What is Burn multiple? Definition, Formula & Benchmarks

What is burn multiple?

Burn multiple is a capital-efficiency metric that measures how much cash a startup burns to add one dollar of net new annual recurring revenue. Coined by investor David Sacks, it divides net burn by net new ARR over the same period. A lower burn multiple means you are growing more efficiently on less cash.

Formula

Burn Multiple = Net Burn ÷ Net New ARR

Net BurnCash spent minus cash collected over the period
Net New ARRNew plus expansion ARR, minus churned ARR

Worked example

A startup that burns $2M in a quarter while adding $1M of net new ARR has a burn multiple of 2.0, it spent $2 for every $1 of new recurring revenue. Hold ARR growth steady but cut burn to $1M, and the multiple improves to 1.0.

Benchmarks by stage

David Sacks' widely-cited framework rates a burn multiple under 1.0x as amazing, 1.0–1.5x as great, 1.5–2.0x as ok, and above 2.0x as a sign of inefficient growth. Early seed-stage companies often run higher; investors expect the ratio to improve as you scale toward Series B.

< 1.0x · Amazing

1–1.5x · Great

1.5–2x · OK

> 2x · Inefficient

Source: David Sacks, “The Burn Multiple” (2020)

Why it matters for fast-growing companies

Investors use burn multiple to separate efficient growth from growth simply bought with cash. In a tighter funding market, a low burn multiple signals you can reach the next milestone without over-raising or over-diluting, and it is one of the first numbers a lead investor checks in diligence.

Frequently asked questions

What is a good burn multiple?+

Under 1.0x is considered excellent and above 2.0x signals inefficient growth, per David Sacks' framework. Seed-stage startups often run higher and are expected to improve the ratio as they scale. A temporary spike after a big hire or launch can be fine if growth follows.

How is burn multiple different from burn rate?+

Burn rate is simply how much cash you spend per month. Burn multiple relates that spend to results, how much you burn to generate each new dollar of ARR. Two startups can share a burn rate but have very different burn multiples if one grows faster.

What period should I measure it over?+

Most founders calculate burn multiple quarterly or on a trailing-twelve-month basis to smooth out lumpy months. A single month can be distorted by a one-off cost or a large annual contract, so a rolling window gives a truer read of efficiency.

Burn multiple