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In the book "Antifragility of Islamic Finance: The Risk-Sharing Alternative" by Umar Rafi and Abbas Mirakhor, on page 101 I read the following line:

Pets.com, the poster-child company of the dot com bubble, was founded in 1998. It burned through $300 million in two years, folded in 2000; going from IPO to liquidation in 268 days.

What does "burned through $300 million" mean? Is there any more scientific expression for it? Was it angel investors' money, and they spent it without any profit? Or was it the value of the company at the time of the dot com bubble, and its market value lost so much in value after the bursting of the bubble?

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  • burned through = Spending up all the liquidity, including both cash and loan. The metaphor is more attractive than saying "spending other people's money lavishly and unwisely".
    – mootmoot
    Jul 4, 2019 at 16:46
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    This belongs on ell, not money
    – stannius
    Jul 7, 2019 at 19:43

3 Answers 3

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Burn rate describes the rate at which a new company spends its capital to finance overhead before generating positive cash flow (negative cash flow). So burned through means they accomplished it and ran out of money.

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    Is burn used consistently in corporate finance this way, beyond just "burn rate"? Burned through is also a colloquial expression meaning "spent all or most of the money quickly", with an implication that it was spent unwisely.
    – Upper_Case
    Jul 2, 2019 at 17:40
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    Burning money can be used colloquially as well. The money burned a hole in her pocket. My brother burned through his inheritance. He burning cash like crazy. My grandparents burned through their retirement savings. In all instances, burn refers to spending and yes, it implies unwise spending. Jul 2, 2019 at 17:58
  • I'm sorry, my question was unclear (but thank you for addressing it anyways). What I meant to ask is: are burn or burn rate still used this way with reference to corporate spending beyond spending capital financing overhead before achieving a positive cash flow, or is that a special case which adheres only to the phrase burn rate in that specific situation?
    – Upper_Case
    Jul 2, 2019 at 19:21
  • "Burn rate" and "burn" are common vernacular. "Burn rate" refers to how quickly a person or company is using up cash and cash equivalent resources, and to say "burning through money" is simply saying they're using up cash faster than they take in revenues.
    – RiverNet
    Apr 17, 2021 at 16:14
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As noted in my comments elsewhere, Pets.com is a symbol of 1990s hubris in the dotcom era, when everyone assumed they could build a model that started with heavily discounted merchandise to lure in new customers and then get them to spend more on profitable items.

The fundamental problem with this model was the inability of the companies to understand that cheaper prices were always just a quick search and mouse click away, so there was no longer the same kind of brand loyalty that had been counted on for years in the brick-and-mortar retail trade. There, people weren't going to get in their car and drive across town to save a few dollars on an item - the extra effort didn't justify it. But with the explosion of online shopping, better prices could be hand with a few simple keystrokes.

Amazon.com almost fell victim to this, when it started out selling books at near-wholesale price assuming people would return to buy other items at higher markups. Fortunately, Jeff Bezos had both the foresight (and investor capital) to pivot his business model into other areas where he could get improved margins and survive until he could become profitable.

Companies like Pets.com, on the other hand, stupidly spent money on things such as ridiculously-overpriced Super Bowl ads which may have been cute, funny, and discussions around the water cooler at work for a few days but did nothing to generate revenues anything close to what was spent.

Since nobody had a real understanding what the internet shopping world would look like in its early days, investors were willing to fund virtually anything with ".com" at the end of it, assuming there was no real cost in setting up an online presence. Once it became clear what the real model was actually turning out to be, the cash spigots suddenly turned off, and companies like Pets.com, which assumed an endless supply of investor capital, quickly ran out of money and died.

So, in the end, Pets.com raised money from a combination of angel investors, bankers, and its IPO, and then burned through it in less than a year, never achieving anything other than becoming a footnote in the history of the internet.

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This answer is in response to OP's comment (now edited into the post):

Was it angel investors' money, and they spent it without any profit? Or was it the value of the company at the time of the dot com bubble, and its market value lost so much in value after the bursting of the bubble?

You can't (directly) spend the "value of your company" (the amount people are willing to pay for a share of stock times the number of outstanding shares).

You can only spend cash.

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  • It could've meant the value of the company plummetted $300 million.
    – user253751
    Nov 26, 2020 at 17:10
  • @user253751 that's not what "burn through" means.
    – RonJohn
    Nov 26, 2020 at 21:44
  • It could've meant that. The question is asking what it means.
    – user253751
    Nov 26, 2020 at 22:50
  • @user253751 the value of the company could plummetted $300 million as a result of the company burning through $300M cash. IOW the plummet is the consequence of burning through all that cash.
    – RonJohn
    Nov 26, 2020 at 23:44
  • Yes, the question is asking what it meant, so you can't assume the asker is stupid for not knowing that it didn't mean a certain thing.
    – user253751
    Nov 27, 2020 at 13:01

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