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Understanding Burn Rate

An article we liked from Thought Leader Seth Levine:

Money in the Bank vs Burn

With the markets down significantly, financings (at least at the later stages) slowing down, and inflation and interest rates on the rise, perhaps now is a good time to talk about your burn rate.  Money in the Bank vs Burn

Hopefully, you took advantage of the robust financing markets of the past few years to put some money on your balance sheet. Perhaps you raised at what historically have been very attractive valuations (we certainly have companies in our portfolio that have raised well, well above the historical averages).

With that as the backdrop, it’s probably a good time to remind you that the amount of money you have in the bank doesn’t have to dictate your burn rate. Your underlying business metrics should.

Dividing the amount of money you raised by 18 or 12 months (a general rule of thumb for how soon you’d want to be back in the market) doesn’t necessarily work if you raised a lot, at a high valuation, and still have a few things to work out in your product, go-to-market, etc. Your burn should be based on the...

Read the rest of this article at sethlevine.com...

Thanks for this article excerpt and its graphics to Seth Levine.

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