What is Burn Rate?

March 25, 20237 min read
What is Burn Rate?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Burn rate is how fast an enterprise “burns through” their venture capital, a key metric for potential investors to know.
  • A startup business that has a low burn rate is more apt to ultimately become profitable, and thus generate investor returns.
  • Venture capital is no longer exclusively for hedge funds or the ultra wealthy.

It is vitally important for those in venture capital to know the burn rate of the startup in which they are interested. Such knowledge can keep investors from making potentially bad decisions, as well as help them uncover margin opportunities. What is burn rate? Here is that and more.

What is Burn Rate?

It is a crucial metric that business owners should know, but many do not. Part of that could be because the rate requires calculation, although the primary formula is straightforward,

In essence, burn rate is the dollar amount a business requires to pay all expenses in a certain period – typically a month. Another way to say it is, burn rate is how fast an enterprise “burns through” their venture capital. That is key information for potential investors to know.

While the metric can help any business owner, their stage in the business lifecycle notwithstanding, it is typically calculated to see how swiftly a startup will exhaust its capital before turning a profit.

As for established businesses, a low burn rate indicates how likely it is they will get through quarters in which revenue is low.

What is the Burn Rate Formula?

There are a few ways to calculate burn rate, but the most straightforward formula is (Starting Cash – Ending Cash) / Number of Months = Monthly Burn Rate

How Do You Calculate the Burn Rate?

First off, get a calculator and the balance sheet for the period you are evaluating. Subsequent steps include:

  • Specifying the recent period that will be assessed.
  • Finding the cash balance on the balance sheet for the period’s start and finish.
  • Subtract the ending cash balance from the beginning cash balance.
  • Dividing the difference by the number of months being assessed.

Note that, to get a more accurate calculation, it is wise to review more than the previous month’s financial info.

Here is a burn rate example:

Say Business A is going over the burn rate for April, the last month of the first quarter. On Jan. 1 – the first day of the quarter – the business’s cash balance is $160,000. On the last day of the quarter, March 31, its cash balance was $100,000.

First, the ending cash balance is subtracted from the beginning cash balance: $160,000 – $100,000 = $60,000.

Next, the $60,000 difference is divided by the number of months – three – being assessed: $60,000/3=$20,000.

Thus, Business A’s burn rate for the year’s first quarter is $20,000.

What is Gross Burn Rate vs. Net Burn Rate?

The two types of burn rates are gross burn and net burn. A business’s gross burn rate is operating costs that are incurred monthly. The net burn rate is the amount of capital a company loses each month, or the rate at which a business is losing money. Note that the total cannot be more than the gross burn rate, but it can be less.

Burn Rate vs. Cash Runway

The difference here is that the cash runway gauges how long, at the company’s current cash burn rate, the company’s cash will last. It is important to know how long one’s business can survive with the cash they have on hand.

What is Cash Runway Formula?

The formula for cash runway is Current Cash/Monthly Burn Rate = Cash Runway.

How Do You Calculate Cash Runway?

In keeping with the above burn rate illustration with Business A: $100,000 (ending cash over three-month period) /$20,000 (burn rate) = 5 (runway). If there’s a sales decline or increase in outlays, Business A has sufficient cash for five months.

What is Considered a Good Burn Rate?

It is generally recommended that a startup have at least six months of expenses available, preferably a year.

What Costs are Considered in Burn Rate?

Operating costs run the gamut but usually include salaries, administration costs, and property leasing or rent.

How to Reduce the Burn Rate

There are measures a company can take to lower their burn rate:

  • Improve the gross profit margin to increase revenue without raising expenses.
  • Review subscriptions, dues, and marketing efficiencies to decrease expenses.
  • If debt payments are high, consider refinancing the debt.
  • To plan for positive cash flow, use a cash management system.
  • A leaner strategy might call for layoffs or pay cuts.

What Does Burn Rate Reveal About a Company?

When a business seeks startup capital, investors check to see whether they have a low burn rate. Why low? Because their investment capital can work harder. A new business that has a low burn rate is more apt to ultimately become profitable, and thus generate returns on investments.

How to Know a Company’s Burn Rate

Investors can compare a company’s burn rate to their business plan to assess whether a company has a good chance of becoming profitable.

What are Ways to Invest in Venture Capital?

Generally, venture capitalists finance startups and small businesses that have long-term growth prospects. Overall, ways to get involved in the venture capital space include through venture capital debt, funds, stocks, and direct investments.

While all investments carry risk, investing part of one’s holdings in high-reward assets such as venture capital presents opportunities that can have great reward/ In fact, in 2020, returns on venture capital exceeded 50%. Over the last 25 years, returns have averaged 32%, according to the U.S. Venture Capital Index.

How to Invest Outside the Stock Market

Increasingly, investors are putting capital in what are called alternative investments, which generally have low correlation to volatile public markets. These investments include asset classes such as real estate, art, private credit – and venture capital.

Historically, only institutional investors and the extremely wealthy had opportunities in venture capital. Eight years ago, though, legislation paved the way for ordinary investors to engage in equity crowdfunding, which spawned venture capital platforms for ordinary investors.

For example, the alternative investment platform Yieldstreet added a venture capital program to its offerings, and with low minimums. Such investments provide curated exposure to private companies during what typically are periods of fast growth.

Like all alternative investments, venture capital also serves to diversify portfolios, which is key to successful investing.

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. Learn more about the ways Yieldstreet can help diversify and grow portfolios.


A low burn rate is a sign of a strong cash position, which is a key indicator of a startup’s financial health. Investors should know what a company’s metric is before taking a position in it. Putting capital in startups can be a rewarding investment option, particularly if investors go through a platform such as Yieldstreet, which vets its venture capital offerings. It also is a good way to diversify investment holdings.

All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.Diversification does not ensure a profit or protect against a loss in a declining market

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure