How it's calculated
The burn multiple measures how efficiently a startup turns cash into growth: how many dollars it burns for each dollar of annual recurring revenue it adds. David Sacks of Craft Ventures introduced it in 2020 as "Burn Multiple = Net Burn / Net New ARR", an annualised version of his "hype ratio".David Sacks, Craft Ventures Because it counts all spending against all net new ARR, it captures the efficiency of the whole company, not just of sales and marketing.
The formula
Burn multiple = net burn ÷ net new ARR, over the same period
- Net burn = cash spent − cash revenue collected
- Net new ARR = ARR at the end − ARR at the start (new + expansion − churn − contraction)
Sacks's rules of thumb for venture-stage startups: under 1× amazing, 1× to 1.5× great, 1.5× to 2× good, 2× to 3× suspect, over 3× bad.
Worked example
Burning $2 million in a year while ARR grows by $1 million is a burn multiple of 2.00×, rated Suspect. Sacks uses this same example and calls 2× reasonable for an early-stage startup.
| Line | Amount |
|---|---|
| Net burn in the period | $2,000,000 |
| Net new ARR in the period | $1,000,000 |
| Burn multiple | 2 |
Adding $1.6 million of ARR on the same burn improves it to 1.25× (Great).
Assumptions and limitations
- Use the same period for burn and ARR growth; a single quarter can be noisy, so many teams look at a trailing year.
- Not meaningful when ARR shrinks. If net new ARR is zero or negative, the company is burning without growing.
- Rules of thumb, not laws. Earlier companies typically run higher multiples; compare yourself with companies at a similar stage.