What is Burn Multiple?
Burn Multiple measures how much cash you burn to generate each dollar of new ARR. It's calculated by dividing net burn by net new ARR. A burn multiple of 2x means you spend $2 to create $1 of new annual recurring revenue.
David Sacks popularized this metric as a way to assess capital efficiency in growth-stage startups. It cuts through the complexity of multiple metrics to ask one simple question: how efficiently are you converting cash into growth?
Why Burn Multiple Matters
In capital-constrained environments, burn multiple separates efficient operators from cash incinerators. Two companies with identical growth rates can have vastly different burn multiples, revealing which one is building a sustainable business.
Investors increasingly focus on burn multiple alongside growth rate. The best companies achieve high growth with low burn multiple.
Burn Multiple Benchmarks
Below 1x: Amazing. You're generating more ARR than you're burning. 1-1.5x: Great. Efficient growth. 1.5-2x: Good. Acceptable efficiency. 2-3x: Mediocre. Room for improvement. Above 3x: Concerning. Inefficient growth.
Burn Multiple = Net Burn ÷ Net New ARR
Lower is better. Shows how efficiently you convert cash into growth.
Annual metrics:
- Net burn: $2,000,000
- Net new ARR: $1,500,000
Burn Multiple = $2M ÷ $1.5M = 1.3x
You're spending $1.30 to generate $1 of new ARR. That's efficient growth. Below 1x would be exceptional.
If burn multiple was 3x, you'd be spending $3 for every $1 of ARR, which is concerning.