Definition
Burn Rate
Burn rate is the speed at which a startup is spending its cash, usually expressed per month.
Burn rate tells investors how fast a company is consuming its cash reserves. Gross burn is total monthly cash outflow, while net burn is the monthly cash loss after subtracting revenue. A startup losing ₹50 lakh more than it earns each month has a net burn of ₹50 lakh.
Burn rate, combined with the cash balance, determines the runway — how long the company can survive before needing more funding. In funding winters, startups cut burn aggressively to extend runway and avoid raising at a down round.
Related terms
- Gross BurnGross burn is a startup's total monthly cash outflow, before accounting for any revenue it brings in.
- Net BurnNet burn is a startup's monthly cash loss after subtracting revenue from total cash outflow.
- RunwayRunway is the number of months a startup can keep operating before it runs out of cash, calculated from its current cash balance divided by its monthly net burn.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.