Burn Rate
The rate at which a startup spends cash, typically measured monthly.
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Definition
Burn rate measures how quickly a startup is spending cash. Gross burn is total monthly expenses. Net burn subtracts revenue from expenses, showing the actual cash consumption. For pre-revenue startups, gross and net burn are identical.
Burn rate is typically expressed monthly and used to calculate runway (months until cash runs out). It is one of the first metrics investors ask about and one of the most important for founders to monitor.
Burn rate naturally increases as companies hire, invest in marketing, and scale infrastructure. The key is whether revenue growth outpaces burn growth. A company whose burn increases 20% quarterly but whose revenue increases 40% is on a healthy trajectory toward profitability.
Why It Matters for Founders
Burn rate determines how long you have to achieve your next milestone. Miscalculating burn is one of the most common causes of startup death — founders often underestimate expenses and overestimate revenue timing. Every founder should know their exact burn rate and runway at all times.
Investors evaluate burn rate relative to growth. High burn with high growth (efficient growth) is acceptable. High burn with low growth (burning cash without results) is a red flag. The "burn multiple" (net burn / net new ARR) is increasingly used — a ratio below 2x is considered efficient, while above 4x signals trouble.
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Formula
Gross Burn = Total monthly expenses | Net Burn = Total monthly expenses - Total monthly revenueReal-World Example
A startup spends $150K/month and earns $40K in revenue. Gross burn is $150K, net burn is $110K. With $1.3M in the bank, they have ~12 months of runway.
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Frequently Asked Questions
What is a good burn rate?+
What is the difference between gross and net burn?+
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