David Sacks breaks down the Burn Multiple: How to Manage Burn at a Startup
00:00:00.000 | Is your startup burning too much cash? Here's a good way to measure it. I call it the burn multiple.
00:00:05.280 | The formula looks like this. Burn multiple equals net burn divided by net new ARR. And you want to
00:00:11.440 | measure this for a given period. For example, if you burn three million dollars in a quarter and
00:00:17.040 | you generate one million dollars of net new ARR, that's a burn multiple of three. Once you measure
00:00:23.120 | your burn multiple, you can assess whether it's good or not. I have some rules of thumb around
00:00:27.360 | this. If your burn multiple is under one, that is amazing efficiency. If your burn multiple is
00:00:33.360 | in the one to one and a half range, that's great. If you're at one and a half to two, that's good.
00:00:38.000 | Two to three, you're getting a little bit iffy. It's suspect and over three is bad. Every company
00:00:43.200 | that's successful that wants to become profitable will eventually have to reduce their burn multiple
00:00:47.760 | so low that it hits zero. So that's the goal. Start with a burn multiple that's high in the
00:00:52.240 | early days and gradually get it down over time. That's how I think about how to manage your burn