The Burn Multiple

Author: David Sacks (Craft Ventures) URL: https://medium.com/craft-ventures/the-burn-multiple-51a7e43cb200 One-line: Defines the Burn Multiple (Net Burn / Net New ARR) as the single most revealing metric of a startup’s capital efficiency — a catch-all that surfaces gross margin problems, churn, sales inefficiency, and founder discipline all at once.

Key Highlights

• Definition: Burn Multiple = Net Burn / Net New ARR. Measures how much a startup burns to generate each incremental dollar of ARR. Lower = more efficient growth; higher = startup is “pushing product onto the market” rather than the market pulling it.
• Preferred over the Hype Ratio (Capital Raised / ARR) because it ignores sunk costs and always gives founders the chance to improve by cutting current burn.
• Rules of thumb by stage: “Amazing” < 1x; “Good” 1–1.5x; “OK” 1.5–2x; “Concerning” 2–3x; “Bad” >3x.
• A proxy for everything else: Any serious business problem will eventually worsen the Burn Multiple — gross margin issues (COGS too high), sales efficiency problems (high CAC), churn (leaky bucket nets against new ARR), growth challenges, or founder leadership problems.
• When is “bad” acceptable? Early stage, pre-revenue, or during a justified long R&D period. A startup over-burning is claiming its sales will be “spring-loaded” — which rarely proves true.
• Tactical advice for founders: Keep early salaries and expenses low (strengthens PMF signal for fundraising). Cut costs aggressively when multiple worsens. Consider giving up some revenue if it meaningfully improves the multiple.
• Written April 2020 during the COVID economic crisis as capital efficiency became a pressing concern.

Notable Quotes

Burn Multiple = Net Burn / Net New ARR. How much is the startup burning in order to generate each incremental dollar of ARR?

The startup that generates $1M in ARR by burning $2M is more impressive than one that does it by burning $5M. In the former case, the market is pulling product out of the startup; in the latter, the startup is pushing its product onto the market.

A startup that over-burns is effectively claiming that its sales will be spring-loaded. The fact that this rarely turns out to be true is an argument for getting to market quickly with the lower-burn “embarrassing” version of the product and then iterating.

How It Connects

• Burn Multiple — the concept itself; this article is its original definition.
• Capital Efficiency — the broader framework; Burn Multiple is Sacks’s preferred metric within it.
• Product Market Fit — the Burn Multiple as a diagnostic: market-pull (low multiple) vs. product-push (high multiple).
• David Sacks — author; co-founder of Craft Ventures, formerly Yammer/PayPal mafia.