You've built something people want. Revenue is growing. You're thinking about raising a Series A. But before you step into that first investor meeting, there's one number you absolutely must understand inside and out: your burn rate. It's the metric that tells investors whether you're a disciplined operator or a founder flying blind — and it's often the first thing they'll ask about.
Gross Burn vs. Net Burn: Know the Difference
These two numbers tell very different stories, and confusing them in front of an investor is a credibility killer.
Gross burn rate is your total monthly operating expenditure — everything from payroll and rent to software subscriptions and coffee. It answers the question: "How much are you spending every month, regardless of revenue?"
Net burn rate is your gross burn minus revenue. It's the actual cash you're losing each month. If you spend $120,000 per month and bring in $45,000, your net burn is $75,000. This is the number that determines your runway.
Investors care about both. Gross burn tells them about your spending discipline. Net burn tells them how fast the clock is ticking. A startup with high gross burn but rapidly growing revenue is a very different story than one with high gross burn and flat revenue.
Calculating Your Runway
Runway is the simplest formula in startup finance, but getting it right matters:
Runway (months) = Cash in bank ÷ Net monthly burn rate
If you have $900,000 in the bank and a net burn of $75,000 per month, you have 12 months of runway. Most VCs want to see at least 18 months of post-funding runway, which means you need to raise enough to cover 18 months of your projected net burn, plus a buffer.
Here's where founders get tripped up: they calculate runway using today's burn rate but plan to hire aggressively after funding. Your pitch needs to account for the increased burn that comes with growth spending. If you're planning to double the team after closing, your post-funding burn will be dramatically different from your current burn.
The Three Questions Every VC Will Ask
1. "What's your current monthly burn?"
Have both gross and net burn ready, with the last six months of trend data. VCs want to see that you track this consistently, not that you calculated it for the first time before the meeting. If your burn has been increasing, be prepared to explain why (and it better be tied to revenue growth).
2. "How long is your current runway?"
Give the exact number, based on your most recent month's net burn. Don't round up generously. If you have 8.3 months of runway, say "just over eight months." Investors respect precision and penalize vagueness.
3. "How will you deploy the capital?"
This is where your burn rate projections matter. Build a month-by-month projection showing how your burn increases as you hire, invest in marketing, or build infrastructure. Show that you've thought through the timing of major expenses and that your projections are grounded in reality, not optimism.
Building a Burn Rate Tracker
You don't need fancy software for this. A well-structured spreadsheet updated monthly will do. Here's what to track:
- Monthly gross expenses broken into categories: payroll, rent/facilities, software/tools, marketing, professional services, and miscellaneous
- Monthly revenue (total and by source if you have multiple revenue streams)
- Net burn calculated automatically
- Cash balance at end of month
- Runway recalculated each month based on trailing three-month average net burn
Pro tip: use a trailing three-month average for your burn rate rather than just the most recent month. This smooths out one-time expenses and gives a more accurate picture of your true run rate. If you had a $30,000 legal bill one month for trademark filings, you don't want that inflating your monthly burn figure.
Common Burn Rate Mistakes
Ignoring Non-Cash Expenses
Burn rate should be a cash-based metric. Don't include depreciation, stock-based compensation, or other non-cash expenses. Investors want to know how fast you're spending actual dollars, not accounting entries.
Forgetting Quarterly and Annual Expenses
Insurance premiums, annual software renewals, quarterly tax payments — these lumpy expenses can distort your monthly burn if you're not careful. Spread them across the months they cover, or call them out separately so investors understand the baseline vs. the spikes.
Being Too Optimistic About Revenue Growth
When projecting future burn rate, use conservative revenue assumptions. Investors will stress-test your model by assuming revenue grows slower than planned. If your runway depends on hitting aggressive revenue targets, you're not raising enough money.
What "Good" Looks Like
There's no universal benchmark for burn rate because it depends entirely on your stage, market, and growth strategy. But here are some general guidelines for pre-Series A startups:
- Burn rate should be growing slower than revenue (your unit economics should be improving)
- At least 70% of burn should be going to people (payroll) — not perks and overhead
- You should be able to cut to a "survival" burn rate within 60 days if needed
- Your runway should never drop below 6 months without a clear funding plan
Get Your Numbers Investor-Ready
Clean, accurate financial data isn't just about passing due diligence — it's about demonstrating that you're a founder who understands the business beyond the product. Investors back people who know their numbers. If your books are messy, your burn rate calculations are inconsistent, or you can't produce a clean P&L on demand, you're making the fundraising process harder than it needs to be.
At CleanBooks, we help startup founders get their financials investor-ready — clean books, accurate burn rate tracking, and financial models that hold up under scrutiny. If you're preparing for a raise, let's make sure your numbers tell the right story.