The short answer
Burn rate is the amount of cash a startup uses each month. Gross burn is total monthly spending; net burn is spending minus cash coming in from revenue. Net burn is the figure that determines runway.
- Gross burn = total monthly cash spending.
- Net burn = gross burn minus monthly cash receipts.
- Investors watch whether burn buys progress.
- Track burn monthly and explain big changes.
Gross vs net burn
Gross burn is everything you spend in a month: salaries, rent, software, contractors. Net burn subtracts cash you collect, mostly revenue. A company with $90K gross burn and $30K in monthly receipts has $60K net burn.
Worked example (hypothetical)
| Month | Gross burn | Cash in | Net burn |
|---|---|---|---|
| January | $80,000 | $15,000 | $65,000 |
| February | $82,000 | $22,000 | $60,000 |
| March | $95,000 | $30,000 | $65,000 |
Gross burn rose because of a new hire, but revenue grew too, so net burn stayed roughly flat. That's the pattern investors like to see: spending that produces growth.
Why it matters to a pre-seed or seed founder
Burn sets your runway and shapes how much you need to raise. Investors aren't only asking how much you spend; they're asking what each dollar buys. Show burn alongside milestones in your updates and in your data room. If revenue is recurring, pair burn with MRR growth to show efficiency.
Frequently asked questions
What's a good burn rate?
There's no single number. What matters is whether burn produces progress toward milestones and leaves enough runway to reach them.
Should one-time costs count in burn?
Track them, but note them separately so investors can see your normal monthly run rate.
How do I lower burn quickly?
Pause non-essential hires and contractors, renegotiate software and rent, and focus spending on the milestone your next round depends on.