Question 1

What is the difference between gross burn and net burn?

Accepted Answer

Gross burn is total monthly cash outflows (all expenses). Net burn is gross burn minus revenue — the actual cash you're consuming each month. If you spend $50,000/month and earn $20,000 in MRR, your gross burn is $50,000 and your net burn is $30,000. Investors almost always discuss net burn when evaluating runway.

Question 2

How much runway should a startup have before fundraising?

Accepted Answer

Most investors advise starting your fundraising process with at least 6 months of runway remaining and targeting to close a round with 12+ months. Fundraising typically takes 3–6 months, and negotiating from a position of urgency significantly weakens your terms. 18 months of runway is the comfortable target after closing a round.

Question 3

What is a healthy burn multiple for a SaaS company?

Accepted Answer

Burn multiple = net burn ÷ net new ARR added. Under 1x is excellent (you're burning less than you're adding in annual revenue). 1–1.5x is good. Above 2x is a concern. Above 3x is difficult to sustain unless you have exceptional growth metrics. This metric gained prominence as investors became more capital-efficiency focused post-2022.

Question 4

How do you reduce burn rate without cutting growth?

Accepted Answer

The least destructive cuts typically come from: renegotiating SaaS tool contracts (most vendors discount 30–40% when pushed), moving to annual billing with your own customers for an immediate cash boost, delaying non-critical hires by 2–3 months, and auditing infrastructure costs which often have 30–50% waste at fast-growing startups.

Question 5

What is 'default alive' vs 'default dead' for a startup?

Accepted Answer

'Default alive' means that at current growth and burn rates, you'll become profitable before running out of money — no new funding required. 'Default dead' means you'll run out of cash first unless you raise more or cut costs. Paul Graham coined the term; every founder should know which category they're in at any given moment.

SaaS Burn Rate Calculator