Burn Rate — The Dollar Dictionary

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Business

Burn Rate

The speed at which a startup spends its cash reserves before it starts generating positive cash flow.

Burn rate is usually expressed monthly. Your gross burn is total monthly spending. Your net burn is the difference between monthly spending and monthly revenue — the actual cash you're losing each month. Most investors care about net burn because it tells them how quickly you're depleting your runway.

Runway is the other critical number: total cash in the bank divided by monthly net burn. If you have £2 million and burn £100k per month, you have 20 months of runway. Smart founders start raising their next round when they have 12-15 months of runway left — because fundraising takes time, and running out of cash before closing a round is game over.

Imagine your burn rate as a campfire. You have a pile of logs (your funding), and you're burning through them to keep the fire (your company) alive. If you're burning logs faster than you're adding new ones, eventually the fire goes out. Every startup founder is watching that pile obsessively, calculating how many logs are left and how long they'll last.

Real world: WeWork was famously burning through over $200 million per month before its attempted IPO in 2019 collapsed. With that burn rate, even its billions in funding would last only a few years — without a clear path to profitability. Investors balked, the IPO was pulled, and the company nearly went bankrupt. A high burn rate is survivable — but only if growth and revenue catch up fast enough.

💡 Burn rate is a countdown clock — and successful startups are always racing to build revenue faster than that clock runs out.

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