Burn Rate

There are two types of burn rate: gross burn, which is the total amount of cash a company spends each month, and net burn, which is gross burn minus any revenue coming in. Net burn is the more critical figure because it reflects the actual rate at which cash reserves are being depleted. Dividing total available cash by the monthly net burn rate gives the company's runway — the number of months it can continue operating before running out of money.

Burn rate is one of the most closely watched metrics by startup founders and investors alike. A high burn rate isn't inherently problematic if the company is growing rapidly and deploying capital efficiently, but it becomes a serious concern when growth doesn't justify the spend. Managing burn rate requires balancing aggressive investment in growth with the discipline to extend runway long enough to reach the next funding milestone or profitability — a miscalculation here is one of the most common reasons early-stage startups fail.