Burn multiple, explained

The burn multiple says how many dollars of cash you burned to add one dollar of new annual recurring revenue. A multiple of 2 means $2 burned for every $1 of new ARR. Lower means more efficient growth.

It ties together the two numbers an early-stage board watches most: how fast cash goes out and how fast recurring revenue grows.

Take net burn for a period, usually a quarter or the trailing twelve months. Divide it by net new ARR for the same period, which is ending ARR minus starting ARR, so churn and downgrades are already netted out. The usual definition uses net burn; gross burn makes the multiple look worse.

If net new ARR is zero or negative, the division gives a meaningless result, so report the ARR change instead. It's a venture metric with no standard-setter behind it, and it isn't a GAAP figure.

In the second quarter Acme's net burn was $300,000, and ARR rose from $420,000 to $570,000, adding $150,000. The burn multiple is $300,000 ÷ $150,000, or 2.0. In the third quarter Acme burns the same $300,000 but adds $250,000 of ARR, and the multiple drops to 1.2.

David Sacks of Craft Ventures popularized it in 2020 with a rough scale: under 1 amazing, 1 to 1.5 great, 1.5 to 2 good, 2 to 3 suspect, above 3 bad. He allowed more at seed, where around 3 is common, tightening after the Series A. A multiple that climbs while burn stays flat usually means growth is slowing.