Burn Rate & Burn Multiple

Burn rate is how much cash the business consumes per month — gross burn is total spending, net burn is spending minus revenue. Burn multiple, the metric that has largely replaced raw burn in investor conversations, divides that burn by what it buys: net burn ÷ net new ARR. It asks the only question that matters about losing money — what are we getting for it?

Two companies burning $200k a month are not the same company if one adds $150k of ARR a quarter and the other adds $600k. Burn multiple separates them instantly, which is why it became the defining efficiency metric of the post-2022 fundraising environment.

Divide net cash burned in a period by net new ARR added in the same period. Burning $90,000 in a quarter that adds $60,000 of net new ARR is a burn multiple of 1.5× — a dollar and a half burned for every dollar of durable new revenue.

Use net new ARR, so churn and contraction count against you, and actual cash burn, not accounting loss. A profitable company has no burn multiple — the metric only exists while you are spending investor money to grow.

The widely-quoted bands: under 1× is amazing — you mint more ARR than you burn cash. One to 1.5× is great, 1.5–2× is good, 2–3× is suspect, and beyond 3× the growth is being bought at a rate the next round may not forgive. Expectations tighten as you scale: a seed company gets grace that a Series C does not.

Watch the direction more than the level. A burn multiple that improves each quarter says the model compounds; one that degrades while growth holds says the cheap growth is exhausted — the moment to fix efficiency is before the multiple crosses 2×, not after.