Business Dictionary
Burn Rate
Definition
The rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations.
Deep Dive
Burn Rate refers to the speed at which a new company, particularly startups relying on venture capital or seed funding, is spending its available cash to finance overhead and operations before it starts generating positive cash flow from its core business activities. It's a critical metric that indicates how quickly a company is depleting its financial reserves. Understanding burn rate is essential for founders and investors to gauge the financial health and longevity of a startup, especially in its early stages when revenue generation might be minimal or non-existent.
Examples & Use Cases
- 1A startup spending $100,000 per month more than it earns in revenue to cover salaries, rent, and marketing
- 2A biotech company investing heavily in research and development, depleting its investor funds before a product launch
- 3A new e-commerce platform using venture capital for inventory, large-scale marketing campaigns, and hiring before reaching profitability.
Related Terms
RunwayCash FlowSeed Funding