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Burn Rate
Definition
Burn rate is the rate at which a company spends its capital to fund operations before generating positive cash flow, commonly used for startups.
Explanation
Burn rate is typically measured monthly. Gross burn is total monthly operating expenses; net burn is expenses minus revenue. Runway = Cash / Burn Rate, indicating how many months a company can survive before needing more funding or becoming profitable.
Investors closely monitor burn rate and runway. A high burn rate without corresponding growth is a red flag. Startups should have 12-18 months of runway.
Example
A startup with $500,000 in the bank and a $50,000 monthly burn rate has 10 months of runway before needing additional funding or revenue.