Burn rate

Burn rate measures how quickly a startup consumes cash. There are two standard variants. Gross burn is the total cash spent in a month on all operating expenses — salaries, rent, cloud infrastructure, marketing, and so on. Net burn subtracts any revenue collected in that same month. If a startup spends ₹12 lakh and earns ₹4 lakh in a month, gross burn is ₹12 lakh and net burn is ₹8 lakh.

Investors scrutinise burn rate for two reasons. First, paired with cash on hand, it determines runway — the single most existential metric for an early-stage company. Second, the composition of burn reveals strategic intent: a startup burning heavily on engineering and product signals growth investment; one burning on founder salaries or office space raises efficiency concerns.

Burn rate is not inherently bad. High burn can be rational when it is funding growth that will generate returns exceeding the cost of capital. The red flag is burn that does not correlate with measurable output — declining revenue per rupee of burn, or a widening gap between spending and key performance indicators.

A useful derived metric is burn multiple, which divides net burn by net new ARR added in the same period. A burn multiple of 1x means the startup spends ₹1 to generate ₹1 of new annualised revenue. Efficient companies target below 1.5x; above 2x signals capital inefficiency that investors will probe in due diligence.