Burn rate is the rate at which a startup spends its cash reserves each month. It is one of the key indicators investors use to assess a company's financial health and to understand how much time remains before the company needs additional capital.

There are two common ways to measure burn rate. Gross burn is total monthly cash expenditure across all operating expenses. Net burn is gross burn minus any revenue collected — it represents the actual monthly reduction in cash balance.

For example, a company spending $150,000/month with $30,000 in monthly revenue has a gross burn of $150,000 and a net burn of $120,000.

Burn rate directly determines a company's runway. A company with $1.2M in the bank and a net burn of $100,000/month has 12 months of runway. Investors expect founders to know their burn rate precisely and to have a clear plan for how the raise being requested extends runway to a meaningful milestone.

High burn without corresponding growth is a major red flag. Capital-efficient companies — those achieving strong growth at low burn — command better terms and more investor interest.