Burn Multiple

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.

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.