Metrics & Performance
Burn Rate
Last updated
Quick Answer
The rate at which a company spends its cash reserves, typically expressed as a monthly figure. Gross burn is total monthly cash outflow; net burn subtracts revenue collected.
Monthly Burn Rate
Burn Rate = (Starting Cash - Ending Cash) / Number of Months
Where
- Starting Cash
- = Cash balance at period start
- Ending Cash
- = Cash balance at period end
Burn rate is the rate at which a startup consumes its cash, usually measured monthly. There are two types:
Gross Burn: Total monthly cash outflows (salaries, rent, infrastructure, marketing, etc.) — regardless of revenue.
Net Burn: Gross burn minus cash collected from customers. This is the actual depletion of cash reserves each month.
Net burn is the more meaningful metric for managing runway. A company burning $400K gross with $150K in monthly collections has a $250K net burn and $250K/month cash depletion.
Burn rate changes with hiring, revenue growth, and cost structure decisions. Founders must update their burn projections regularly.
In Practice
A startup has monthly expenses: $180K in salaries, $20K in infrastructure, $30K in marketing, $20K in other costs — $250K gross burn. Monthly revenue collected: $80K. Net burn = $250K - $80K = $170K. With $2.5M in the bank: runway = $2.5M / $170K = 14.7 months. If the team grows and gross burn rises to $350K while revenue grows to $120K, net burn = $230K and runway shrinks to 10.9 months.
Why It Matters
Burn rate is the operational dial founders have the most control over. Reducing burn extends runway, reduces fundraising pressure, and improves negotiating leverage with investors. But cutting burn too aggressively can kill growth momentum. The burn multiple — net burn divided by net new ARR — tells you how efficiently you're converting burn into revenue growth.
VC Beast Take
Many founders report gross burn to investors when they should report net burn, and vice versa depending on the context. Always be explicit about which figure you're sharing. The more important practice: share a burn rate waterfall — break down where the money is going by category. Investors who see a transparent breakdown of burn trust the numbers more than those who receive a single monthly figure.
Related Concepts
Further Reading
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How to Calculate the Rule of 40: SaaS Health Score Formula
The Rule of 40 combines revenue growth and profit margin to score a SaaS company's overall health. Learn the formula, the benchmarks, and what it really tells investors.
How to Calculate Runway: The Formula Every Founder Needs
Runway tells you exactly how many months you have before cash hits zero. Here's the formula, a worked example, and how to extend it before your next raise.
What Happens During a Down Round: A Step-by-Step Breakdown
A down round isn't just a bad headline — it's a complex legal and financial event with real consequences for founders, employees, and investors. Here's exactly what happens, step by step.
LP Reporting Best Practices: Quarterly Reports That Build Trust
How to write LP quarterly reports that build trust and keep your investors informed. Templates, metrics to include, and the cadence top GPs follow.
How to Write an Investment Memo: The VC Template That Actually Works
A practical, partner-ready guide to writing VC investment memos that actually drive decisions: structure, examples, common mistakes, and how top firms like Sequoia, a16z, and Benchmark do it.
Tools & Resources
Frequently Asked Questions
What is Burn Rate in venture capital?
Burn rate is the rate at which a startup consumes its cash, usually measured monthly. There are two types: Gross Burn: Total monthly cash outflows (salaries, rent, infrastructure, marketing, etc.) — regardless of revenue. Net Burn: Gross burn minus cash collected from customers.
Why is Burn Rate important for startups?
Understanding Burn Rate is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Burn Rate fall under in VC?
Burn Rate falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
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