Burn Rate
The rate at which a company spends its cash reserves, typically expressed as a monthly figure, used to assess financial sustainability.
What is Burn Rate?
Burn rate is the pace at which a company — most commonly a pre-profit startup — depletes its cash reserves over a given period, typically expressed as a monthly dollar amount. Gross burn rate is total monthly cash expenditure; net burn rate subtracts revenue, showing how much cash the company actually loses each month. Burn rate is closely watched by venture capital investors, boards, and CFOs because it determines how much time (runway) the company has before needing additional funding or reaching profitability. A startup burning $500,000 per month with $6 million in the bank has approximately 12 months of runway. Burn rate naturally rises as companies hire and invest in growth, but unsustainably high burn rates relative to revenue growth signal poor unit economics or misaligned strategy.
Example
Uber's net burn rate reached approximately $1 billion per quarter in its early growth years, funded by repeated venture capital raises. Investors accepted this burn because revenue growth was explosive, the market opportunity was massive, and the hypothesis was that unit economics would improve at scale — which they did as Uber reduced driver incentives and expanded Uber Eats. The burn rate narrative shifted from 'existential risk' to 'acceptable investment' based on the pace of revenue growth relative to losses.