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Structured methodology As of 2026-04-24

How Burn Multiple Calculator works

What the tool assumes, what data it pulls from, and what it cannot tell you.

1. Scope

Computes burn multiple (net burn / net new ARR) to gauge capital efficiency. A venture-stage metric popularised by David Sacks.

2. Inputs and outputs

Inputs

  • netBurn number (currency)
  • netNewArr number (currency)

Outputs

  • burnMultiple

    netBurn / netNewArr.

  • grade

    < 1 amazing, 1–1.5 great, 1.5–2 good, 2–3 suspect, > 3 bad (Sacks heuristic).

Engine source: src/lib/burn-multiple-calculator/engine.ts

3. Formula / scoring logic

burn_multiple = net_burn / net_new_arr

4. Assumptions

  • Net new ARR is new + expansion − contraction − churn, not gross new.
  • Net burn is cash burn net of revenue, not gross burn.

5. Data sources

6. Known limitations

  • Grade bands are editorial (Sacks 2020 Substack essay), not peer-reviewed.
  • Meaningless at seed stage where ARR is small and volatile.

7. Reproducibility

Input
netBurn = $500,000, netNewArr = $250,000.

Expected output
burn_multiple = 2.0 (suspect).

8. Change log

  • 2026-04-24 methodology page first published.
Business planning estimates — not legal, tax, or accounting advice.