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How does a VC think about your burn rate? First, it’s important to note that every company is different. Second, geography is an important factor. Third, pure consumer companies’ finances will differ dramatically from  e-commerce or SaaS companies. Given all those caveats, I’ve made a table of the rough figures that I expect to see in a company of various stages, immediately after financing.

Last Round Raised Approx # of Employees Amount Raised in $M Typical Net Burn Runway
Pre Seed 3 to 5 $0 ? ?
Seed 5 to 10 $1M $75k 1 year
Series A 10 to 40 $3 to $7M $250k 2 years
Series B 40 to 100 $10 to $20M $500k-$750k 2 years
Growth 100+ $25M+ varies varies

When I make an investment, my aim is to fund the company to a milestone that enables the company to raise a subsequent round. Such a milestone tends to be achievable in 12 to 14 months. But a startup should raise 18 to 24 months’ capital to ensure some flexibility in case things don’t go according to plan.

A good rule of thumb in Silicon Valley is that every employee costs about $10k per month. By that estimate, a company of 20 people burns $200k for staff plus 25% for overhead, or $250k per month/$3M per year. This is on the richer side of burn rate calculations but given the rate of increase in engineering salaries recently, it may be closer to the norm.

For revenue generating companies, net burn (revenue – expenses) should be kept under $400k – $500k. A company burning more without the immediate prospect of revenue can be a concern because of how quickly these high burn rates reduce runway. Additionally, the company should aim to reach cash flow break even sometime after the Series B, before a Growth round. Again, every company is different, these guidelines are the mental model I’ve built of typical companies who have pitched us and worked with us.

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3 thoughts on “Burn rate benchmarks

    • It’s hard to say out of the blue. Typically, the cost is about 25% to 50% of the equivalent engineering team in the valley. I don’t think the burn metrics should change though. If anything, for a company with outsourced development, they should be a bit lower.

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