Burn rate measures how much a start-up spends during a given period. For an unprofitable company, it indicates how quickly available cash reserves are being consumed. section 12.3.3 section 2.4.7
Use burn rate alongside capital intensity and the expected path to profitability. A high burn rate combined with a lengthy path to profitability signals inherent risk, although the metric does not by itself determine whether a company will succeed. section 12.3.3
Compare spending requirements before treating burn rate as a stand-alone warning:
- A biotech start-up may require laboratories, minimum staffing, equipment, patent lawyers, and regulatory officers, creating high capital intensity. section 12.3.3
- An IT start-up may begin with notebooks, cloud services, and software licenses, producing a different spending profile. section 12.3.3
- Stock-based compensation can reduce salary payments and therefore lower burn rate, while increasing outstanding shares and diluting existing ownership. section 2.4.7
