Metrics & Performance
Net Burn
Last updated
Quick Answer
The actual monthly cash loss after subtracting revenue from total operating expenses — the real rate at which a company is depleting its cash reserves.
Net Burn Rate (monthly)
Net Burn = Total Expenses - Total Revenue
Where
- Total Expenses
- = All monthly operating expenses
- Total Revenue
- = All monthly revenue
Net burn (also called net cash burn) is the actual monthly cash outflow after revenue is credited: Net Burn = Gross Burn − Revenue. It represents the true rate at which a startup is consuming its cash reserves and is the correct figure to use when calculating runway.
A company with $500K gross burn and $200K in monthly revenue has $300K net burn — it's depleting its cash at $300K/month. At that rate, $3M in the bank provides 10 months of runway.
Net burn can turn negative (become net cash positive) when revenue exceeds all operating expenses — at which point the company has reached cash flow breakeven. This is a major milestone for venture-backed companies because it eliminates existential fundraising risk.
In Practice
Company has $600K gross burn and $400K monthly revenue. Net burn = $200K/month. With $2.4M in the bank, it has 12 months of runway. If revenue grows to $600K/month with costs flat, net burn hits zero — the company is cash flow neutral and no longer dependent on raising to survive.
Why It Matters
Net burn is the most important day-to-day financial metric for a startup because it determines how long the company can survive without raising more capital. Investors scrutinize net burn trajectory — declining net burn (as revenue grows) signals improving unit economics and reduces fundraising pressure.
Related Concepts
Further Reading
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.
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 Calculate Burn Rate: Formula, Examples, and What VCs Look For
Burn rate tells you how fast your startup is spending cash. Learn the exact formula, see a worked example, and find out what VCs expect at every stage.
How a Series A Actually Works: From First Meeting to Wire Transfer
The Series A process is opaque, exhausting, and often takes three to six months. Here's exactly what happens at every stage — from the first intro email to the moment the money hits your account.
How to Prepare a Financial Model That VCs Take Seriously
A strong startup financial model can make or break your fundraise. Learn exactly what VCs expect — from unit economics to scenario planning — and how to build one that earns credibility.
Venture Studio Model: How It Works and When It Makes Sense
Venture studios build companies from scratch instead of funding them. Here's how the model works, how the economics stack up, and when it outperforms traditional VC.
Tools & Resources
Frequently Asked Questions
What is Net Burn in venture capital?
Net burn (also called net cash burn) is the actual monthly cash outflow after revenue is credited: Net Burn = Gross Burn − Revenue. It represents the true rate at which a startup is consuming its cash reserves and is the correct figure to use when calculating runway.
Why is Net Burn important for startups?
Understanding Net Burn is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Net Burn fall under in VC?
Net Burn 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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