What it is
Burn rate is the pace at which a company, usually a startup or a rapidly growing business, consumes its available cash before it starts generating positive cash flow from its operations. It represents the net negative cash flow over a specific period, often calculated monthly. A high burn rate indicates that a company is spending heavily, typically on growth initiatives like product development, marketing, or hiring.
Investors, especially venture capitalists, closely monitor a company's burn rate to determine its "cash runway"—how long the company can survive before needing additional funding or becoming profitable. A high burn rate can be acceptable if it's driving rapid, sustainable growth, but an unsustainable burn rate without clear progress towards profitability can signal financial distress and necessitate a "down round" of funding or operational cutbacks.
Why it matters
Burn rate tells you how quickly a company is using its cash, indicating its financial runway and potential need for more funding. It's crucial for assessing startup risk.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice