Startup Funding Espresso – The Burn Multiple

The Burn Multiple

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The burn rate is a key metric for high-growth startups.

This is the amount of cash being spent over and above the cash revenue taken in.

The Burn Multiple is the amount of cash being burned divided by the net revenue.

This metric indicates how fast the money is being spent compared to the growth rate.

For startups that are in high-growth mode, this metric ranges from 1 to 5X.

The lower the multiple, the more efficient the business.

In diligencing a startup, calculate the Burn Multiple to check the capital efficiency.

Most healthy startups run in the 1x to 2x range.

Anything below 1x is outstanding.

Anything above 2x is in the questionable zone.

Anything above 3x is in the danger zone.

The Burn Multiple by itself doesn’t give the full story.

But it does indicate the capital efficiency of the business or the lack thereof.

Calculate the Burn Multiple for your business.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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