Burn Rate Misconceptions

News, insights and updates from the team at Bloom Equity Partners

Happy Friday Founders & Friends!

We are back with another week of The Weekly Bloom newsletter! We hope that you enjoyed last week’s newsletter on subjectivity in valuations. Continuing on the theme of valuations, we wanted to share our insights on a metric metric that plays a big role in valuations……. burn rate 💰

We have spoken about this topic previously, so make sure to give it a read…

Metrics That Matter: Cash Burn 💸🔥

In regards to burn rate there are often misconceptions from business owners on how it is calculated. What is burn rate? How is it calculated? Is it a net or gross term? Below is a simple framework for understanding burn rate in regards to SaaS companies:

• Burn is the gap between recurring expenses and recurring revenue

• Burn is a net term. Your monthly expense total is not your burn rate. Your burn rate is your MRR minus expenses. Example: If your monthly payroll and expenses are $150k total and your MMR is $100k, your monthly burn is $50k.

• Burn is a measure of the present gap between revenue and expenses. Not prior months.

• Do not include one time expenses in burn. These should be deducted from your businesses’ cash on hand.

• Runway = (cash + receivables) / (monthly burn)

• Burn is based off revenue not cashflows.

Interested in learning more about burn rate for SaaS co’s?? Make sure to check out the following below 👇

📚 Burn Rate: Calibrating SaaS Cash Burn

📚Understanding What Your Startup’s Burn Rate Really Means

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What We’re Reading and Listening To…

📚 Bottoms-Up SaaS & The Weather

📚 Why I’d Rather Be Acquired by Vista Than a Big Tech Company

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News from the Industry: deals, deals, and more deals 💰

KKR to buy cybersecurity firm Barracuda from Thoma Bravo in deal worth about $4 bln

Thoma Bravo to buy SailPoint for $6.1 billion

Critical Start Secures Over $215 Million Strategic Growth Investment from Vista Equity Partners

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Favorites from the Ecosystem

Investors👇…..

saar gur @saarsaar

VC First Principle: The deals you do are a function of the deals you see.

Jay Vasantharajah @jayvasdigital

Great story telling reduces cost of capital. A lower cost of capital can improve business operations. Even though you won’t find it anywhere on a financial statement, the perception of a company matters because it ends up moulding reality.

Founders👇…..

Shuooo @copernicussw

🦄 @deel went from $1 to $100M+ ARR real quick. Like, 20 months quick 🤯. Revenue grew from $4-54M in 2021, following 20x growth in 2020. While exciting, this growth brought hard-learned scaling lessons. Sharing the biggies below as @Bouazizalex and I reflect today 🧵

Nathan Barry 🇺🇦 @nathanbarry

My SaaS business hit $1,500 MRR and then got stuck. Until I learned an important trick… Here’s the exact method I used to scale to $100k MRR in the next 12 months:

Operators👇….

Sieva Kozinsky @SievaKozinsky

Too many people want to be a founder. My friend was the first employee at a company worth $20Bn today. He created generational wealth. He didn’t start the company. He found a great leader and worked with that person for 10 years. Here’s how you can do the same 👇

Jason ✨BeKind✨ Lemkin #ДобісаПутіна @jasonlk

SMB SaaS companies have to be at least twice as efficient in almost every sales & marketing motion as Enterprise ones Why? Enterprise ones can sort of coast on weak sales and marketing efficiency with their 120%-140% NRR

End Note 🔚

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About Bloom Equity Partners

Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.