Burn rate is how fast your startup is consuming cash. Net burn is monthly expenses minus monthly revenue. Divide your bank balance by that number and you have your runway — the months you have before you're forced to either raise, become profitable, or shut down.
I've watched founders with $3M in the bank feel safe right up until they realized $400K/month net burn gives them 7.5 months — not enough time to close a Series A from scratch. The number in the bank is almost meaningless without the burn rate sitting next to it.
Gross Burn vs Net Burn: The Distinction That Matters
These two numbers get conflated constantly, but they tell very different stories:
Payroll + infrastructure + office + marketing + G&A — everything going out the door, regardless of what's coming in.
The actual cash consumed each month. This is the number investors care about — it reflects true capital efficiency.
A company with $500K gross burn and $450K in monthly revenue has a $50K net burn — extremely capital-efficient. A company with $200K gross burn and zero revenue is burning $200K net. The gross number can make a company look much worse than it is (if revenue is high) or hide how fast capital is actually leaving.
The Runway Formula Every Founder Needs to Know
The standard post-raise target is 18–24 months. The math is simple: fundraising takes 3–6 months on average. You want to start your next raise at least 6 months before you hit zero — which means you need the first 12+ months to sprint on milestones before you shift into fundraising mode. Anything under 18 months post-raise puts you in a dangerous position if the market is cold when you need capital.
| Cash in Bank | Net Burn / Month | Runway | Status |
|---|---|---|---|
| $1,000,000 | $200,000 | 5 months | Critical |
| $2,000,000 | $200,000 | 10 months | Risky |
| $3,600,000 | $200,000 | 18 months | Healthy |
| $1,000,000 | $50,000 | 20 months | Healthy |
| $5,000,000 | $400,000 | 12.5 months | Risky |
What Is a Normal Startup Burn Rate by Stage?
There is no universal right answer, but benchmarks help calibrate whether you're spending efficiently relative to what your stage demands. Payroll consistently represents 60–70% of gross burn across all stages — if that number is higher, you're probably over-hired for where you are.
2–4 person team, minimal infrastructure, pre-product or early MVP. Founders typically paying themselves below-market or not at all.
5–12 person team, product launched, early GTM motion. Cloud infrastructure starts to appear. First marketing spend.
20–50 person team, full GTM engine, engineering scaling. Office costs re-enter the equation. First sales team.
50–150 person team, aggressive go-to-market, international expansion begins, multiple sales channels active.
Track SaaS-specific efficiency benchmarks on the SaaS Benchmarking Dashboard.
Default Alive vs Default Dead
Paul Graham coined these terms to cut through the noise. "Default dead" means: at your current burn rate and revenue growth trajectory, you will run out of money before reaching profitability. "Default alive" means the opposite — you'll cross into profitability before you need more capital, assuming nothing changes.
The vast majority of venture-backed startups are default dead by design — they're making a bet that they can raise again before the money runs out. That's fine. But the bet only works if burn rate gives you enough time to hit the milestones that justify the next round. A company that raises $3M at seed with $250K/month net burn has 12 months. That's not a lot of runway to go from zero to Series A-ready.
The question to ask yourself every month: "If we couldn't raise another dollar, when would we run out — and would we be fundable before then?" If the answer is "yes," you're in control. If the answer is "no," either cut burn or accelerate revenue.
What Drives Burn Higher Than It Should Be
Most burn problems aren't caused by one obvious mistake. They're the accumulation of small decisions that seemed individually reasonable:
- →Hiring ahead of revenue: The #1 cause of unsustainable burn. Hiring a sales team before you have repeatable pipeline, or an enterprise team before you have enterprise product-market fit.
- →Cloud spend with no autoscaling discipline: AWS and GCP bills grow silently. A team of 10 can easily have $30–50K/month in infrastructure spend if nobody owns it.
- →Too many tools and subscriptions: SaaS sprawl in a 15-person company often runs $8–15K/month in tools that 20% of the team actually uses.
- →Marketing spend before product-market fit: Paid acquisition pre-PMF is almost always money down the drain. It looks like growth; it isn't.
- →Competitive office space: Post-COVID, office is largely optional at seed stage. A WeWork membership costs $3–5K/month. A Midtown Manhattan office costs $30K+.
$1M in the bank sounds safe. At $200K/month net burn, that's 5 months.
The number that matters isn't how much you raised. It's how long it lasts relative to what you need to prove.
Track SaaS company burn benchmarks and efficiency metrics on the SaaS Benchmarking Dashboard and SaaS Valuations at Value Add VC. Originally published in the Trace Cohen newsletter.