One ratio tells investors how efficiently a startup burns cash

The record

On 23 April 2020, Craft Ventures partner David Sacks published an essay proposing a single ratio for judging startup capital efficiency: Burn Multiple equals net burn divided by net new annual recurring revenue. Sacks credits Bessemer Venture Partners' inverse version, the Efficiency Score, as a starting point, then flips the fraction so the focus sits on burn. He illustrates it with two scenarios: a company burning $2 million in a quarter while adding $1 million of new ARR has a Burn Multiple of 2, reasonable for an early-stage company, while one that burns $5 million for the same $1 million of new ARR has a Burn Multiple of 5, terrible. He states the ratio should fall as a company matures, from roughly 3 at seed toward 2 after a Series A, approaching zero near profitability.

What the sources establish

A second Craft Ventures piece, published 1 June 2022 by partner Jeff Fluhr, extends the metric to marketplaces and states a caution: quarter-over-quarter revenue swings from seasonality can make the ratio negative and meaningless in a single quarter, so Fluhr recommends a year-over-year version for seasonal businesses. He also states marketplaces should use growth in gross profit rather than revenue as the denominator, because marketplace gross margins range from 35% to 85% against a narrower 70% to 85% band for SaaS, and because gross transaction volume and net revenue are reported inconsistently. Fluhr gives a working threshold: a Burn Multiple over 2.5 warrants cutting burn.

Scope and revision

The Burn Multiple is a ratio of two other measured quantities, and Carta's own definition of net burn, as retrieved on 16 September 2026, shows what it leaves out on its own: net burn by itself is total expenses minus revenue, with no reference to growth at all. A company can have low net burn and still be inefficient if it is barely growing, which is precisely the gap the Burn Multiple is built to close by putting burn over new revenue rather than reporting it alone. Sacks is explicit that a single quarter's ratio can be distorted by a gross-margin problem, a sales-efficiency problem, a churn problem, or a growth slowdown, and that the ratio does not tell a reader which of these is the cause, only that one of them is probably present.

The decision in front of you

As editorial guidance beyond what the essays state directly, a founder preparing for a board meeting can report the Burn Multiple alongside the underlying burn and new-revenue figures, choose the year-over-year version if the business has seasonal swings, and expect the acceptable ratio to tighten, not loosen, at each successive stage.

• Is the ratio calculated on a basis, revenue or gross profit, that fits the business model?
• Does a single quarter's swing reflect seasonality rather than a change in underlying efficiency?
• If the ratio worsened, which of gross margin, sales efficiency, churn, or growth is the likely driver?

The Burn Multiple compresses a lot into one number, which is its usefulness and its limit: it flags that something changed in the relationship between spending and growth without saying what.