Burn Rate

Burn rate measures how quickly a company consumes cash. Gross burn rate is total monthly cash spending. Net burn rate subtracts any revenue, showing the net cash outflow per month. For a startup spending $200,000/month with $50,000 in revenue, gross burn is $200,000 and net burn is $150,000. Net burn rate is the more actionable number because it reflects how fast cash reserves are actually declining.

Burn rate is existentially important for startups because it determines runway, the number of months until the company runs out of cash. A startup with $1.8M in the bank and a net burn rate of $150,000 has 12 months of runway. This creates a hard deadline: either become profitable, raise more funding, or shut down within that timeframe.

Managing burn rate is a balancing act. Burning too slowly might mean underinvesting in growth and losing to faster-moving competitors. Burning too fast creates existential risk and forces fundraising from a position of desperation. Experienced founders target enough burn to achieve meaningful milestones (product-market fit, revenue targets) with 6-12 months of cushion. Investors typically want to see 18-24 months of runway after funding.