Camel

What is a camel?

Camel (German Kamel) refers to a growth company that is geared to capital efficiency and resilience. Capital-efficient means: every euro invested should bring as much additional revenue as possible. The company also holds a long runway, that is, a cash balance that lasts many months at current spending. It can thus survive phases in which new capital is hard to obtain or available only on unfavourable terms. The image alludes to the camel, which can go a long time without water; here the water stands for new capital from investors.

The term comes from the venture capital market, that is, equity capital for young, fast-growing companies. It arose as a counter-image to the unicorn, the unlisted company with a valuation of USD 1 billion or more, which usually bets on rapid growth with heavy capital deployment. The term camel has no legal meaning. It is used in investor communication, in the equity story (the presentation of the company to investors) and in assessing funding rounds. It becomes measurable through metrics that relate growth to capital consumption. A camel can take on venture capital but deploys it more sparingly than a company that pursues growth at any price.

Characteristics of a camel company

• Pricing from the first customer: The service is sold from the start at prices that reflect its value. Free offerings serve at most as an entry point, not as a permanent state.
• Prepayments: Annual contracts with payment at the start of the term improve liquidity without costing equity.
• Costs that follow demand: Hiring and marketing budgets grow with evidenced revenue, not with the capital from the last round.
• Broad customer base: No single customer carries a share of revenue whose loss would endanger the plan.
• Reserves and ability to switch: The runway makes it possible to postpone a round in a weak market. The company can steer between growth and profitability without changing its business model.

Capital efficiency metrics

Burn multiple

The most important metric for a camel is the burn multiple. It relates the net cash outflow of a period (net burn), that is, spending less income, to the increase in annual recurring revenue in the same period (net new ARR). The increase comprises new customers and expansions with existing customers, less the revenue lost through cancellations. A burn multiple of 1.5 means that the company consumes EUR 1.50 for every euro of additional ARR.

Formula: Burn multiple = net burn of the period / net new ARR of the same period

As a common rule of thumb, values below 1 are considered very efficient, and values above 2 are often viewed critically. The classification depends, however, on the growth stage, industry and market conditions. The metric is meaningful only with a consistent definition: if one-off project revenue is counted in ARR or financing inflows are mixed with income, the company appears more efficient than it is.

Supplementary metrics

The runway results from liquid funds divided by monthly net burn. The payback period of customer acquisition costs (CAC payback period) shows after how many months the costs of a new customer flow back through its contribution margin. The Rule of 40 adds growth rate and earnings margin and is met if the sum reaches at least 40%, for example with 30% growth and a 10% margin. Together, these metrics show whether growth arises from the quality of the business or from capital deployed.

Financing and assessment by investors

A camel takes on equity in smaller steps, preferably when growth opportunities are evidenced. Alongside this, instruments are suitable for which no shares are given up but which presuppose predictable income. These include venture debt (loans from specialised lenders to venture-backed companies), revenue-based financing with repayment through a share of revenue and the sale of open customer receivables (factoring). These instruments are serviced from the ongoing business. Loan agreements often contain financial ratios whose breach triggers termination rights of the lender (covenants). Debt capital therefore extends the runway only if repayment is also covered in the cautious case of the liquidity planning.

In phases of scarce capital, investors weight efficient growth higher than pure revenue growth. A company with a low burn multiple needs less capital for the same revenue increase, gives up fewer shares in each round and can postpone a round if conditions are unfavourable. This strengthens its negotiating position, because there is no time pressure on the round.

Capital efficiency is not an end in itself, however. Investors examine whether frugality slows the growth that a market demands and whether the company could grow faster with additional capital. In markets in which the market leader attracts the largest part of the value, growth that is too cautious can cost market share. In capital-intensive industries, heavy capital deployment before the first revenue is unavoidable anyway.

Worked example: burn multiple and runway of a camel

Two software companies each start a financial year with EUR 3.0 million ARR and EUR 6 million in liquid funds.

• Company A: ARR rises to EUR 4.6 million, net new ARR EUR 1.6 million; net burn in the year EUR 2.4 million; burn multiple 2.4 / 1.6 = 1.5
• Company B: ARR rises to EUR 5.0 million, net new ARR EUR 2.0 million; net burn EUR 4.8 million; burn multiple 4.8 / 2.0 = 2.4
• Growth: A 1.6 / 3.0 ≈ 53%, B 2.0 / 3.0 ≈ 67%
• Runway at the start of the year with unchanged net burn: A EUR 6 million / EUR 200,000 per month = 30 months, B EUR 6 million / EUR 400,000 per month = 15 months
• Capital requirement for EUR 1 million of additional ARR: A EUR 1.5 million, B EUR 2.4 million
• Liquid funds at year-end: A 6 minus 2.4 = EUR 3.6 million, a further 18 months at the same net burn; B 6 minus 4.8 = EUR 1.2 million, only three months left

B grows faster but must close a new round within three months after the financial year and negotiates under time pressure. A can place the round at a favourable moment. With a burn multiple of 1.5, A is in the solid range, B at 2.4 in a range that investors often view critically. Which profile is valued higher depends on the market: when capital is plentiful, B's faster growth may prevail, when capital is scarce, A's efficiency.

Distinction: camel, bootstrapping, cockroach and decacorn

• Bootstrapping: building without external equity investors. A camel can take on venture capital but deploys it sparingly.
• Cockroach: stands for a company geared above all to surviving at minimal cost. The camel combines resilience with the ambition to grow faster again when conditions are favourable.
• Default alive: describes the state in which a company reaches break-even with the funds it has. A camel aims for this state without giving up growth.
• Decacorn: denotes a valuation threshold that is usually reached with heavy capital deployment. The camel, by contrast, describes financing behaviour.

Common mistakes

• Efficiency confused with standstill. Low capital consumption with low growth yields a long runway but not a fundable growth company.
• Metrics without a fixed definition. If net burn or ARR are delineated differently from period to period, the development cannot be compared. This is noticed in due diligence.
• Reserves set too tight. A runway that lasts only until the planned close of the next round leaves no room if the process is delayed.
• Debt capital without a repayment plan. Venture debt extends the runway only if interest, repayment and covenants are bearable in the cautious case too.
• Savings in the wrong place. Cuts in sales or product development improve the burn multiple in the short term and weaken the growth of the following years.

Frequently asked questions

Is a camel the same as a self-financed company?

No. A self-financed company forgoes external equity investors. A camel can take on venture capital but consumes it more slowly and remains able to act even without a new round.

How is the burn multiple calculated?

As net burn of a period divided by the net new ARR of the same period. Both values are usually determined for a quarter or a year, because longer periods smooth out fluctuations of individual months.

What burn multiple is considered good?

By a common rule of thumb, a value below 1 is considered very good, between 1 and 2 solid and above 2 critical. In early growth phases, values are often higher because sales and product are only being built.

What is the difference between a camel and a unicorn?

The unicorn is defined by its valuation, the camel by its financing behaviour. A unicorn is unlisted and valued at USD 1 billion or more, often after heavy capital deployment. A camel consumes little capital per euro of revenue increase and holds a long runway. If a capital-efficient company reaches such a valuation, it is both at once.

Are capital-efficient companies valued lower?

Not necessarily. When capital is scarce, investors often reward efficiency with better terms. When capital is plentiful, faster growth can be valued higher even if it consumes more capital.

Does the camel model suit every industry?

No. Software and services with recurring revenue suit it well. In biotechnology, hardware or infrastructure, a lot must be invested before the first revenue, so the burn multiple says little there.

The Roemer Capital view

Before we calculate for a Series A to C round, we fix the definitions of net burn and ARR. We apply them uniformly to the past and to the plan. In the financial model, we show burn multiple and runway in the base, cautious and optimistic cases. At the start of the process, we aim for a runway of 12 to 18 months so that the company can postpone a round if conditions are unfavourable.

With investors, evidence of frugality alone is not enough. We show how additional capital translates into revenue growth, evidenced by unit economics such as an LTV/CAC of at least 3 to 1 and a CAC payback under twelve months. That way capital efficiency becomes an argument for the valuation and not only for resilience.