#Burn Rate — Gross vs. Net
Burn rate is how much cash a company spends each month. For a company with revenue, gross burn (total spend) and net burn (spend minus revenue) diverge, and investors check both numbers.
| Metric | Formula | What It Means |
|---|---|---|
| Gross Burn | Total monthly spend (payroll + operations + marketing + contractors) | The absolute size of your cost structure |
| Net Burn | Gross burn minus monthly revenue | The actual rate cash is disappearing |
| Runway | Cash on hand ÷ monthly net burn | How many months you can operate on current funds |
#Runway — Your Time Until the Next Round
Runway answers a single question: how many months can the company operate on the cash currently in the bank? After a seed round, the standard target is 18-24 months of runway, with the goal of closing Series A well within that window.
| Round | Recommended Runway | When to Start Prepping the Next Round |
|---|---|---|
| Pre-Seed → Seed | 12-18 months | Start fundraising conversations with 6 months of runway left |
| Seed → Series A | 18-24 months | Start fundraising conversations with 9 months of runway left |
| Series A → B | 18-24 months | Start fundraising conversations with 9 months of runway left |
#Burn Multiple — An Efficiency Metric for Scaling
Once you're scaling post-Series A, an additional efficiency metric enters the picture: burn multiple — how many dollars you burned to generate one dollar of ARR. Series A and B investors weigh this number about as heavily as revenue growth rate.
| Burn Multiple | Efficiency Rating |
|---|---|
| < 1x | Amazing — revenue growth is outpacing spend |
| 1x - 2x | Great — efficient growth |
| 2x - 3x | Good — an average level |
| > 3x | Suspect — needs a cost-efficiency review |
Formula: Burn Multiple = Net Burn ÷ Net New ARR. At the seed stage, ARR is still too small for this to mean much, but from Series A onward it becomes a core metric.
#Warning Signs of a Shrinking Runway — Patterns to Catch Early
- Monthly net burn rises more than 10% for three consecutive months — a sign you're losing control of costs
- Hiring is outpacing revenue growth — payroll climbs past 70% of total spend
- New customer growth stalls even as marketing spend increases — CAC is spiking
- Inventory or contractor costs grow abnormally relative to revenue — a sign of weakening pricing leverage
- Churn rises relative to new customers — net new ARR turns negative
#Strategies for Responding to a Shrinking Runway
| Strategy | Effect | Risk |
|---|---|---|
| Bridge round | Adds 6-12 months of runway | Requires existing investor buy-in, valuation stays frozen |
| Cost cutting | Immediately reduces monthly burn | Hurts morale, risks losing key talent |
| Accelerating monetization | Reduces net burn | Risks disrupting your PMF-validation trajectory |
| Project-based revenue | Brings in cash | Muddies a pure SaaS business model |
| Government support programs | Covers part of your costs | Administrative burden, time-consuming |
Which strategy makes sense depends heavily on timing and stage. A bridge round at the seed stage means a frozen valuation plus extra dilution, while cost-cutting right before a Series B can make it hard to rebuild investor confidence.
#The Standard Format for Investor Reporting
In a monthly or quarterly investor update, the standard way to report burn and runway is in four lines.
- Cash balance — the bank balance as of month-end
- Monthly net burn — averaged over the trailing three months
- Runway — current cash ÷ monthly net burn
- Next round timeline — your target date to kick off fundraising
#Self-Check: A Founder's Checklist
- Can you state this month's net burn instantly — within a second?
- Is your current runway closer to 12, 18, or 24 months?
- Has your burn been stable over the past three months, or is it trending up?
- Is your target date to start the next fundraise set while you still have 9+ months of runway left?
- Do you have a Plan B ready for the 6-months-of-runway mark — a bridge round, cost cuts, or government support?
- Are you reporting burn and runway to your investors on a monthly or quarterly basis?
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