Burn Multiple

Burn Multiple = Net Burn / Net New ARR. A capital efficiency metric that measures how much a startup burns to generate each incremental dollar of annual recurring revenue. Lower is better.

Definition

Introduced by David Sacks (Craft Ventures) in April 2020. Preferred over the Hype Ratio (Capital Raised / ARR) because it ignores sunk costs and gives founders the chance to improve at any point by cutting current burn.

Range	Signal
< 1x	Amazing
1–1.5x	Good
1.5–2x	OK
2–3x	Concerning
> 3x	Bad

Why it matters

The Burn Multiple is a proxy for product-market fit: a low multiple suggests the market is pulling product out of the startup; a high multiple suggests the startup is pushing product onto the market. It also surfaces structural problems — gross margin issues, churn, sales inefficiency, and founder discipline will all eventually worsen the multiple.

Where this appears

• The Burn Multiple — the original David Sacks article defining the concept.
• How to Trick Investors and VCs — a later piece on how the metric can be gamed.