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What is Burn Rate?

What is Burn Rate?

Burn rate is a term for negative cash flow, or the rate at which a company burns through capital, especially a startup company.

Burn rate is used frequently in the world of startups and venture capital. Using a burn rate, investors can see how much longer operations can be sustained with the capital at hand, and this length of time is called a runway. Startups will normally need at least a few months before they start generating enough revenue to have a positive cash flow. Burn rate is normally expressed as the monthly negative cash flow.

If a burn rate does not give them a long enough runway to get the business on its feet, the burn rate may be reduced by cutting back on expenses or letting some staff go.

Keywords: startups, cash flow, venture capital, runway, seed money, capital at hand,