Growth Isn't Enough - Why Today's Founders Need to Obsess Over This One Metric to Survive

In this market downturn, capital efficiency is more important than ever for founders. As investors get increasingly selective, they scrutinize burn rates and want to see efficient growth relative to burn. This means founders need to be smart about minimizing burn in order to extend runway.

At Reinnovate Studios, we use a simple metric called the Burn Multiple coined by David Sacks to evaluate capital efficiency:

Burn Multiple = Net Burn / Net New ARR

This shows how much a startup is burning to generate per incremental dollar of ARR: the lower the multiple, the more efficient the growth.

As a general guideline:

Seed stage: 3x

Series A: 2x

Series B: 1.5x

A high or worsening Burn Multiple indicates problems like poor gross margins, low S&M efficiency, weakness in customer cohorts and or increasing churn rates.

The Burn Multiple gives founders an easy way to benchmark their capital efficiency. We advise them to keep salaries low early on and cut any waste to strengthen their metrics before fundraising. Sometimes it's worth sacrificing unprofitable growth to improve the ratio, to increase your chances to attain access to the capital markets.

At Reinnovate, We work with our founders to right-size their spending for their revenue stage. The goal is to extend runway and prove to investors that their growth is efficient and driven by product-market fit.

During downturns, growth at any cost just doesn't cut it anymore. Track your Burn Multiple each month to make sure you're scaling efficiently. Come talk to us at ReInnovate Studios if you need help optimizing it before your next raise. We're here to help early stage founders adapt and thrive in this new era.