Burn Rate

AAA

DEFINITION of 'Burn Rate'

The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it's a measure of negative cash flow.

INVESTOPEDIA EXPLAINS 'Burn Rate'

Burn rate is usually quoted in terms of cash spent per month. For example, a burn rate of 1 million would mean the company is spending 1 million per month. When the burn rate begins to exceed forecasts, or revenue fails to meet expectations, the usual recourse is to reduce the burn rate (which, in most companies, means reducing staff).

RELATED TERMS
  1. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  2. Zombies

    Companies that continue to operate even though they are insolvent ...
  3. Angel Investor

    An investor who provides financial backing for small startups ...
  4. Trading Below Cash

    When a company's total share value is less than its cash minus ...
  5. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  6. Dry Powder

    A slang term referring to marketable securities that are highly ...
RELATED FAQS
  1. What are examples of products and companies that rely on protective tariffs to survive?

    The best way for a startup to have sustainable growth is to use revenues for growth rather than outside funding. Startup ... Read Full Answer >>
  2. How has investing in the Internet sector evolved over time?

    Investing in the Internet sector has become more conservative over time. It reflects a more measured approach that shies ... Read Full Answer >>
  3. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  4. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>
  5. What is considered a reasonable interest rate for a syndicated loan?

    A 2010 survey of syndicated loans found an average interest rate of 7.9%. However, the majority of syndicated loans are floating ... Read Full Answer >>
  6. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
Related Articles
  1. Markets

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Markets

    Are Your Stocks Doomed?

    When a company is headed for trouble, the warning signs are usually there. Learn how to spot disaster.
  4. Entrepreneurship

    Run Your Finances Like A Business

    Think of yourself as your own little company. To make it run smoothly, you need to take a look at your books.
  5. Investing

    Chasing Down Biotech Zombie Stocks

    Find out whether you have "living dead" stocks lurking in your portfolio.
  6. Entrepreneurship

    How Peter Thiel Became a Superstar

    A review of the career of legendary Silicon Valley entrepreneur and investor Peter Thiel.
  7. Professionals

    Advisors: Get Those Referrals! (Here's How)

    If you're not talking to your clients about referring you to friends, you should be.
  8. Entrepreneurship

    10 Richest, Most Successful Tech Geniuses

    Unlike many industries, tech billionaires are mostly self-made. Many of these billionaires came from humble means and, through their own genius, changed the world.
  9. Entrepreneurship

    The 10 Richest Women In Finance

    Who are the top 10 women in the financial industry?
  10. Investing Basics

    Today's Top Young Investors

    Given the very different world that we live in as compared to the one the Warren Buffett graduated into, young, hopeful investors should be looking up to people closer to their own age.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!