Definition
Net Burn
Net burn is a startup's monthly cash loss after subtracting revenue from total cash outflow.
Net burn = gross burn minus monthly revenue (or cash collections). It is the true monthly drain on the cash balance and the basis for calculating runway: cash in bank divided by net burn equals months of survival. A company that turns cash-flow positive has zero or negative net burn.
Investors watch net burn closely because it shows how efficiently a startup converts spending into revenue. Reducing net burn — through revenue growth or cost cuts — is the most direct way to extend runway.
Related terms
- Burn RateBurn rate is the speed at which a startup is spending its cash, usually expressed per month.
- Gross BurnGross burn is a startup's total monthly cash outflow, before accounting for any revenue it brings in.
- 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.