burn rate

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.

Notes:

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).

See also: Angel Investor, Cash Flow, Trading Below Cash, Venture Capital

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Burn rate

Used in venture capital financing to refer to the rate at which a startup company expends capital to finance overhead costs prior to the generation of positive cash flow.

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burn rate

The speed with which a company consumes cash, generally stated on a monthly basis. A high burn rate indicates a firm will soon be out of business unless it can raise additional capital, dramatically increase cash sales, or reduce expenses. The burn rate was particularly high for dot-com companies that placed emphasis on capturing market share rather than profitability.