The Startup Story · 2023-10-15 · 4 min
Key moments - from our scoring
Substance score
11 / 100
Five dimensions, 20 points each
Vatsal breaks down two critical metrics early-stage founders and VCs track: burn rate and burn multiple. Burn rate is calculated as expenses minus cash inflow - essentially, the monthly cash a company spends on marketing and growth initiatives before seeing returns. For example, a startup spending 5 lakhs monthly but generating only 1 lakh in revenue has a burn multiple of 5. The episode covers how burn multiple differs by business model: for SaaS, it's net burn divided by total recurring revenue; for D2C (direct-to-consumer), it's fixed cost divided by sales minus variable cost. A 2x burn multiple is healthy, but once it approaches or exceeds 3x, founders should reconsider product-market fit and implement cost optimization. VCs closely monitor burn rate when evaluating investment opportunities, making these metrics essential for understanding capital efficiency and runway sustainability.
Burn rate is the total monthly cash a company spends (expenses minus cash inflow), while burn multiple is the ratio of revenue earned to cash burned - showing how much capital is spent to generate each unit of sales.
For SaaS, burn multiple equals net burn divided by total recurring revenue. For D2C, it equals fixed cost divided by sales minus variable cost.
A burn multiple of 2x is healthy, but when it approaches or exceeds 3x, the startup should reconsider product-market fit and implement cost optimization or product changes.
VCs monitor burn rate to evaluate capital efficiency and runway; startups with lower burn rates are viewed more favorably as they indicate better financial discipline and longevity.
Our reviewer’s read on each dimension, with quotes from the episode.
The episode covers only the most rudimentary definitions of burn rate and burn multiple - concepts any B2B operator would already know. There are no novel claims, no nuanced discussion of when or how to act on these metrics, and significant filler and repetition throughout.
Burn rate is running. This is a cash that the company spends for marketing or other miscellaneous purposes which is important to grow the company.
burn rate is equal to expenses minus cash inflow
Every point made is completely standard definitional content found in any startup glossary. There is no contrarian framing, no first-principles reasoning, and no attempt to challenge or reframe how practitioners should think about these metrics.
Burn multiple is the ratio of revenue earned and the amount of money burned to earn that particular amount of revenue.
ideally what burn multiple is 2x to 2x burn multiple it's okay but as soon as it comes near or equivalent to or maybe greater than 3x so the startup should introspect
There is no guest - this is a solo monologue by the host explaining basic financial definitions. No practitioner experience, no operator perspective, and no real-world context is offered.
Hi everyone, this is Vatsal and I welcome you all to the new episode of The Startup Story.
The only numbers used are simple illustrative hypotheticals (5 lakhs burned, 1 lakh earned), with no real companies named, no actual startup data cited, and no sourced benchmarks beyond the vague 2x - 3x threshold.
Let's say a startup which burns 5 lakhs per month and from that 5 lakhs of the market he earns 1 lakhs of the month which means this company burn multiple is 5
for SaaS burn multiple is net burn divided by total recurring revenue and D2C burn multiple is equal to fixed cost divided by sales variable cost
This is an uninterrupted solo monologue with no guest, no questions, no follow-ups, and no dialogue of any kind. There is no craft to evaluate beyond basic narration, which itself is disjointed and repetitive.
So here we come to the end of this episode. Hope you have learned something new. Stay tuned to the podcast for more such information.
Computed from the transcript - who did the talking, and the words that came up most.
Burn rate is the measure of net cash, a company lost in a period, usually a month. Burn = Expenses - Cash inflow Burn multiple is the ratio of revenue earned and the amount of money burned to earn that revenue.
Transcribed and scored by The B2B Podcast Index.
Hi everyone, this is Vatsal and I welcome you all to the new episode of The Startup Story. Today we will be discussing about the burn rate and the burn multiple. After all, we've heard a lot of news about how many crores this burn rate is running. This burn rate is running thousands of crores.
What's going on? Burn rate is running. So let me simplify it for you. Burn rate is running.
This is a cash that the company spends for marketing or other miscellaneous purposes which is important to grow the company. But the return of investment, which is very much more than the investment. So this is called burn rate. So let's say that a company's burn rate is 5 lakhs.
So that means that in a particular period of time that is burning 5 lakhs or wasting it or spending on this channel whose outcome is not yet maybe later on it will get it Which means this company is spending 5,000,000 rupees every month. So basic, the way to calculate burn rate is calculated, burn rate is equal to expenses minus cash inflow. Expenses means where the company is spending money, cash inflow means how much cash generated from those sources. When the other formula is normally used for a month or a definite period of time, it is referred to as burn rate.
So now what is burn multiple? Burn multiple is the ratio of revenue earned and the amount of money burned to earn that particular amount of revenue. Let's say a startup which burns 5 lakhs per month and from that 5 lakhs of the market he earns 1 lakhs of the month which means this company burn multiple is 5 The burn multiple is an indicator of how much money a startup is burning to generate a single unit of sales the ratio indicates the capital efficiency and the numbers must decrease as the startup gets popularized startups should evaluate the burn rate kise kia ta ta basically joh nai nai startups gusay hain bhi ban raha hain woh burn rate kise calculate karte hai they see their burn rate how much burn rate is going on so in that range they love new startups and this burn rate is a very important factor to see for the VC because if there is a high burn rate startup then VC will give their money now burn multiple calculate two ways Basically it is calculated in different ways I will discuss two ways One is for SaaS or or software as service and D2C model or direct to customer model so for SaaS burn multiple is net burn divided by total recurring revenue and D2C burn multiple is equal to fixed cost divided by sales variable cost so ideally what burn multiple is 2x to 2x burn multiple it's okay but as soon as it comes near or equivalent to or maybe greater than 3x so the startup should introspect and reconsider the product and the product market fit as well whether the cost optimization exercise is needed or the product will revamp the product to get the burn rate and the burn multiple as low as possible.
So here we come to the end of this episode. Hope you have learned something new. Stay tuned to the podcast for more such information. Thank you.
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