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The speed with which a new, unprofitable company is spending its initial funding whether from investors or from an IPO. In the world of high-speed high tech, the burn rate is carefully monitored to determine how long the company has to live.
The rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it's a measure of negative cash flow.
Investopedia Says:
Burn rate is usually quoted in terms of cash spent per month. For example, a burn rate of 1 million would mean the company is spending 1 million per month. When the burn rate begins to exceed forecasts, or revenue fails to meet expectations, the usual recourse is to reduce the burn rate (which, in most companies, means reducing staff).
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In venture capital financing, the rate at which a start-up company spends capital to finance overhead before generating a positive cash flow from operations.
Burn rate is a synonymous term for negative cash flow. It is a measure for how fast a company will use up its shareholder capital. If the shareholder capital is exhausted, the company will either have to find additional funding or close down.
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 hence becoming self-sustainable (or, as for the majority, failing to find additional funding and sustainable business models and hence going bankrupt). In between funding events, burn rate becomes an important management measure, since it together with the available funds provides a time measure to when the next funding event needs to take place.
Some claim, that part of the reasons behind the dot-com bust, was the unsound management and financial investor practices to keep the burn rate up, taking it as a proxy for how fast the start-up company was acquiring a customer base.
Aside from financing, the term burn rate is also used for projects to determine the rate at which hours (allocated to a project) are being used, to identify when work is going out of scope, or when efficiencies are being lost.
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
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 | Computer Desktop Encyclopedia. THIS COPYRIGHTED DEFINITION IS FOR PERSONAL USE ONLY. All other reproduction is strictly prohibited without permission from the publisher. © 1981-2008 Computer Language Company Inc. All rights reserved. Read more |
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| Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved. Read more |
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| Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Burn rate". Read more |
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