What Is Runway?
Runway is how many months a company can operate before running out of cash at its current burn rate. It's the most urgent financial metric for pre-profitability startups.
Definition
Runway is the number of months a company can continue operating before exhausting its cash reserves, assuming no new revenue or funding. Runway = Current Cash Balance / Monthly Net Burn. It's the startup version of 'how long until we run out of money?'
18-24 months of runway is the healthy target for VC-backed startups. This gives enough time to hit milestones, run a fundraising process (typically 6 months), and have a buffer for the deal to close. Below 9-12 months, a company is in crisis mode — forced to raise on bad terms or cut deep.
Runway can be extended by increasing revenue (reduces net burn), cutting expenses (reduces gross burn), or raising more capital (increases the denominator). The best runway extension is through revenue growth because it improves the underlying business, not just the bank balance.
Real-World Example
A startup has $2M cash with $200K monthly net burn. Runway = 10 months. They hire 3 sales reps who cost $30K/month each but generate $50K/month new MRR within 6 months. Net burn increases short-term to $260K (10 months runway → 7.7 months), but at month 6, MRR jump adds $50K/month in revenue, dropping net burn to $210K and extending runway.
Why It Matters
Runway is the existential clock for every startup. All strategic decisions — hiring, spending, fundraising timing — should be made with runway constantly in mind. Running out of runway with no backup plan is how startups die.
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Frequently Asked Questions
How many months of runway should a startup have before raising?
Start fundraising when you have 12-18 months of runway remaining — enough buffer to close a 6-month fundraising process while still showing momentum. Starting with under 9 months signals desperation and gives investors leverage to offer worse terms.
What is default alive vs default dead?
A startup is 'default alive' if it will reach profitability before running out of money at current growth and burn rates. It's 'default dead' if it will run out of cash before becoming profitable without new funding. Paul Graham popularized this test as a forcing function for founders to understand their financial position.
Should I cut burn to extend runway or keep spending to grow faster?
This is the core SaaS tradeoff. If your unit economics are strong (LTV:CAC > 3, good NRR), aggressive spending often makes sense — you're investing in a positive ROI machine. If unit economics are broken, cutting burn to buy time to fix the model is more important than growth.
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