Burn Rate Law and Legal Definition

A Burn Rate is the rate at which a startup goes through its cash to cover expenses. Burn rate is a synonymous term for negative cash flow. It measures how quickly a startup company will use up its cash. The term came into common use during the dot-com era when many start-up companies went through several stages of funding before emerging into profitability and positive cash flows and thus becoming self-sustainable or, as for the majority, failing to find additional funding and sustainable business models and thus going bankrupt. In between funding events, burn rate becomes an important management measure, since together with the available funds, it provides a time measure to when the next funding event needs to take place.