VC Metrics & Performance
What is burn multiple and why do VCs care about it?
Burn multiple measures how much a company spends (net burn) for every dollar of new ARR it adds. A burn multiple of 1x means you spend $1 to add $1 of ARR. Lower is better — it indicates capital efficiency.
Burn multiple = Net cash burn / Net new ARR
If a company burns $2M in a quarter and adds $1M in net new ARR, its burn multiple is 2x. If it burns $1M and adds $2M in ARR, it's 0.5x.
Benchmark ranges (from Bessemer and others): - Under 1x — Outstanding - 1–1.5x — Great - 1.5–2x — Good - 2–3x — Average - Over 3x — Needs attention
VCs started using burn multiple more prominently after 2021, when rising interest rates and market corrections shifted the narrative from "growth at all costs" to "efficient growth." A company growing 200% YoY but burning 5x to do it is a very different business than one growing 100% with a 1x burn multiple.
Burn multiple is particularly useful for comparing companies at different revenue scales. Raw burn numbers and growth rates can be misleading — burn multiple normalizes for scale.
The tradeoff to keep in mind: optimizing burn multiple too aggressively can starve growth. There's a level of investment that maximizes the NPV of the business, and being too frugal can mean missing market windows. The goal isn't to minimize burn multiple at all costs — it's to deploy capital efficiently enough that you're generating real return for each dollar spent.