Startup Dictionary
Burn Rate
Definition
The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow.
Deep Dive
Burn rate refers to the speed at which a company, particularly a startup, spends its available cash before generating positive cash flow. It's a critical financial metric that indicates how quickly a company is "burning through" its capital, usually venture capital or seed funding, to cover operating expenses, salaries, and other overheads necessary for growth and development. Burn rate is often expressed monthly and is closely monitored by investors and founders alike, as it directly impacts a company's "runway" – the amount of time remaining before it runs out of cash.
Examples & Use Cases
- 1A tech startup with $3 million in its bank account and a burn rate of $250,000 per month has a 12-month runway
- 2A biotech company increases its burn rate significantly to accelerate research and development for a new drug, hoping for a breakthrough
- 3Investors scrutinize a startup's burn rate during due diligence to assess its financial discipline and its need for future funding rounds
Related Terms
RunwayCash FlowVenture CapitalOperating Expenses