollar you spend that's not supported by revenue should get the company more than one dollar in profit.