Calculate your capital efficiency score: how many dollars you burn to generate each dollar of net new ARR. The key metric for fundraising readiness in 2024.
Total cash spent minus revenue collected in the period
New + expansion ARR minus churned ARR
| Score | Rating | What It Means |
|---|---|---|
| <1x | Amazing | World-class efficiency. Every dollar of burn generates >$1 of ARR. Most efficient companies ever built. |
| 1x - 1.5x | Great | Excellent capital efficiency. Strong signal for Series A/B investors. Easily fundable. |
| 1.5x - 2x | Good | Above average. Most well-run SaaS startups fall here. Acceptable for fundraising. |
| 2x - 3x | Concerning | Investors will ask hard questions. Have a clear plan to improve to under 2x. |
| >3x | Bad | Very difficult fundraising environment. Must demonstrate clear path to efficiency. |
Burn multiple was popularized by David Sacks of Craft Ventures in 2022 as the 2008-era VC obsession with growth at all costs gave way to capital efficiency concerns. The formula:
Net Cash Burn = Total cash spent – revenue collected (not recognized revenue, but actual cash received). This includes salaries, AWS, office, and COGS.
Net New ARR = New ARR + Expansion ARR – Churned ARR. Use net, not gross, to account for churn.
Runway tells you how long you have. Burn multiple tells you how efficiently you are deploying capital to generate growth. A company with 18 months runway burning 5x to generate ARR is in worse shape than a company with 12 months burning 1.2x — the second can raise easily, the first cannot.
For Series A, under 2x is expected, under 1.5x is excellent. For Series B/C, under 1.5x. During the 2021 bull market, companies with 4-5x burn multiples raised easily. In 2022-2024, investors reverted to capital efficiency as the primary filter. A burn multiple under 1.5x signals to investors that you will not waste their capital.
Net Burn = Total cash outflows minus total cash collected from customers in the period. Net New ARR = (New customer ARR + Expansion ARR) minus Churned ARR. Use the same time period (monthly or quarterly) for both. Burn Multiple = Net Burn / Net New ARR. A score of 1.5x means you burned $1.50 to generate $1 of new ARR.
Yes, in two ways: (1) Positive burn but negative net new ARR (churn exceeds growth — bad), or (2) Negative burn (the company is cash flow positive and still growing). Cash flow positive with growing ARR is the ideal — often seen in bootstrapped companies or mature SaaS businesses. A cash flow positive growing company does not need to raise and can be highly selective about investors.
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