Financial Due Diligence
Burn multiple: the ratio, and its limits.
Net burn divided by net new ARR over the same period. A capital-efficiency ratio that is useful in context and misleading alone, which is precisely why it should be read next to the operating behavior that produced it.
Why it matters
The burn multiple measures how much a company spends to add a dollar of recurring revenue. The vocabulary investors use is standard: below 1.0 reads as a business funding its own growth; 1.0–2.0 as healthy; above 3.0 as spending more than three dollars for each new dollar of ARR, which is hard to sustain at any stage. It is watched closely because it tends to reveal spending discipline (or its absence) before the balance sheet shows stress.
Why it misleads alone
A single reading carries no story. A quarter of heavy hiring, a large annual prepayment, or a one-time contract can swing the ratio without saying anything about the machine underneath. The number becomes evidence only next to its trajectory and next to the behavior that produced it, which is why a diligence read wants the drift, the dates, and the source, not a headline figure.
How Zoe reads it
Zoe computes the burn multiple from accounting metadata under the Financial Vitality dimension and reports it with its trail: the dated pulls behind the number, one click away. Re-run a target as a deal progresses and the readout shows the movement, not just a new figure. What Zoe does not do is turn the ratio into an opinion: like everything under the boundary hub, it is behavioral signal handed to the people qualified to conclude.
References
- The Burn Multiple · Craft Ventures (accessed August 2026)
- Introducing a16z Growth's Guide to Growth Metrics · Andreessen Horowitz (accessed August 2026)
- The Rule of X · Bessemer Venture Partners (accessed August 2026)
- Benchmarking startup growth and burn · Scale Venture Partners (accessed August 2026)
- A Low Burn Multiple is Great. But It Doesn't Mean You Won't Run Out of Money. · SaaStr (accessed August 2026)
- Burn Multiple: How to Measure Capital Efficiency in SaaS · Corporate Finance Institute (accessed August 2026)