Burn Multiple 2026: The Number Investors Check Before Your Growth Rate
Growth rate used to be the first slide. It is now usually the second, because a growth number on its own does not say what the growth cost. The burn multiple does: it puts the cash you consumed and the recurring revenue you added in the same fraction, and one figure comes out the other side.
It is also a ratio, which is where founders get hurt. Ratios improve when the denominator shrinks slowly and the numerator shrinks quickly, and that can happen in a quarter where the business plainly got worse. This is general information about a widely used metric, not investment advice, and no benchmark here is a rule about your own company.
Quick answer
The burn multiple is net burn divided by the net new ARR added in the same period: $120,000 of monthly burn against $80,000 of net new ARR is 1.5x, meaning $1.50 of cash consumed for every $1 of annual recurring revenue added. Under 1x is exceptional, 1x to 1.5x good, 1.5x to 2x concerning, and above 2x is the level most investors have treated as unfundable since 2022. The catch is that it is a ratio. Cut burn to $60,000 while net new ARR falls to $50,000 and the multiple improves to 1.2x while runway drops from five months to four.
What the number actually is
Two inputs, one period. Net burn is cash out minus cash in — every dollar the company consumed, not just the sales and marketing line. Net new ARR is the annualised value of new contracts minus churn and downgrades in that same period. Divide the first by the second.
The ratio has no unit, so the period does not change it: $360,000 of net burn across a quarter against $240,000 of net new ARR in that quarter is the same 1.5x as $120,000 against $80,000 in a month. What matters is that both numbers cover the same window, which is the most common way the calculation goes wrong — a quarter of burn against a month of new ARR reads as 4.5x and means nothing. The burn multiple engine takes one month of each and returns the multiple, the runway and a rating together, because the multiple alone is not a verdict.
Why it became the efficiency test
David Sacks defined the metric at Craft Ventures in 2020, and its virtue is that it is hard to game. CAC payback counts only the cost of winning a customer, so moving spend from sales into product, or into a "growth" cost centre, flatters it. The burn multiple counts everything the company consumed, so a dollar moved between lines changes nothing. The Rule of 40 — growth rate plus profit margin, where 30% growth with a 10% margin scores 40 and passes — mixes a growth number with a profitability number and can be satisfied by either.
Then capital repriced. Growth funded by burn stopped being fundable on its own terms, and the question in every diligence call became what the growth cost rather than how fast it was. Since 2022 most investors have treated 2x as the ceiling for a company that wants to raise again.
The bands, and who is grading
| Burn multiple | Sacks's grade (2020) | This engine's label |
|---|---|---|
| Under 1x | Amazing | Exceptional |
| 1x to 1.5x | Great | Good |
| 1.5x to 2x | Good | Concerning |
| 2x to 3x | Mediocre | Unsustainable (over 2x) |
| Over 3x | Bad | Unsustainable |
The engine is deliberately a notch stricter than the original grading in the 1.5x to 2x band. At that level you are spending $1.50 to $2 of investor money for every $1 of annual revenue added, which is survivable with a long runway and uncomfortable without one — hence "concerning" rather than "good".
One company, two quarters
A seed-stage B2B company that has raised $3,000,000 in total, entering Q1 with $1,200,000 of ARR and $600,000 in the bank. In Q2 the board asked for cuts, and it delivered them: monthly burn halved.
| Q1 | Q2 | |
|---|---|---|
| Net burn, per month | $120,000 | $60,000 |
| Net new ARR, per month | $80,000 | $50,000 |
| Cash at the start of the quarter | $600,000 | $240,000 |
| Burn multiple | 1.5x — concerning | 1.2x — good |
| Months of runway | 5 | 4 |
| New ARR per year per $1 raised | 0.32 | 0.20 |
| ARR at quarter end | $1,440,000 | $1,590,000 |
| Growth in the quarter | 20% | 10.4% |
The multiple improved by a full band, from concerning to good, and it is the only number on that table that got better. Runway fell from five months to four, because halving burn could not keep up with a cash balance that had already dropped by $360,000. Capital efficiency fell from 0.32 to 0.20: a year of Q1's new ARR was $960,000 against $3,000,000 raised, and a year of Q2's is $600,000. Growth halved.
That is the trap in one table. Cutting $60,000 a month of burn cost $30,000 a month of net new ARR, and because the cut was proportionally larger than the revenue loss, the ratio moved the right way. A board reading the multiple alone would congratulate this company. A board reading the row beneath it would ask what got cut, and whether the answer was two salespeople. The honest test is to run both quarters through the same engine and read the multiple, runway and capital efficiency as one sentence rather than three.
Runway is the other half of that sentence
Runway is cash divided by monthly burn, and it is where the improvement above shows its cost. $600,000 against $120,000 of burn is five months. After the cut, $240,000 against $60,000 is four.
The convention founders are held to: 18 to 24 months of runway immediately after a round, and a new raise started with at least six to nine months of cash still in the bank, because a round takes three to six months to close and the last weeks of a process are the weakest possible negotiating position. Below six months, most founders cut before they raise, which is exactly the sequence that produces the two quarters above.
The arithmetic that sets a burn ceiling is simple enough to do in your head. Stretching $600,000 to 18 months means burning no more than $33,333 a month; after the cash has fallen to $240,000, the same 18 months means $13,333. That is a very different company, and the multiple does not mention it. Where the constraint is the revenue side rather than the cash side, projecting where net new ARR actually lands matters more than any ratio.
What the multiple cannot see
Gross margin, first. Two companies at 1.2x are not equivalent if one keeps 85 cents of each revenue dollar and the other keeps 40. The multiple also ignores the mix behind net new ARR — expansion inside existing accounts and hard-won new logos count identically, though investors price them very differently. One-off costs sitting inside net burn, such as a settlement or a hardware purchase, can make a quarter look worse than the business is, and a quarter of collections can make it look better. Invoices signed but not yet collected show up in ARR and not in cash.
And a quarter with no net new ARR has no burn multiple at all. If churn cancels out everything new, the denominator is zero and there is nothing to divide by — the engine prints a dash rather than a large number, and passes nothing rather than a number to the analysis that reads the result, so neither the page nor its write-up can turn a division by zero into a finding. Runway and gross retention are the numbers that describe that quarter. The same holds in reverse: a company that is not burning cash has runway without end, and a calculator that prints a figure in that box is dividing by a placeholder.
FAQ
Is a 1.5x burn multiple good or bad?
It depends whose scale you use, which is why the answer is usually argued. Sacks's original grading calls 1.5x to 2x "good"; this engine calls the same band concerning, because $1.50 to $2 of cash per $1 of new annual revenue is only comfortable with long runway behind it. The band everyone agrees on is above 2x: since 2022 that has been treated as the ceiling for a company that wants to raise again, and below 1x is exceptional on any scale.
Our multiple improved and the board still pushed back. Why?
Because a ratio can improve while both of its inputs shrink. In the two quarters above, burn fell from $120,000 to $60,000 a month and net new ARR fell from $80,000 to $50,000. The multiple improved from 1.5x to 1.2x, but runway fell from five months to four, capital efficiency fell from 0.32 to 0.20, and quarterly growth halved from 20% to 10.4%. The multiple answers "what did the growth cost", never "was there enough growth".
We had a quarter with no net new ARR. What is our burn multiple?
Undefined — there is nothing to divide by, and a calculator that returns a number for that case is misleading you. Watch for the tell: a tool that guards the division by quietly substituting 1 for the zero will report your whole monthly burn as the multiple, so $120,000 of burn reads as 120,000x. That is not a catastrophic quarter, it is a division by a placeholder. A quarter where churn and downgrades cancel out everything new is described by other figures: months of runway, gross revenue retention, and the burn itself. The multiple becomes meaningful again in the first quarter that adds net new ARR, and it will look severe, because the burn that funded that quarter has already been spent.
How much runway should we have before starting a raise?
The convention is six to nine months of cash left at the moment the process starts, because a round typically takes three to six months from first meeting to money in the bank. Companies commonly target 18 to 24 months of runway immediately after closing. On $600,000 of cash, 18 months means holding burn to $33,333 a month; on $240,000, it means $13,333. Whether either is achievable is a question about your own plan, not about the metric.
Sources
- David Sacks, The Burn Multiple, Craft Ventures (2020) — https://medium.com/craft-ventures/the-burn-multiple-51a7e43cb200
- The bands above are investor convention, not an accounting standard. No regulator defines the burn multiple, and no filing requires it; the grading scale is Sacks's, and the stricter 1.5x–2x label is this engine's own.
General information about a widely used efficiency metric, not investment, tax or legal advice. Benchmarks vary by sector, gross margin, contract length and stage, and what any particular investor treats as fundable is their judgement, not a standard. The two quarters above are worked arithmetic for one hypothetical company, not guidance about what any company should spend, cut or raise — those decisions belong with you, your board and your advisers.