The Change in Burn Multiple for Startups in 2023
Burn multiple measures the capital efficiency of a startup. Burn multiple calculated like this : net burn divided by net new ARR. Startup burn multiples have changed markedly in 2023.
Companies with more efficient burn multiples between 1-2 plan to increase their net burn per new dollar of bookings by between 14-40%. In contrast, startups with higher operating expenses will reduce their burn multiple by 34-70%. The average startup with a burn multiple of 5 plans to reduce to 1.5.
Companies with burn multiples of 3 will stand firm, operating their businesses at the same levels of efficiency.
Curiously, there’s no correlation between burn multiple & expected growth rate in 2023.
The majority of the surveyed population plans to operate with burn multiple of 1.5 or less.
With the Series B & Series C capital markets barely open, the quantum of growth capital has plummeted nearly 80%.
Startups’ plans have shifted aggressively to capital efficiency, without a noticeable impact on ARR growth. We’re all learning to achieve the same with less.