Burn Multiple

Burn multiple was popularized by investor David Sacks as a way to evaluate capital efficiency during growth phases. It answers the question: for every dollar of ARR growth, how many dollars are being burned? Lower is better: it means growth is being generated efficiently.

The formula divides net burn (total cash spent minus total cash received) by net new ARR added in the same period. A burn multiple of 1x means the company spends exactly one dollar to generate one dollar of new ARR. Below 1.5x is considered excellent, 1.5–2x is good, 2–3x is concerning, and above 3x suggests fundamental efficiency problems.

Burn multiple has become a favored metric among investors because it directly links spending to outcomes, unlike burn rate alone (which ignores results) or growth rate alone (which ignores cost). It is especially valuable for comparing companies at similar stages: a company growing faster but with a 4x burn multiple may be less attractive than a slower grower with a 1.5x multiple.