Burn Rate
The rate at which a startup spends cash each month, used to calculate how long the company can operate before needing more funding.
Burn rate measures how quickly a startup spends its cash reserves, typically expressed as a monthly figure. Gross burn is total monthly spending regardless of revenue. Net burn is monthly spending minus monthly revenue, representing the actual cash being consumed. Net burn is the more useful number for calculating runway.
Burn rate is one of the first metrics investors ask about because it reveals the company's capital efficiency and how soon it will need to raise again. A high burn rate relative to revenue suggests the company is investing aggressively in growth (which can be good) or spending inefficiently (which is bad). Context determines the interpretation.
The best founders manage burn rate dynamically. When growth is strong and fundraising conditions are favorable, higher burn can be justified to capture market share. When conditions tighten, cutting burn to extend runway is prudent. A common rule of thumb is the "burn multiple": net burn divided by net new ARR. A burn multiple below 2x is excellent (spending $2M to generate $1M in new ARR), while above 4x is concerning.
Example
A startup spends $150K per month (salaries, AWS, office, tools) and earns $50K in monthly revenue. Gross burn is $150K/month, net burn is $100K/month. With $1.2M in the bank, the company has 12 months of runway at current net burn. The burn multiple is $100K / ($15K net new MRR x 12 annualized) = 0.56x, which is exceptional.
Related Terms
Want to practice your pitch with an AI investor? Apply for a free meeting.