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  1. 002A company burned Rs 40 crore last year and added Rs 25 crore of net new ARR, a burn multiple of 1.6. But Rs 8 crore of that ARR is a three-year prepaid contract counted at its full value. What is the true burn multiple?SaaS and unit economics riddlesHardSaaS-focused VCSeries A to C VC

    Try it first

    Which number has to change before you can recompute the multiple?

    Show the worked solution

    About 2.03, not 1.6. ARR is one year of recurring revenue, so a Rs 8 crore contract spanning three years adds Rs 2.67 crore of ARR. Net new ARR falls from Rs 25 crore to Rs 19.67 crore, and Rs 40 crore of burn divided by that is 2.03. The company spends about Rs 2 of cash for every rupee of new annual revenue, not Rs 1.60.

    What is the burn multiple actually measuring?

    The burn multipleNet cash burned in a period divided by the net new annual recurring revenue added in that period. Lower is more efficient. asks how many rupees of cash a company spends to add one rupee of annual recurring revenue. Both halves have to be measured over the same year, so a contract that covers three years can only put one year's revenue in the denominator. A gym that sells a three-year membership for Rs 36,000 has not added Rs 36,000 of yearly revenue; it has added Rs 12,000 a year for three years.

    Count one year of the contract, not three, and the burn multiple jumpsNet burn40.0cash spent in the yearNet new ARR, as reported17.08.025.0Net new ARR, restated17.019.67three-year deal, in full2.67: one year of the Rs 8 crore contractBurn multiple40 / 25 = 1.60Burn multiple40 / 19.67 = 2.03Rs crore. Bars drawn to scale.
    Reported net new ARR of Rs 25 crore includes the full Rs 8 crore of a three-year contract; counting one year of it, Rs 2.67 crore, restates net new ARR to Rs 19.67 crore and lifts the burn multiple from 1.60 to 2.03.

    How do you restate it in your head?

    Split the Rs 25 crore into the part that was fine and the part that was not. Rs 17 crore came from ordinary annual contracts. The prepaid contract is Rs 8 crore over three years, which is Rs 2.67 crore a year. Restated net new ARR is 17 plus 2.67, or Rs 19.67 crore, and 40 divided by 19.67 is 2.03. A quick check: 40 over 20 would be exactly 2, and the denominator is a little under 20, so the answer sits a little above 2.

    The relationship
    BM=4017+8/3=4019.67≈2.03\text{BM} = \frac{40}{17 + 8/3} = \frac{40}{19.67} \approx 2.03
    40net burn in the year, Rs crore
    17net new ARR from ordinary annual contracts
    8/3one year of the three-year Rs 8 crore contract
    What it says in wordsDivide the year's burn by the recurring revenue the year actually added, counting the long contract one year at a time.

    Why does the gap between 1.6 and 2.03 matter?

    Many investors read a multiple under about 1.5 to 2 as efficient growth and anything much above 2 as expensive, though the cut-offs vary with stage and market. The restatement moves this company across that line, from efficient-looking to expensive. It also tells you what to ask next: how many other contracts are multi-year, and whether the sales team is paid on total contract value, which would explain why the number was booked this way.

    Where candidates lose it

    Candidates accept the reported ARR because the contract is real and signed. The interviewer wants to see you test whether the number matches its own definition: annual means one year, whatever the customer committed to.

    The other miss is subtracting the whole Rs 8 crore and forgetting that one year of it is genuine ARR. That gives 40 over 17, about 2.35, and overcorrects.

    What the interviewer asks next

    • The customer paid all Rs 8 crore upfront in cash. How does that also flatter the Rs 40 crore burn figure?
    • What burn multiple would the company need next year to look efficient again, if burn stays at Rs 40 crore?
    • Why might a board let sales teams book total contract value as ARR?
  2. 034Customer acquisition cost rises as a channel saturates. The first 1,000 customers cost Rs 5,000 each, the next 1,000 Rs 8,000 and the next 1,000 Rs 14,000. Each customer brings Rs 12,000 of lifetime contribution. What are the blended and the marginal LTV to CAC across the 3,000 customers?SaaS and unit economics riddlesHardConsumer internet VCSaaS-focused VC

    Try it first

    What is the LTV to CAC of the last 1,000 customers?

    Show the worked solution

    Blended LTV to CAC is 1.33x; the marginal ratio on the last 1,000 customers is 0.86x. Total spend is Rs 50 lakh plus Rs 80 lakh plus Rs 1.4 crore, Rs 2.7 crore for 3,000 customers, an average of Rs 9,000, and Rs 12,000 over Rs 9,000 is 1.33. The last cohort costs Rs 14,000 for Rs 12,000 of contribution, so it destroys Rs 20 lakh.

    Why can a healthy average hide a losing cohort?

    Think of picking mangoes from a tree. The low branches take seconds, the middle ones need a ladder, and the top ones need a long pole and ten minutes each. The average minutes per mango still looks fine long after the top branches stopped being worth the effort. Customer acquisition works the same way: each extra customer from a saturating channel costs more than the last, so the average lags behind the cost of the customer you are adding now. The blended 1.33x looks acceptable. The marginal LTV to CACThe lifetime contribution of the next customer divided by the cost of acquiring that customer, as opposed to the average across all customers acquired so far. on the third cohort is 0.86x.

    Cost to win each customer, by cohort of 1,000, against what each brings inRs 0Rs 4,000Rs 8,000Rs 12,000Rs 16,000Rs 5,000customers 1 to 1,0002.4xRs 8,000customers 1,001 to 2,0001.5xRs 14,000customers 2,001 to 3,0000.86xlifetime contributionRs 12,000blended Rs 9,000Blended LTV/CAC1.33xlast cohort 0.86x
    The first two cohorts cost less than the Rs 12,000 each customer brings in, but the third costs Rs 14,000, so a blended LTV to CAC of 1.33x hides a last cohort at 0.86x that loses money on every customer.
    The relationship
    blended=12,000(5,000+8,000+14,000)/3=12,0009,000=1.33marginal3=12,00014,000=0.86\text{blended} = \frac{12{,}000}{(5{,}000 + 8{,}000 + 14{,}000)/3} = \frac{12{,}000}{9{,}000} = 1.33 \qquad \text{marginal}_3 = \frac{12{,}000}{14{,}000} = 0.86
    12,000the lifetime contribution of one customer, in rupees
    9,000the average acquisition cost across all 3,000 customers
    14,000the cost of each customer in the third cohort
    What it says in wordsThe blend divides by the average cost; the marginal ratio divides by the cost of the customers you are adding now.

    How much value does each cohort create or destroy?

    Turn the ratios into rupees, because a ratio cannot be added up. The first cohort creates Rs 7,000 a customer, Rs 70 lakh. The second creates Rs 4,000 a customer, Rs 40 lakh. The third loses Rs 2,000 a customer, Rs 20 lakh. Stopping at 2,000 customers leaves Rs 110 lakh of value against Rs 90 lakh for all 3,000, so the third cohort makes the company smaller. At 2,000 customers the blend would also read better, 1.85x.

    Why does a venture investor care about the difference?

    A growth plan funded by a new round usually means spending more in the same channels. The return on that new money is set by the marginal ratio, not the blended one, so a company quoting 1.33x may be raising money to buy customers at 0.86x. Ask for acquisition cost by month or by spend band, not the lifetime average. Say the limitation as well: here every customer brings the same Rs 12,000, but a saturated channel often brings weaker customers too, so the real marginal ratio is likely worse than 0.86x.

    Where candidates lose it

    The common loss is answering 1.33x for both questions, or averaging the three cohort ratios, 2.4, 1.5 and 0.86, to get about 1.59. The blend must divide total contribution by total spend, and the marginal figure is the last cohort on its own.

    The second loss is reporting 0.86x without saying what it means. Below 1 the cohort destroys value, Rs 20 lakh here, and the right answer says spending should stop at about 2,000 customers in this channel.

    What the interviewer asks next

    • At what acquisition cost does a cohort exactly break even, and what payback period would you want on top?
    • If the third cohort's customers bring only Rs 9,000 each, what is the blended ratio now?
    • Which data would you ask the founder for to see marginal rather than blended acquisition cost?
  3. 069Company A has 130% net revenue retention and each year adds new-customer ARR equal to 20% of its opening ARR. Company B has 90% net revenue retention and adds new-customer ARR equal to 60% of opening ARR. Both start at Rs 100 crore of ARR. What is each company's ARR after three years, and what happens if both stop winning new customers?SaaS and unit economics riddlesHardSaaS-focused VCSeries A to C VC

    Try it first

    After three years, which company has more ARR?

    Show the worked solution

    Both reach Rs 337.5 crore, but only A keeps growing when new sales stop. Each year A's ARR becomes 130% from existing customers plus 20% from new ones, and B's becomes 90% plus 60%: both 1.5x. Three years of 1.5x takes Rs 100 crore to Rs 337.5 crore. Stop new sales and A still grows 30% a year, to about Rs 741 crore in three more years, while B shrinks 10% a year, to about Rs 246 crore.

    How can a company losing revenue from its existing customers grow as fast as one expanding them?

    Two water tanks can both rise by 50 litres an hour: one has a strong tap and a small leak, the other a small tap and no leak at all, plus a booster on the old water. ARR growth is net retention plus new-customer ARR, so the same headline growth can come from customers who spend more each year or from a sales team refilling a leaking base. A gets 30 points from existing customers and 20 from new ones; B loses 10 points from existing customers and replaces them with 60 points of new sales. Both add 50%.

    Same ARR, opposite enginesA: NRR 130%, new logos 20%100Yr 0150Yr 1225Yr 2337.5Yr 3B: NRR 90%, new logos 60%100Yr 0150Yr 1225Yr 2337.5Yr 3existing customers after NRRnew logoslast year's ARRStop new sales for three years: A grows to Rs 741 crore, B shrinks to Rs 246 crore.
    Both companies grow from Rs 100 crore to Rs 337.5 crore, but A's bars rise above last year's level before any new logo is added while B's existing base falls below it every year, so if new sales stop A grows to Rs 741 crore and B shrinks to Rs 246 crore.
    The relationship
    ARRt+1=ARRt×(NRR+n):A:1.30+0.20=1.5,B:0.90+0.60=1.5\text{ARR}_{t+1} = \text{ARR}_t \times (\text{NRR} + n) : \quad A: 1.30 + 0.20 = 1.5, \quad B: 0.90 + 0.60 = 1.5
    NRRnet revenue retention: this year's ARR from last year's customers over last year's ARR
    nnew-customer ARR as a share of opening ARR
    What it says in wordsEach year's growth is what existing customers add or lose plus what new customers bring; the two companies reach the same total by opposite routes.

    Why would an investor pay more for A at the same ARR?

    Because A's growth does not depend on the sales team hitting target every quarter. High net retention is growth the company has already earned; new-logo growth must be bought again every year, usually at a high sales and marketing cost. B has to replace 10% of its base before it grows at all, and as B gets bigger that hole gets bigger in rupees: Rs 10 crore in year one, Rs 22.5 crore in year three. If its market saturates or a recession slows buying, B shrinks; A keeps compounding from the customers it already has.

    State the assumptions. The model applies the same retention to new customers from their first year, which flatters B if new customers churn faster than old ones, as they often do. It also treats retention as constant; very high NRR tends to fall as customers reach full deployment. A real diligence would read retention by customer cohort, not a single blended number.

    Where candidates lose it

    The common slip is to declare A larger after three years because 130% sounds better than 90%. The arithmetic says they are equal; the interviewer built the numbers to tie so you must explain why A is still the better business.

    The second loss is computing the tie and stopping. The point is the second half: name the 30% growth A keeps and the 10% shrinkage B suffers when new sales stop, with the rupee figures.

    What the interviewer asks next

    • What new-logo rate would B need to match A if its NRR fell to 85%?
    • Why might new customers churn faster than old ones, and what does that do to B?
    • How would you check whether A's 130% NRR is sustainable?