Burn Rate

Burn rate is usually measured in monthly increments. It's a term describing how fast a new company is spending its venture capital before it generates positive income (profit).

Usually, this is reviewed by the company itself, and the investors of said company, to gauge how long the company has at the current rate before it...runs out of money.

There are two types: gross burn (operating costs) and net burn (total amount lost). Example of how this can be used: if you run a company at a net burn rate of $10 a month, and you only have $80 as venture capital, you will be able to continue at that rate for 8 months before you're out of capital (aka broke). Obviously, most companies would use much bigger numbers, but...you get the idea.

Related or Semi-related Video

Finance: What is a Business Plan?6 Views

00:00

Finance allah shmoop what is a business plan Well think

00:07

of it like blueprints for building a home or a

00:09

directions for toll house cookie baking or the process for

00:13

howto you know get pregnant let's get down to business

00:17

time anyway A business plan is just the game day

00:20

strategy for how your little garage startup will grow to

00:24

someday be a google or facebook or even little old

00:27

shop You'll describe the product like a pill that cures

00:31

cancer Yep some products are easy to describe Like if

00:35

you actually had a pill that cures cancer while you'd

00:37

pretty much be done you could have a one page

00:39

business plan that just says i have a pill that

00:42

cures cancer Your eight hundred seventy six people on whom

00:45

it has worked Now give me billions of dollars and

00:48

a nobel prize night and you'd be done But if

00:52

you only had a flying car well then you describe

00:55

it well How much weight it khun carrie how fast

00:57

and far it goes how it navigates and avoids crashes

01:01

and how it recharges and stuff like that That's the

01:04

product then there's the place or distribution Like how you

01:08

get the car out to the masses you want to

01:10

sell it to like are you partnering and paying ford

01:14

to stock it in their showrooms Are you leveraging starbucks

01:17

places teo You know showcase it Get buzzed while you

01:21

buzz about that Or do you just have a mail

01:24

order website Customers pay with a credit card and a

01:26

delivery agent applies it to your home You know kind

01:29

of like tesla All right Next up promotion Like how

01:32

do you market your product Or is it just so

01:35

cool that the press writes about it endlessly fawning and

01:39

all that digital ink is free Well if the products

01:43

all over the covers of the new york times and

01:44

yusa today well you're kind of marketed everyone in the

01:47

country knows about it All right Well then there are

01:50

the finances Like how much does a unit cost So

01:54

this is all about price How much is the factory

01:57

that stamps out the carriage The blades of the battery

02:00

Well if you sell a hundred units a month you

02:02

make what What should they be Priced at fifty grand

02:05

Each one hundred two hundred fifty grand if you sell

02:08

Ten thousand a month Well how much do you make

02:10

How much capital do you need thio field all that

02:12

get through your first two years and then how much

02:15

do you need to raise beyond those first two years

02:17

to get to break even profitability and and so on

02:20

Is there a ny po in the future Yeah yeah

02:22

what about that That should be in the plan Well

02:24

there's a lot to figure out a lot of work

02:25

to put together a business plan So you better get 00:02:27.7 --> [endTime] uh you know busy No

Find other enlightening terms in Shmoop Finance Genius Bar(f)