Burn multiple: how to calculate it and what investors expect

Giovanni

8 hours ago

2 min read

The burn multiple tells you how much cash your company burns for every dollar of new recurring revenue. In 2025, the median for unprofitable software companies with $10–100 million in annual recurring revenue (ARR) was 1.7x, according to ICONIQ's State of Software 2025. In 2022 it was 3.0x. The bar got tighter, and founders who walk into a VC meeting with this number ready stand out.

What the burn multiple is

David Sacks of Craft Ventures popularized the metric in 2020:

Burn multiple = net burn ÷ net new ARR

In Sacks's own example, a startup burned $2 million in a quarter and added $1 million of ARR: a 2x burn multiple. Every dollar of new revenue cost two dollars of cash.

The bands investors use

CRV laid out the bands in September 2026:

Under 1x: excellent efficiency.
1x to 2x: spend turns into growth at a workable rate.
2x to 3x: each dollar of new ARR costs two to three dollars of cash.
Above 3x: a red flag unless growth is exceptional.

Stage matters. Sacks notes that a seed-stage company may sit at 3x simply because it just started selling. What investors want to see is the number falling quarter after quarter.

Chart, illustrative example: burn multiple bands (under 1x excellent, 1x-2x healthy, 2x-3x caution, above 3x red flag) with a $3M ARR company at 1.4x. Sources: CRV (2026); High Alpha (2025).

What changed since 2022

ICONIQ's median burn multiple for unprofitable software companies with $10–100 million in ARR:

2022: 3.0x
2023: 1.9x
2024: 1.9x
2025: 1.7x

Above $100 million in ARR, the 2025 median was 0.7x, and top-quartile companies tend to stay under 1.0x after passing $10 million in ARR.

Chart: median burn multiple for unprofitable software companies with $10-100M ARR: 3.0x in 2022, 1.9x in 2023 and 2024, 1.7x in 2025. Source: ICONIQ, State of Software 2025.

Example: running your own numbers

ILLUSTRATIVE EXAMPLE, using assumptions from High Alpha's 2025 SaaS Benchmarks Report: in the $1–5 million ARR band, median monthly burn was $175,000 and median annual ARR growth was 50%.

Take a company with $3 million in ARR growing 50% a year:

Net new ARR per quarter: $1.5 million ÷ 4 = $375,000.
Net burn per quarter: $175,000 × 3 = $525,000.
Burn multiple: 525 ÷ 375 = 1.4x.

That sits in the healthy band. If growth drops to 25% with the same burn, the number climbs to 2.8x.

4 steps to bring yours down before you raise

Measure quarterly, not monthly. Monthly numbers swing too much and hide the trend.
Split product burn from sales burn. Product spend has a timeline; sales spend has a measurable return.
Cut the channel with the worst return first. Use CAC, LTV and payback to find it.
Show the trend in your deck. Four quarters of a falling number say more than one good number.