By Abdo Riani,Senior Contributor

Copyright forbes

Discover why burn multiple is becoming investors’ favorite metric for evaluating startups. Learn how it measures capital efficiency, why it beats raw revenue growth, and what benchmarks VCs like David Sacks recommend.

For years, startups were told that growth solves everything. If you could show hockey-stick revenue, the assumption was that capital would always be available to fund the journey.

That era is over. Investors today are far more focused on how efficiently startups grow, not just how fast. And one metric has emerged as a simple benchmark for that efficiency: the burn multiple.

The burn multiple doesn’t replace product–market fit or revenue milestones, but it does reveal how well a team is balancing growth against cash burn. In fundraising conversations, it’s often the fastest way to see whether a startup is building a real business or just setting money on fire.

Consequently, as part of our mission to simplify finance for founders who are not specialists, in this article, we’ll explore burn multiple – one of the hottest financial metrics for growth-stage startups that founders can’t afford to ignore.

1. What Is A Burn Multiple?

The burn multiple is a ratio: net burn divided by net new annual recurring revenue (ARR).

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Net burn = cash out minus cash in during a period.

Net new ARR = the additional recurring revenue you added in the same period.

In short: how much did you spend to generate each new dollar of ARR?

For example, if you burned $2 million last year and added $1 million in ARR, your burn multiple is 2. That means you spent $2 for every $1 of annualized recurring revenue created.

2. Why Investors Care

Unlike top-line growth or even customer acquisition cost (CAC), burn multiple gives investors a clean signal about capital efficiency. In an environment where capital is no longer cheap, this matters more than ever.

A low burn multiple (closer to 1 or below) indicates that investors can grow without consuming excessive amounts of capital.

A high burn multiple (3, 4, or higher) signals waste or unsustainable growth tactics.

David Sacks of Craft Ventures, who popularized the metric, calls it the “efficiency north star” for SaaS. He argues that burn multiple shows how “much net burn is required to generate each incremental dollar of ARR” – a direct measure of whether a business model scales.

3. What Good Looks Like

Benchmarks vary by stage, but Sacks and others suggest:

1x or less → Excellent

1–2x → Good

2–3x → Tolerable for early growth

3x+ → Red flag

Importantly, the burn multiple is context-dependent. A company in the earliest stages may have a high burn multiple while validating product–market fit. But once a company raises a Series A or B (i.e., it enters the growth startup stage), investors expect to see efficiency improving over time.

4. Why Growth Alone Doesn’t Cut It

The shift toward burn multiple reflects a broader change in venture capital. In the “growth at all costs” era, companies like WeWork, Bird, or Fast could raise huge rounds on raw top-line expansion. But when markets tightened, those same companies lacked the efficiency to sustain themselves.

Contrast that with companies like Snowflake or Datadog, which scaled revenue quickly but also demonstrated strong efficiency. Their ability to show repeatable, capital-efficient growth made them durable in the eyes of both private and public investors.

5. Using Burn Multiple Internally

Even if you’re not fundraising, tracking your burn multiple helps keep the team disciplined. For example, for strategic hires, the metric forces you to ask yourself if this role brings in ARR growth proportional to its cost? For marketing campaigns – are they producing efficient new revenue? For expansion into new markets – do the potential returns of the expansion justify how resource-intensive it is?

By focusing on burn multiple, founders avoid the trap of chasing vanity metrics like signups, downloads, or even raw ARR that masks underlying inefficiency.

6. Burn Multiple Vs. Other Metrics

It’s not the only number that matters. CAC, LTV, payback period, and net retention are still critical. But burn multiple rolls all of them up into a higher-level efficiency lens. It shows how the whole system – product, sales, marketing, and operations – converts capital into durable revenue.

Think of it this way: CAC tells you if your sales funnel works. LTV tells you if customers stick. Burn multiple tells you if the whole company is worth funding.

Burn multiple won’t replace the need for vision, product quality, or a large market. But in today’s environment, it’s the metric that shows you can grow like a startup while surviving like a business.

Investors know this. Increasingly, founders need to know it too.

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