Burn multiple: the efficiency metric investors check first
How much you burn for every dollar of net new ARR — the formula, the bands and how to improve it.
Burning cash to grow is normal for a startup. The question is how much cash each dollar of growth costs. The burn multiple, popularized by David Sacks (Craft Ventures) in 2020, answers that in one number.
The formula
Burn multiple = net burn ÷ net new ARR, over the same period.
Net new ARR is how much annualized recurring revenue grew after subtracting churn. If the company burned $1.2M in a year and ARR grew by $1M, the burn multiple is 1.2x.
The bands
- Below 1x — excellent.
- 1x to 2x — good.
- 2x to 3x — suspect.
- Above 3x — bad: growth is too expensive.
Why it matters more than runway alone
Runway tells you how much time you have. Burn multiple tells you whether that time is well spent. Two companies with the same runway can be in opposite situations: one buying cheap growth, the other burning cash with no return.
How to improve it
Cut churn (lost revenue counts against you), grow expansion revenue, drop acquisition channels with long payback and hold hires that don't drive near-term revenue.
The runway calculator computes the next 12 months' burn multiple and feeds it to the investor checklist in the VC Method tool.
Source: David Sacks, "The Burn Multiple" (Craft Ventures, 2020).