What is the Optimal Burn Rate?

Entrepreneur and physicist Max Skibinsky used the Kelly criterion (a formula used to determine the optimal size of a series of bets) to calculate the optimal burn of a startup. Mike Speiser, Managing Director at Sutter Hill Ventures, played with the numbers at his Laserlike blog and came to the conclusion the optimal monthly burn is $32K, which would cover 4 heads. This would give you capital for 7 experiments. All ventures are different, so your mileage will vary. He does provide solid advice:

  1. Keep burn very low until you have proof of traction.
  2. Raise more money than you need.
  3. Increase the probability of success on each experiment.

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