

Burn rate

Burn rate Definition

Burn rate is the rate at which a company is using up its venture capital. This is an important measure because unless the company starts generating positive cash flow the venture funding will be exhaused, potentially forcing the company to close down.

In simpler terms; the burn rate is how fast the internet "concern" will burn (ie. spend or waste) the money it has (usually venture capital, that is money provided by various entities or investement professionals) before the company can actually show a profit (positive cash flow referred to above is cash after expenses). The term, alarming as it should have been regarded, as it means: how fast are you going broke?, was widely accepted during the Dot-com buble as a normal ratio.

This term became popular during the dot-com bust.

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