Strategy · Business Development

Are current burn rates from startups sustainable?

Luigi Guarnieri Sales Support Cash&Carry presso Esprinet Italia

November 1st, 2016

I have been reading lately about how companies like Mattermark and others in Silicon Valley are burning through piles of cash to the tune of $200K per month at an early stage (Series A). You can read the post of Mattermark's founder as an example here.

In your mind, are these burn rates sustainable? Are they encouraged by the investors that are backing these companies? I am at a loss and would love everyone's perspective.
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Selvan Rajan

November 1st, 2016

It depends on the industry and the product. There is no yardstick for it yet. Your burn rate could be higher provided you are trying to scale big and leave your competitors in the dust like Uber, Facebook, AirBnB etc. Quick growth is one of the ways to create the barriers for others in low barriers to entry industries, and you can achieve that with good burn rate.

David Austin Relentless problem solver and innovator.

November 3rd, 2016

The biggest problem with a burn rate like that is not sustainability but pork (wherein the money is not put to best use). Often it isn't intended to be sustainable ... they're jump starting a business like jump starting a car where you need over 10x more when compared to just running the car. This is a strategy that works when done right, but seldom is done right, especially when you don't have the staff necessary to do it right ... which is almost always the case in a startup. I can't imagine a burn rate above 20k/mo as a soloprenuer. A founder's time needs to be spent on things other than making sure money is well spent but they need to make sure it's well spent ... a conundrum indeed. Typically you'll want a startup-savvy detail-oriented accountant to monitor it, insuring best-case CAC/CPM/CPC/CTR rates, with a well thought-out plan and schedule how those rates will get driven down to where they need to be, far in advance of when they need to be at the final target. Marketing people are the worst people to put in charge of CAC/CPM/CPC/CTR ... it's just not their wheelhouse - but you need them for their marketing expertise. So you almost need 2 new employees full time (or at least on a consulting basis) if you're going to employ this strategy ... I'd say for anything where your rates are 50K/mo or higher.

David Albert Founder & Principal at GreyGoo

November 1st, 2016

Sustainability is relative. Investors aren't blindly financing high burn rates--their risk tolerance is based on the potential of the opportunity. If anything, I believe most investors are more conservative than ever before. One person's burn rate formula is just that--one person's opinion.

Matthew Phillip Senior Marketing Manager at Thrivist

November 2nd, 2016

In my opinion...no. This is a focus group of one so take it for what it's worth. We've scaled up very quickly so that our burn rate is over 100k/month. That's actually scaring off some investors at this point. (We're at our Series B) One investor told us, straight up, that he would not invest in the company with our burn rate. So I guess I would say that, yes, it depends, but I feel it's better to scale up slowly and keep the burn rate manageable when pursuing investment.