David Sacks breaks down the Burn Multiple: How to Manage Burn at a Startup
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Episode Description
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Brief Summary
Learn how to measure and manage startup cash burn with the burn multiple metric.
Key points
- Understanding Burn Multiple. Learn how to measure your startup's cash burn with the burn multiple formula.
- Burn Multiple Efficiency Levels. Discover what different burn multiple scores mean for your startup's health.
Transcript
is your startup burning too much cash here's a good way to measure it I call it the burn multiple the formula looks like this burn multiple equals net burn divided by net new ARR and you want to measure this for a given period for example if you burn $3 million in a quarter and you generate $1 million of net new ARR that's a burn multiple of three once you measure your burn multiple you can assess whether it's good or not I have some rules of thumb around this if your burn multiple is under one that is amazing efficiency if your burn multiple is in the one to one and a half range that's great if you're at one and a half to two that's good two
to three you're getting a little bit iffy it's suspect and over three is bad every company that's successful that wants to become profitable will eventually have to reduce their burn multiple so low that it hits zero so that's the goal start with a burn multiple that's high in the early days and gradually get it down over time that's how I think about how to manage your burn at a startup
