Startup and Innovation Management

Principles
Crag

BURN RATE

BURSTING
BLUES

BURN RATE BABA GNANAKUMAR













CHALLENGES







FLIPKART

Burn Rate measures how quickly your BURN RATE
cash holdings are decreasing.
Gross Burn Rate is the total amount of
cash you’ve spent each month.
Net Burn Rate is the difference
between cash out and cash in.
Profitable companies have a negative
net burn rate because they are
bringing in more than they are
spending.



GROSS
BURN RATE

• Your gross burn runway shows
you how long you’d actually last
if sales dried up for a while or
you had a temporary cash-flow
issue such as late-paying clients.

NET BURN
RATE

• Net burn rate gives you a clear
sense of how well you’re actually
doing. You might think sales are
strong and your business is
thriving when in reality you need
to pick up the pace or cut your
costs or you’ll run out of money
in 6 months’ time.

COSTS INCLUDED
IN BURN RATE

• Set-up costs. This includes special equipment,
materials, supplies, and certain technology
expenditures

COSTS
INCLUDED IN

BURN RATE

• Costs relating to outside talent. This means anyone
brought in to help the project team who is not on
your company’s payroll: Consultants, attorneys,
contractors, IT specialists and similar personnel

• Salaried employees. This
is tricky. It’s tempting to
artificially hold down

anticipated project costs
by minimizing or even
ignoring the input of
current employees.

COSTS INCLUDED IN BURN RATE

COSTS INCLUDED
IN BURN RATE

• Slush fund.
• unanticipated minor expenses that will accrue until the

project is completed.





RUNWAY
CONCEPT

• Startup businesses usually refer
to their timeline for profitability
as a "runway." The runway tells
businesses how long they have
before they have to "take off" and
survive on profits, rather than
savings.



CALCULATION

CALCULATION • if your business spent only Rs. 50,000 in the first month
and Rs125,000 in each of the following two months,
calculate burn rate

• Burn Rate after two months
• (50,000- 125000) /2 = - 37.5

CALCULATION

• The formula for cash runway is simply:

• Cash Runway = Current Cash Balance / Burn Rate

• if our startup has Rs 900,000 in cash remaining and has
a burn rate of Rs100,000/month, we’ve got 9 months of
runway—or nine months until we run out of cash.

• Rs 900,000 / Rs 100,000 = 9

CALCULATION • Startup, Inc. has just raised $10 million, bringing their cash balance to
$11.5 million overall. Over the next three months, they go on to lose
$250,000, $300,000, and $275,000, respectively.

• In order to calculate Startup, Inc’s burn rate, we would first need to
calculate their total losses ($250,000 + $300,000 + $275,000), which
gives us $825,000. This means that, after three months, they have
$10,675,000 left in the bank.

• Next, we’ll insert the relevant numbers into our burn rate formula.

• (Beginning Balance – Ending Balance) / # of Months

• ($11,500,000 – $10,675,000) / 3 = $275,000

• Knowing that Startup, Inc. is spending $275,000 per month, we can
now calculate their cash runway.

• Current Cash Balance / Burn Rate

• $10,675,000 / $275,000 = 38.81 months

WHAT CREATES • By selling equity (or debt that converts to equity)
A RUNWAY
FOR MOST • Through sweat equity (working for free gives you an
PRIVATE almost infinite runway!)

COMPANIES • By using “free” money–grants, etc.
THAT ARE
BURNING • By selling debt
MONEY?

CAN BURN • Most entrepreneurs can’t create
RATE BE an immediately profitable
GOOD? startup.

• There is often a relationship
between the type of startup you
start and time-to-profitability.
Services companies often get to
profitability quickly. Product
companies often take longer.

• Biotech companies, for
example, often have years of
R&D before they have a
commercial product. It just isn’t
possible for companies like this
generate profits early on.

NOT ALL • A high burn rate is not always a
HIGH BURN red flag. For fast-growing
startups, a strategic burn rate
IS BAD. that aims at gaining market
share, winning customers and
generating higher profits is
essential for growth and
attracting investors than a lower
burn rate.

HOW • In general I recommend that in
MUCH early-stage startups you try to
CAPITAL raise at least 15-18 months of
YOU HAVE runway.
RAISED /
YOUR
RUNWAY











CASE • Serving home-cooked food is
becoming a trend among
today’s startups. An example is
of ‘N’ number of initiatives
jumping onto serving kitchen
meals in trains. Yumist was one
of them and it was launched in
2014 to cover the daily-meals
segment in India, a largely
untapped market. The
founders were Alok Jain and
Abhimanyu Maheshwari who
managed to raise nearly $3
million in funding.

ABOUT • Launched in 2014, Yumist was founded by former CMO of
YUMIST Zomato Alok Jain and Abhimanyu Maheshwari, a
seasoned restaurateur. The company had raised $2
million in December 2015 in a funding round led by
Ronnie Screwvala's fund Unilazer Ventures and investor
Orios Venture Partners.

• India's online food delivery market saw a growth of 150%
in 2016 in comparison with 2015, according to a report by
research agency RedSeer. Yumist's closure comes at a
time when the food ordering market in India is seeing
new entrants such as UberEats and Google Areo. Yumist's
closest competitor Swiggy recently raised $80 million









BURN RATE • As per the founders, by March
OF YUMIST 2017, Yumist had hit the sweet
spot. They were making INR 65
in margins per order at an
average order serving two
people value of INR 190, the
delivery outlets were breaking
even at just 70 orders a day, and
they were acquiring new
customers at INR 180 and
recovering back this money
within 45 days.



FINOMENA

• Launched in: 2015
• Founder(s): Riddhi Mittal, Abhishek Garg
• Category: Fintech
• Headquarters: Bengaluru
• Funding: In March 2016, Finomena raised an

undisclosed amount of funding from Matrix
Partners India, Kaushal Aggarwal, Harshvardhan
Chamria and others.

BRIEF
OVERVIEW:

• Finomena uses to apply alternate data sources
and proprietary algorithms to evaluate credit-
worthiness of borrowers. It used to facilitate small-
ticket loans to students and young professionals
for buying electronic devices and appliances.
Besides, it also enabled borrowers to purchase
high-value phones, laptops, and other consumer
electronics online by opting for easy installments
or financing options.

SHUTDOWN • Finomena shut down its
REASON: operations in August 2017 due
to lack of funding, high cash
burn rate, and the inability to
raise the follow-on funding
round. As per reports, there
were two buyout offers too
which did not materialised. The
startup is no longer accepting
new users on its platform.

• What Are Founders Upto:The
founders’ LinkedIn profile still
showcase the same
designations. There is no further
information on their current
whereabouts. An email sent to
Riddhi did not elicit any
response till the time of
publication.